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Authorized Framework Of The Nigerian Petroleum Business

The JV is an unincorporated car. Each JV accomplice shares the exploration and monetary risks. Every JV participant contributes to the payment of all costs when called upon (“Cash Calls”) within the proportion of its taking part curiosity.

Ownership, funding and production sharing are all primarily based on every partners equity share.
A Joint Working Agreement (JOA) governs the parties administrative and operational relations.

The business terms of the JVs are governed by a Memorandum of Understanding (MOU) which modifies the fiscal regime by providing fiscal incentives to ensure that the oil firm realises a minimum revenue margin and a bonus for additions to oil reserves.

The primary MOU signed in 1986 was revised in 1991 and the present one is the MOU, 2000.
Production Sharing Contracts (PSC)

The first Nigerian PSC was the Ashland Oil PSC signed in 1973. Since then, as a consequence of Nigerias inability to adequately meet its money name obligations to fund JV operations, all new government contracts with oil firms are PSCs.

Parts common to PSCs are –
1. The contract is entered into between the NNPC and the E & P firm (“the contractor”).
2. The NNPC is the holder of the OPL and OML which represent the contract area.
Three. The contractor is appointed and given exclusive rights to carry out the exploration and manufacturing operations within the contract area for a interval of 30 years.
4. The contractor is solely responsible for financing all petroleum operations.
5. Solely within the occasion of profitable improvement of discoveries will the oil company get better exploration and development prices. Hence all exploration and growth risks are taken by the oil firm.
6. Manufacturing is divided into “Royalty Oil”, “Value Oil”, “Tax Oil” and “Profit Oil” in that order of precedence.
7. “Royalty Oil” is the quantity of accessible oil allocated to pay the sum of Royalties payable during a month of manufacturing and the amount of concession rentals payable for that period.
“Price Oil” is sold to supply revenues for the recovery of qualifying pre-production prices and working costs.

“Tax Oil” is the oil allotted to cover the Petroleum Profit Tax payable. Firms Revenue Tax will not be utilized to petroleum operations.

“Profit Oil” is the oil remaining after all the above have been allocated. The revenue oil is allocated to every celebration in pre-agreed percentages.

8. A Joint Management Committee is responsible for overseeing petroleum operations and the agreed work programme.

The Deep Offshore and Inland Basin Production Sharing Contracts Act, 1999, offers legislative backing for the contract terms and fiscal regime governing PSCs.

Risk Service Contracts
The OPL is held by NNPC whereas the service company funds petroleum operations. Each service contract relates to a single concession. The primary time period is for a period of 2 or 3 years renewable at NNPCs option for an extra 2 years. Because the contractor solely will get reimbursed from funds derived from the sale of the concessions accessible oil, if oil shouldn’t be discovered in industrial portions, the contractor doesn’t get better its price.

The place oil is discovered, the contractor is paid its price again in installments, in cash or crude allocation. The contractor is remunerated by cost of a fixed amount. It does not have a participation share and does not acquire title to any crude produced. As such the contractor is liable to pay Corporations Revenue Tax and not Petroleum Revenue Tax.

Indigenous Operations – Sole Risk Contracts
The working company holds the OPL or OML. There isn’t any authorities participatory interest (though authorities reserves the correct to train an choice to take part at any time). Authorities interest is restricted to collection of Royalty and Petroleum Revenue Tax. All concessions under the Indigenous Concession Programme are granted on a sole danger basis.

Marginal Fields
The yellowhead petroleum products long awaited laws on marginal fields was promulgated in August 1996, as the Petroleum (Modification) Decree 1996.

The law supplies that the holder of an OML could, of its personal accord, farm out any marginal subject inside the leased area with the consent of the pinnacle of State.

The top of State may compulsorily farm-out a marginal area the place it has been left unattended for 10 years or extra from the date of first discovery of the marginal subject. The pre-situations for a obligatory farm out are:

– public curiosity, and
– acceptability of the partners to the government.
Draft “Tips for Farm-out and Operations of Marginal Fields” prepared by the DPR in September, 1996 provide, inter alia, that:

1. Current holders of OPL/OML, except yellowhead petroleum products indigenous oil firms, are excluded from farming into marginal fields. Indigenous corporations should relinquish existing OPL/OML to be eligible.
2. Only technically qualified Nigerian citizens who own locally integrated corporations might apply.

The draft tips are but to be accepted.
Marginal fields may only be operated on a “Sole Threat” basis. The agreement shall be for an preliminary period of 5 years, renewable thereafter each 5 years until the expiry of the lease.

A farmee could have a international technical accomplice with not greater than 40% curiosity within the marginal subject.

Various charges, Premium, Rents and Royalties are prescribed, while Petroleum Profit Tax is charged at the speed of sixty five.75%.

The oil majors view any obligatory acquisition of portions of their OMLs as an act of expropriation and in breach of the terms underneath which the Leases had been granted.

Gas
Nigeria has been described as a gas province with a bit of little bit of oil! That is testimony to our large gas reserves which is estimated at a hundred and twenty trillion cubic ft. Our position because the world leader in gasoline flaring is well-known.

The excellent news is that the Nigerian Government is dedicated to a “flares out” date of 2008.
The current gas laws is the Related Fuel Re-injection Act, 1979. In pursuance of government policy, generous fiscal incentives for gas utilization have been granted. Tank liquid distributor Gasoline incentives embody royalties at zero per cent, gas development under the businesses Revenue Tax Act and duty/VAT exemptions for fuel developments.

Gas utilization opportunities embrace

– Impartial Energy Projects (IPPs)
– Liquefied Pure Gasoline (LNG)
– Natural Fuel Liquids (NGL)
– Gas – to- Liquids (GTL)
– West African Gas Pipeline
– Domestic gasoline utilization.

There may be a necessity for the publication of the lengthy awaited Nationwide Gasoline policy.
The Atmosphere

Public consciousness and concern over the degradation of our natural setting is growing. Each Authorities and the general public are now absolutely sensitised to the issues of environmental management and protection. Clear evidence of this is the formation of the new Ministry for Atmosphere.

The sources of atmosphere regulation are myriad and include –
1. Worldwide regulation – Treaties, customary worldwide regulation.
2. Statutes –e.g. FEPA Act, Environmental Affect Evaluation Act, 1992, Oil in Navigable Water Act [Cap 337] LFN 1990.
3. Subsidiary Laws –Mineral Oils (Security) Regs 1995, Petroleum (Drilling and Production) Rules [Cap 350] LFN 1990
four. Environmental Standards and Tips for the Petroleum Industry in Nigeria, 1991

The Nationwide Oil Spill Contingency Plan deserved a mention. The plan which was ready to establish a nationwide system for responding promptly and effectively to oil pollution incidents was drafted in compliance with Nigerias international obligations as a signatory to the International Convention on Oil Pollution Preparedness, Response and Cooperation, 1990.

Downstream
The availability sub-sector of the yellowhead petroleum products Downstream sector is completely and exclusively dominated by NNPC via ownership of all the prevailing refineries and government regulation of pricing.

The distribution sub-sector is also totally controlled by NNPC through ownership of the distribution pipelines, depots and oil import jetties.

Solely within the advertising sub-sector can we see control shared by the eight main marketers (forty% of the fuels retail market) and the Impartial Entrepreneurs (60% of the fuels retail market).

It has already been famous that the supply and distribution belongings of NNPC are slated for partial privatisation. Further, governments forty% pursuits in the advertising and marketing sub-sector – Unipetrol Plc, Nationwide Oil and Chemical Co Ltd and African Petroleum Plc – have recently been absolutely privatised via sale to core investors.

The Downstream sector is governed by the Petroleum Act, 1969 and Laws made below it.
Privatisation

The Privatisation policy of the Federal Authorities is premised on the necessity to handle public funds effectively, appeal to foreign capital and new expertise and elevate funds for Government to be used for infrastructure and social development.

The enabling laws is the public Enterprises (Privatisation and Commercialisation) Act, 1999, which establishes the Nationwide Council on Privatisation as the governing body, and the Bureau of Public Enterprises because the implementation organ.

Below the Privatisation Act, NNPC is slated for full commercialisaion and the following NNPC subsidiaries are to be partially privatised, i.e. Government retains 40% fairness stake :

1. PH Refinery I and II
2. Kaduna Refinery and Petro-Chemicals
three. Warri Refinery and Petro-Chemicals
four. Pipelines, Merchandise and Marketing Co Ltd.
5. Nigerian Petroleum Growth Co Ltd.
6. Nigerian Gasoline Company Ltd.

A super Legal Framework
So as to attract funding to the petroleum sector, laws, laws and policy governing the trade must be –

– Clear,
– Complete,
– Clear,
– Accessible,
– Flexible, and
– Sensible.
A consultative process should be institutionalised to ensure periodic dialogue with operators to ensure that regulations are technically possible and cost effective.

Authorized processes should be fast and remedies environment friendly and effective.
Stability of fiscal contract phrases is important.

Lastly, the law should additional the nationwide energy coverage aims of the Federal Government.
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