NNPC asks lawmakers to give Kachikwu powers to set royalties

The Nigerian National Petroleum Corporation (NNPC) on Thursday requested that the minister of petroleum resources be empowered to set royalties for oil companies.

This was disclosed alongside some key amendments to the Deep Offshore and Inland Basin Production Sharing Contract (PSC) Act aimed at to enabling  the federal government in optimising the collection of royalties and other revenue in deep water oil production activities.

Bello Rabiu, NNPC chief operating officer, Upstream, told the joint house of representatives committees on the amendment of the PSC Act and an Act to establish the National Oil and Gas Museum and Research Centre in Oloibiri, that the move was imperative to effect increment in royalties and increase government revenue.

“It is our opinion that the proposal to increase the royalty rate for terrains beyond 1000 metres, from zero per cent to three per cent, is commendable but it is necessary to also make corresponding adjustments in other categories,’’ Rabiu said.

According to a statement by Ndu Ughamadu, the NNPC spokesperson, the proposed PSC royalty regime would ensure the government revenue will be based on production and price to guarantee fairness and balance between PSC contractors and government.

For royalty based on production within a tranche of 50,000 barrels of crude per day (bpd), the NNPC is proposing a royalty tranche rate of eight percent.

Under a production tranche of 50,000 to 100,000bpd, the royalty tranche rate would increase to 15.5 percent and would escalate to 28 percent once the production surpasses the 100,000 bpd mark.

To calculate royalty based on price, NNPC proposed that under a $50 per barrel price regime, the tranche incremental royalty rate shall be zero per cent but the rate would increase to 0.30 per cent if the price hovers between the $50 to $100 mark.

In the same vain, a price regime of $100-$130 would attract royalty of 0.20 per cent while an increase of price between $130 -$170 translate to royalty rate of 0.10 per cent.

A price regime of $170 and above would attract zero percent royalty payment.

The NNPC argued that in the alternative, the graduated royalty scale as provided in the Act should be removed, while the minister of petroleum resources should be empowered to intermittently set royalties payable for acreages located in deep offshore and inland basin PSC through regulations based on established economic parameters.

On the provision of investment tax credit, investment tax allowance and associated cost uplift and capital allowances to PSC contractors, the NNPC proposed an outright scrapping of the incentives.

“It is our opinion that these incentives have outlived their usefulness and are now impediments to the Federal Government’s revenue collection efforts. The use of such incentives can be terminated by an amendment of section 4 of the Act,” the corporation said.