Cash strapped FG finally withdraws from JVs with oil companies

Unable to meet its financial obligations in the Joint Ventures (JVs) with international oil companies in the country, the Federal Government has pulled out.

Minister of State for Petroleum Resources, Dr. Ibe Kachikwu who made this known after the Federal Executive Council (FEC) meeting on Thursday, cited paucity of funds arising from the drastic fall of crude oil prices in the international market, as the main reason.

Ripples Nigeria had reported that due to the Niger Delta crisis, the country represented by National Petroleum Corporation (NNPC) in the Joint Ventures with major oil firms enjoy at least $3 billion cash call annually.

The cash call is the NNPC’s counterpart funding in the ventures representing 60 per cent equity shareholding in various oil and gas fields operated by the various oil companies in the country, both international and indigenous.

Militants’ actions in the oil rich Niger Delta area, has scared off foreign partners from the various ventures while under-funding on the part of NNPC, by the end of third quarter has led to a loss of more than half of the projected government’s cash disposal.

Briefing State House correspondents at the presidential villa, Abuja, Kachikwu, alongside Governors Willie Obiano of Anambra and Alhaji Mohammed Abubakar of Bauchi State, said Nigeria owed call arrears  of $6.8 billion over five  years.

“Today, I made a presentation to NEC seeking endorsement for previous years proposal which was approved by FEC, trying to change the funding configuration of JV for upstream companies.

“As you are aware, current cash call arrears in the oil sector over the last five years up until December 2015, is about $6.8 billion unpaid in the 2016 period.

“We also have accumulated unpaid cash call arrears of over $2.5 billion. Persons sometime get to ask how did this happen?  Obviously in the year we earned a lot of money from oil, $110-120 per barrel, there really wasn’t any justification why these monies shouldn’t have been paid in terms of the five years arrears but it is what it is, if that is what the arrear is.

“Thus, one can understand why we have what we have: the effect of militancy, the drop in oil prices $110 to 40, has meant revenue coming to government has been unable to sustain our ability to meet our cash call obligations and what does that do when that happens.

Read also: Nigeria loses $3bn annually from NNPC JVs over N’Delta crisis

“You find that your reserve begins to deplete, your ability to maintain production at current level will begin to despair and cost of per barrel of production at JV continues to rise because of the very little volumes chasing the cost and at the end of the day, the investor’s confidence begins to wane. So, a lot of the projects that ought to have happened in this country were basically abandoned.

“Sometimes this year, we took on an initiative working with the folks in NNPC and the ministry to try and find a sustainable solution for funding JVs cash calls. We have been able to find that solution.”

NNPC Group Managing Director, Dr Maikanti Baru, had stated earlier in the week, that there will be relief on government if it had been able to source the NNPC operational funds, and that the JVs cash call exit model that government was pursuing would have contributed 75 per cent to 85 per cent of the accruable revenues to government.

“The effect on NNPC contribution would have been minimized if it had gone as planned, though we are still working assiduously to kick start this from 1st January, 2017,” Baru had said.

The NNPC boss said unless those behind the militancy will listen to the appeal to stop the indiscriminate acts of infrastructure vandalism, the economy and energy goal of Nigeria will be unattainable.

 

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