The Federal Government will cease to fund the Joint Venture Cash Calls estimated at $9 billion yearly with effect from January 1, 2017.
The Group Managing Director, Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, made this known Tuesday in Lagos at the yearly conference of the Nigerian Association of Petroleum Explorationists (NAPE) .
According to Baru, aside from the inherited arrears estimated at over $6 billion, the underfunding of NNPC Cash Calls is estimated to be about $2.5 billion in 2016 alone.
The corporation had adopted the same alternative funding of $1.2 billion multi-year drilling financing package for 36 oil wells under the NNPC and Chevron Nigeria Limited Joint Venture. The success of the NNPC/Chevron JV alternative funding may have compelled the corporation to adopt the same process for other International Oil Companies (IOCs) Cash Calls obligations.
Baru explained that the NNPC was exploring alternative funding mechanism that allows the joint venture business finance itself by retaining its operating costs and capital allowances in order to sustain and grow the business. “The import of the above is that the joint ventures will relieve government of the cash call burden by sourcing its funds for its operations estimated at $7 to $9billion yearly,” he added.
According to the GMD, where the fiscal costs for any year are not sufficient to fund the budgetary requirements of the joint venture, part of the profit margin could be retained to fund the budget and where necessary, external financing could also be sought to finance commercially viable and bankable capital projects without recourse to the government treasury.
He stated that “The JV cash call exit model we are pursuing guarantees government most of the revenue that normally accrues to it from the JV operations by lifting the Royalty and Tax Oil upfront. This contributes 75 per cent to 85 per cent of the accruable revenues to government. Consequently, the effect on government take would be minimised. We are working assiduously to kick-start this from 1st January, 2017.
“The truth is that, it is difficult to deliver the volumes without adequate funding. With an average JV cash call requirement of about $600 million a month, coupled with flat low budget levels over the past years, this had led to underfunding of the industry by government, which has stymied production growth.
“Consequently, managing these funding issues is part of our most immediate challenge. In contrast, production from the Production Sharing Contracts (PSCs) arrangements where NNPC does not provide the funding for the production has increased almost proportionately to the JV production decline over the same period, thereby making the national oil production relatively flat.”
Baru noted that, unfortunately, unlike the PSC arrangements, the JV system provides more revenue to the government through equity lifting and higher royalties and taxes due to the higher fiscal take from onshore and shallow waters fiscal terms. The low crude oil price regime further amplifies this yearly.
On the security challenges in the Niger Delta, Baru appealed to those behind infrastructure vandalism to desist from the acts of sabotage.
He said that the destruction of critical energy infrastructure was a great threat to the environment and the economy.
He disclosed that “In 2016 alone, we have recorded over 1,500 cases of vandalism of our pipelines, the cost of repairs is quite mind-boggling.
“What are we doing? During my visit to the Chief of Defence Staff a few weeks ago, I informed him of my intention of setting up an all-inclusive advisory council on security mainly to address all security and host community agitations at the industry level.î
In his welcome address, NAPE President, Nosa Omorodion said weak oil prices had cut billons of dollars from revenue streams and continued to put pressures on corporate survival across companies.
“Indeed, only the fittest will survive. Global oil politics and negotiations have done very little to lift the industry out of its current predicament. A lot more trade-off is still required particularly from the big players in ensuring that our industry gets back on the path of growth, he said.
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