The Nigerian National Petroleum Corporation’s refusal to make separate payments for royalty and petroleum profit tax (PPT) on joint venture assets held on behalf of the federal government violates several petroleum industry regulations and laws, the Department of Petroleum Resources (DPR) has said.
The petroleum industry regulator said opting to remit lump sums into the federation account and not separate royalty and PPT from other revenues makes it difficult for the government to determine whether it was making profit or not with its investments. It also makes it difficult to know if the NNPC is actually paying royalty and PPT.
Royalty is meant to be paid by licensees of Nigerian oil wells and blocks, including the NNPC, for the continuous use of the oil resources. It is determined as a percentage of the crude oil lifted.
Similarly, PPT is levied on the income of companies operating in the upstream sector of the petroleum industry.
The DPR expressed its views on the illegalities by the NNPC in documents circulated among Federation Account Allocation Committee (FAAC) members.
The FAAC consists of the finance commissioners of the 36 states and is headed by the Minister of Finance, Kemi Adeosun.
NNPC Joint Ventures
There are six oil and gas joint venture (JV) operations in the country, with NNPC as the principal partner, representing the federal government.
Each of the JVs has a multinational oil company in Nigeria as operator under a joint operating agreement (JOA) regulating their operations.
The JVs are those operated by Shell Petroleum Development Company, Mobil producing Nigeria Unlimited, Chevron Nigeria Limited, Total/Elf Petroleum Nigeria Limited, Nigerian Agip Oil Company and, and Pan Ocean Oil Corporation.
All the JVs operate under terms that stipulate a 60:40 equity holding in favour of the NNPC, except in the Shell JV, which has 55:45 structure. Issues of budget, profits and losses are shared in accordance with each party’s equity shareholding.
DPR Report Indicts NNPC
But, the DPR report seen by PREMIUM TIMES on Monday noted that while international oil companies (IOCs) have been paying their royalty and PPT as directed by the enabling law, the NNPC has refused to do the same on its assets. The report did not name the specific assets.
Rather than pay separately, the DPR said the NNPC has been remitting lump sums as revenue into the federation account without separating royalty and PPT.
A top DPR official well briefed on the matter said paying lump sums was a clever way the NNPC devised to make it difficult for government to determine whether it was making any profit from its investments.
The official said the law does not authorise the NNPC to directly remit royalty and PPT to the federation account, or defray any cost, namely technical cost, cash call, fuel price under-recovery from royalty and PPT.
“The current practice by NNPC of removing technical costs and remitting the balance amount to the federation account is contrary to the enabling laws,” the report declared.
The DPR said the practices by the NNPC were violation of several petroleum industry laws, including Section 20 of the NNPC Act as well as Sections 7 and 111 of the deep offshore and Inland Basins Production Sharing Contract (PSCs) decree of 1999.
Equally, they contravene NNPC’s JOA with the JV operators, apart from breaching Section 60 of the Petroleum Drilling & Exploration Act, 1969, which makes royalty payment a first line charge on all crude oil and gas lifted by JV operators.
The JOA demands each JV partner to lift and individually dispose its share of production subject to the payment of royalty and PPT in line with the Petroleum and PPT Acts.
The law also expects all oil producing companies to pay royalty based on crude oil production and gas sales at the rate of 5 and 7 per cent of offshore and onshore sales respectively.
NNPC is entitled to pay royalty and PPT on production sharing contracts (PSCs) and Service contracts; modified carry arrangements and repayment agreements.
NNPC Reacts
When contacted on telephone for comments on this report, NNPC spokesperson, Ndu Ughamadu, said he would not comment on the allegation, ”as he was not well informed about the matter”.
“I don’t want to comment on an issue I do not have sufficient details. If I see a copy of the document, I will look at it and revert later,” he said.