Lagos, Nigeria — Nigerian President Muhammadu Buhari said Tuesday his government is pushing for a quick amendment of fiscal terms in existing production sharing contracts between foreign oil producers and the Nigerian National Petroleum Corporation, which could see tax credit received by the foreign companies scrapped and royalty payments increased.
Buhari, while submitting a budget proposal of Naira 10.73 trillion ($33.8 billion) for 2020 to the parliament, said the review of the PSCs had become necessary to shore up government revenue that has been hit by the decline in oil output and the slump in global crude prices.
The 2020 budget which was based on oil production of 2.18 million b/d — compared with a target of 2.3 million b/d for this year, the president said — was adopted as a more realistic projection after Nigerian output has averaged only 1.86 million b/d so far this year.
The government’s bid to earn more revenue this year from proceeds from restructuring its equity interest in joint ventures with foreign partners also failed to materialize, Buhari added.
Nigeria previously announced in 2015 it wanted the PSCs law, which applied to deepwater oil operation. According to Buhari however, lawmakers failed to conclude deliberations on the bill when it was submitted in 2018.
“I will re-forward to the National Assembly very shortly, the Deep Offshore Act and Inland Basin Production Sharing Contracts Act,” Buhari said. “I seek your support to pass it into law as soon as possible.”
The president said Nigeria expects to earn an additional $500 million from the review of the taxes on the PSC in 2020, rising to $1 billion in 2021.
Nigeria introduced the PSCs in 1993 to help solve NNPC’s inability to fund its share in joint-venture oil operations. Output from the PSC fields, including Bonga, Erha, Agbami, Akpo, Usan and Egina, have sustained Nigeria’s oil output, in the face of decline from fields jointly owned with foreign partners due to unrest and attacks on facilities.
Buhari indicated the government would continue with the amnesty program for repentant militants in the Niger Delta, home to key oil infrastructure, saying Naira 65 billion has been provided for this in the budget.
The president was, however, silent on the provision for subsidies on gasoline imports, fueling speculation the government may abolish fuel subsidies that have been a drain on its finances.
The government had provided $1 billion to subsidize gasoline imports in 2019.
Nigeria had capped the pump price of gasoline, which is bought on the wholesale market on a dollar-denominated basis, at Naira 145 ($0.40) per liter since 2016. The government then pays a subsidy, which is the difference between the landing cost and the regulated pump price.
But private fuel marketers, who have stopped importing the fuel into the country, have demanded that the government abolish the subsidy and allow free market prices.