A cash-call exit agreement between the Nigerian National Petroleum Corporation (NNPC) and Joint Ventures partners, the Federal Government has saved about $1.7billion.
It will repay the Cash Call arrears of $5.1billion within five years.
These facts are contained in a document titled “The new JV Self-Funding Model/ Cash Call Exit: Issues and implications”, which has been presented to the Federation Account Allocation Committee (FAAC) by the Nigerian National Petroleum Corporation (NNPC).
A critical part of the document, which was obtained by our correspondent, borders on “Key Negotiated Terms” on the lingering JV Cash Call arrears.
The terms were part of issues discussed at the November 21 session of the FAAC Post-Mortem Sub-Committee meeting.
The key terms are as follows: “On JV Cash Call arrears, the full and final settlement of the arrears amount to $5.1billion which represents 75 per cent of the reported arrears of $6.8billion.
“The negotiated amount ($5.1billion) is inclusive of indigenous JV partners ($436.09m). The duration of repayment is five (5) years.
“The $1.7billion reduction write-down will not qualify as a tax- deductible expense by the International Oil Companies JV partners for PPT determination.
“No tax payable on arrears to be repaid. Receipt by the IOC JV partners of the repayment of Cash Call arrears of $5.1billion represents refund of advances made on behalf of NNPC and is not revenue to IOCs. Therefore, it is not subject to any tax, fee or levy.”
It was also agreed that the “repayment source will be NNPC’s share of incremental production from JV activities after payment of royalties.
“100 per cent of PPT from incremental Crude Oil Production is payable to the Federal Inland Revenue Service (FIRS) after deduction of related cost of production and accumulated arrears.”
On the 2016 JV Cash Call funding shortfall, the terms indicated that there will be “phased payment of the shortfall to manage impact on the foreign reserves.
“The parties will set up a mechanism to ensure the remaining future approved 2016 JV Cash Call funding shortfalls are settled installmentally up to April 2018.
The NNPC and its Joint Venture partners had on December 15, 2016 signed a cash-call exit agreement. The JV Partners are Shell, Total, Chevron, ExxonMobil, Nigeria Agip Oil Company (NAOC) and Oando.
At the ceremony, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, said with the agreement, the Upstream petroleum sector will soon be upbeat in a flurry of activities.
”This event is significant because it has taken us to a point where we can compete with our colleagues all over world.
“We have dealt with the downstream, and this is probably the most important item in the upstream and that is obvious we will begin to go into the policy measures and infrastructural development and the rest after the signing ceremony,” he said.
The Group Managing Director of NNPC GMD, Dr. Maikanti Baru, said the exit cash call agreements comprised three components which are: the process of settling the pre-2016 cash call areas; the process of sustaining the cash call payment from 2017; and agreement and settlement over performance in 2016.
NNPC, through its General Manager, Group Public Affairs Division, Mr. Nu Ughamadu, had said: “Under the new arrangement the entire NNPC equity Oil and gas revenues are now to be paid directly into the Federation Account.
“Hitherto, competition from other appropriated items of expenditure in the Federal Government’s budget has always limited the deduction of technical cost required to fund the cash calls on monthly basis.
“It is expected that execution of this agreement would end the long standing cash call challenges that have impacted the Nigerian oil and gas industry over the years.
“With this arrangement, the Federal Government will continue to receive royalties, taxies and profit from its equity share of JV oil and gas production while the cost of operation is deducted upfront.
“The agreement provides that the outstanding cash call arrears will be repaid within a period of five years through incremental production revenues without impacting the established based production revenue.”