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Production sharing formula

Posted: Apr 3, 2015 at 1:10 am   /   by   /   comments (0)

According to Abiodun Ariyibi, FCA, Ariyibi and Co, Lagos, “The contentious issues in the bill include the production sharing contract (PSC), a private agreement between one or more international oil companies (IOCs) and our national oil company (NNPC), which vests a license or general exclusive authorization in the NNPC, to explore for, exploit and produce hydrocarbons.

PSC seeks to protect the national economic interests of host countries in the areas of technology transfer, training of local employees and preference for local suppliers. Host governments take such national obligations seriously.

But the IOCs are used to taking advantage of their scientific advancement to the detriment of their host countries and would want that to continue by claiming that the bill would stall investments.

Ariyibi noted that other contentious issues include the 10 per cent Petroleum Host Communities Fund. Speaking further, he said, “another is the alleged enormous power granted the petroleum minister under the bill. Another contentious issue is the opposition of IOCs to the proposed fiscal regime which they claim is unfavorable to them.”Lawmakers from the Northern states have consistently rejected the 10 per cent Petroleum Host Communities Fund. In his reaction , Nwabueze Emeka of Emeka and Solicitors, Lagos noted that the provision as contained in the PIB was meant to bring Nigeria’s host community relations in line with international best practice. He said, “for example, the Economic Commission for Africa (ECA) provides some guidance for improving community participation in the sustainable development of mineral resources in Africa. Examples include, Papua New Guinea Act of 1992, which stipulates that a minimum of 20 per cent of royalties received by the government, should be paid to land owning communities of the mining lease area (In this case royalties are paid directly by mining companies to the agreed beneficiaries and then reconciled to central government for audit).“Special Support Grants (also in Papua New Guinea) paid to a given provincial government, which represent about one per cent of the gross value of mineral sales of companies operating in the said province. Preferred Area Status (also in Papua New Guinea), which requires companies to provide preferential treatment in terms of employment, education and training and business development assistance to communities located in the area in which the company mines

He asked rhetorically, “have they forgotten about the holding of mineral rights to platinum and other resources in the Merensky Reef in Northwest South Africa by the Bafokeng tribe. The tribe is a shareholder in the Impala Platinum Holdings Ltd, which is the second largest producer of platinum in the Western world.

Nwabueze said, “from these international examples, it is obvious that promoting community participation in extractive industries is centered on six pillars: preferential employment of local labour; contracting of services and procurement of goods from indigenous local companies; infrastructure provision to local communities; allocation of benefits from mining to local communities; local community allocation of national revenue; and community equity participation.

Simply put, the PIB provides for compliance with sections of the NEITI Act 2007 which emphasizes management of the nation’s extractive industry wealth to the benefit of the people.