Lagos — Despite rising oil prices, Nigeria, a major oil producing country, is not reaping its due. But in addition to the often cited reasons is the issue of Production Sharing Contract (PSC) that has been fuelling controversy between the Federal Government and oil producing companies over the Petroleum Industry Bill.

Crude oil price, which was below the budgetary anchor of $45 per barrel early this year increased to over $70 per barrel, but government sources say the country's oil revenue is not increasing proportionately.

Nigeria's dwindling oil fortunes have been attributed to disruption in production and shut-in by the Niger Delta crisis, and quota limits of the Organisation of Petroleum Exporting Countries (OPEC). However, with the total oil production of some 1.3 million barrels per day (bpd) as against the budget projection of 2.292 million bpd, the issue of OPEC quota of 1.6 million bpd has been rendered redundant.

Government sources say that of major concern now is the PSCs under which much of the current oil output is produced. Under a PSC, the contractor, usually a foreign oil company, bears the entire cost and risk of exploration activities, and in the event of a commercial discovery recovers its costs fully from allocation of oil, referred to as 'cost oil'. Allowance is also made from production for royalties, after which the remainder of the production, called 'profit oil', is shared in agreed proportions between the company and the government.

With most of onshore oil production in the Niger Delta shut in, offshore production accounts for close to half of current national crude oil production. Deep offshore production has so far been insulated from militants attacks, although there have been threats to them. According to the Nigerian National Petroleum Corporation (NNPC) website, Statoil, Snepco, Esso, Elf (Total), Nigerian Agip Exploration Limited, Addax, Conoco and Petrobas, Star Deep Water,Oranto Phillips are all operating the PSC in the country.

For example, SNE-PCO's Bonga produces about 125,000 bpd; Esso's Erha, 180,000 bpd; Total's Akpo 77,000 bpd; and Star Deep's Agbami, some 100,000 bpd.

During the first quarter of 2009 alone, the Federal Government lost about N10 billion in crude oil sales against the budget projection of N461.6 billion due principally to low oil prices and declining production.

Also, it lost about N11 billion or 6.5 per cent in projected earnings from Petroleum Profit Tax (PPT) for the same period.

"Now, with rising oil prices and the fact that much more of the national total production is done offshore, the situation is much worse," said an NNPC source, who could not supply the exact figures by press time.

But in defence of the PSCs, the managing director of one of the oil majors said on Friday that the Federal Government decided to introduce the PSC because of the burden of funding joint venture operations (cash calls) by the NNPC and the need to increase Nigeria's oil reserves. The policy was also introduced to make more fund available for the purpose of developing other sectors of the economy competing for limited national resources.

Under the Obasanjo Admnistration, attempts were made to review the PSC law in 2005. But Finance Minister, Dr. Mansur Muhtar said at the public hearing on the Petroleum Industry Bill at the Senate last month that "Some of these provisions that needed adjustments when oil prices were high were not adhered to, and so the PSC has to be replaced with an arrangement that will automatically adjust as the prices of crude changes at the international market."

Explaining that the fiscal terms in Nigeria do not compare with what is obtained in other countries, particularly as contained in the PSCs for operating companies, he noted that "some of these provisions were initiated at a time when government wanted to encourage multinational companies to come into the industry to invest. But now that the companies have settled down, it is important to review these terms to reflect on the realities of national circumstance."

Speaking on behalf of oil producers at the hearing, Chairman of Shell Companies in Nigeria, Basil Omiyi said the aggregate impact of multiple taxes, higher royalties and loss of incentives under the PIB, as currently proposed, will have significantly negative impact on gas and deep water projects. He said the projects will not be viable.

Earlier, speaking on behalf of the oil companies at a stakeholders forum, Andrew Fawthrop, managing director of Chevron Nigeria, said the bill was a step in the right direction because it proposes regulation that will make NNPC a world-class oil company. But he noted that some of the provisions in the bill are still open to interpretations and there was needed to be clarified.

But much before then, he had told THISDAY that although the International Oil Companies are not opposed to the reform or forward-looking reviews, "for Nigeria to have more production, more investments in deepwater, the existing "production sharing contracts signed on old projects should remain as signed".

But speaking to reporters in Abuja last week, Minister of Petroleum Resources, Dr. Rilwanu Lukman said the Federal Government will proceed with the planned review of the Production Sharing Con-tracts (PSCs), notwithstanding the controversy trailing the exercise.

He explained that, "the current PSCs were negotiated 10 to 20 years ago. Things have changed since then and we have costs that are different and prices of oil went from less than $10 to $180 per barrel .. Naturally we have to review those provisions and put them in line with current situation, not only for our own interest but in the interest of our partners and those who want to come in."

In a similar vein, Dr. Muhtar said last Friday that in the review of the law to benefit all stakeholders, a balance has to be struck between government revenue and the need to promote foreign direct investment.