Three oil-producing states Akwa Ibom, Rivers and Bayelsa may be expecting higher FAAC receipts going by a Supreme Court judgment. The court ordered the Federal Government to recover all revenues lost to oil exploring and exploiting companies through its failure to adjust the production sharing contract.
The three states took the Federal Government to court in 2016, accusing it of failing to readjust the Production Sharing Contract between itself and the companies since 2003, when oil crossed the $20 mark. The agreement was reached following the signing of the Deep Offshore Act in 1993.
What is the PSC ?
The Production Sharing Contract Act of 1993 was enacted in response to the difficulties faced by the government in funding Joint Venture (JV) arrangements as well as encourage companies to invest the deep offshore space.
A section of the Act provides the review of the agreement once the crude oil price exceeds $20 per barrel. Oil price has traded above $20 for over a decade but no form of review was carried out.
Eyes on the money
The Federal Government had also woken up from its slumber as Minister of State for Petroleum Resources Ibe Kachikwu in December last year, stated that the act would be amended.
“The first and most substantial for me is the decision to work with the Attorney General to amend section 15 of the PSC of the Deep Offshore Act. Under the Act, there was a provision in 1993 that once the price of crude exceeds $20 per barrel, the government will take steps to ensure that that premium element is then distributed at an agreed premium level.
The National Assembly had also waded into the matter, accusing the Department of Petroleum Resources (DPR) of gross negligence, and had resolved to write to the embassies of the affected oil companies, seeking a refund.
For the states, the judgement would lead to improved FAAC receipts. This would enable them meet their recurrent expenditure as well as capital projects. Bayelsa state in particular owes several pension and salary arrears