The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) on Wednesday urged the Nigerian government to consult widely over the proposal to convert the Joint Venture Contracts (JVC) in the oil and gas industry to Incorporated Joint Ventures Company (IJVC).
Highlighting the merits and demerits of the two options, the Commission said it was necessary to ensure that the various interests in the industry were protected and accommodated under any new arrangement.
Following recent calls for the sale of some national asset to raise funding towards the country’s economic recovery, the Chairman, Stanbic IBTC Holdings, Atedo Peterside, made a case for government to “sell down its stake in the oil JVs from 55-60 per cent… to no more than 40 per cent each.”
At the moment, the Nigerian National Petroleum Corporation (NNPC) controls a minimum of 60 per cent stake on behalf of the federal government in five of the six joint venture operations with various multi-national oil and gas companies in the country.
These include those by Mobil Producing Nigeria Unlimited, Chevron Nigeria Limited, Total Upstream Nigeria Limited, Nigeria Agip Oil Company Limited and Elf Petroleum Nigeria Limited. The only JV the country holds 55 per cent stake is with the Shell Petroleum Development Company Limited.
But, Mr. Peterside, who is also the former Chairman of the Technical Committee of the National Council on Privatisation (NCP), said sale of government stake in all the oil and gas JVs was one of the ways to avert economic meltdown.
“Anyone in his right mind will gladly pay a premium to attain 51 per cent (stake in the JVs) and move away from the clumsy and unwieldy structure where they are junior partners in a joint venture with a historically meddlesome and value-destructive Nigerian National Petroleum Corporation (NNPC)”, he said.
In a recent newspaper publication titled “Letter to my Countrymen” Mr. Peterside restated his position, by advocating the replication of the successful Nigeria LNG model in the divestment of asset in the JVs.
“The JVs should be converted to Incorporated Joint Ventures (IJVs) where the Federation stake is capped at below 50 per cent across all the oil producing JVs,” he said.
However, the RMAFC, through its spokesperson, Ibrahim Mohammed, pointed out that there were inherent merits and demerits in the two models being proposed.
The Commission argued that revenue inflow into the Federation Account and its timing could change significantly if and when government decided to transit from the JVC to IJVC, noting that the JVs were currently being managed professionally and profitably.
“Under the JVC arrangement, the Federation receives its share of equity crude, representing 100 per cent revenue, and pays JV cash calls, representing the cost of production.
“Equity crude received, less JV cash call, is gross profit, which is 100 per cent profit. Petroleum Profit Tax (PPT), presently at 85 per cent, will still be paid from the 45 or 40 per cent shares owned by the international oil companies (IOCs), while payment of royalties, as required by law, is common in both models,” the Commission said.
In the case of IJVs, the Commission explained that equity crude would no longer be received.
“Equity crude, which is 100 per cent profit, will be lost, as the IJVs will only pay taxes at 65 per cent of operating profit, since the IJV will be registered in Nigeria.
“The Federation will only receive dividends at the end of the financial year of the IJV companies, commensurate with Federation holding, which will be less than 50 per cent. Interim dividends may or may not be paid during the financial year,” it noted.
Besides, it pointed out that there was no guarantee the Federation would be receiving dividends regularly as in the JVC, which comes monthly.
In the case of IJVs, the Commission said the Federation would no longer make cash call payments, which has always been a burden on the annual Federal budget, as the IJV companies would source for funds to finance their programmes.
“In view of the advantages and disadvantages highlighted above, and given the sensitive nature of the issue at stake, especially its implications on the nation’s political economy, the Commission strongly advised that before a final decision is taken on the matter, wider consultations with critical stakeholders should be made to carefully examine the two options before transiting from the JVC to IJV,” it advised.