Prepared by Rodolphe Blavy.
periodic disturbances in some communities that feel aggrieved by oil operations have routinely affected oil production and export.
The utilization of gas in the power sector is promising, especially given the current insufficient level of electricity generation in Nigeria. The inefficiency of NEPA is such that small private power units provide more power capacity than NEPA. A number of proposals for additional LNG projects and GTL projects are under way. Finally, proposed pipeline projects, in particular, the West African Gas Pipeline (WAGP) and the Nigeria-to-Algeria Pipeline, may provide good platforms for exports to regional and extraregional markets.
The extensive work undertaken by the World Bank in the gas sector in Nigeria is a good reference for such a strategy.
The estimation does not take into account the two-month credit in domestic crude receipts.
When payments of cash calls to JVCs are delayed, JVC operators may borrow the equivalent amount and charge the interest to the NNPC. To avoid high interest expenses, NNPC has moved toward more timely payments of cash calls. However, there has bccn some controversy regarding pre1999 arrears. During the 1994-99 period, the military government accumulated significant arrears to JVC partners. The NNPC has recently estimated the stock of arrears for the period at US$500 million for the foreign exchange portion and at N 26 billion for the naira portion.
PSC royalty and tax terms have been fixed by Decree 9 of 1999.
In addition to royalty oil, contractors must pay surface rentals, at relatively low rates (within the range of N 200-500 per km2).
Some of the PSCs provide for recovery ofcosts of other blocks held by the contractor. While this feature creates a strong exploration incentive, it may induce a significant postponement of government revenues.
This difference may reflect relative prospects of the different regions and is partly offset by tougher production-sharing terms for inland basins on the grounds that onshore costs are likely to be lower.
Another difference is that the rate of investment tax credit or allowance is also 50 percent.
The simulation is illustrative, and sensitive to a modification in the assumptions. For example, the average royalty rate is calculated at 1.6 percent, under the assumption that 75 percent of the production is deep offshore. If we assume that 50 percent is deep offshore, while 25 percent is produced in shallow waters (the remainder being produced at intermediate depths), the average royalty rate becomes 4.4 percent, and the revenue loss to the government is smaller than estimated.
Tax offsets in the range of US$1-2 per barrel are common.
The main marketers and their relative shares are as follows: Total Elf (15.5 percent), African Petroleum (11.8 percent), National (8.5 percent), Mobil (7.4 percent), Unipetrol (6.8), Texaco (6.8 percent), and Agip (4.7 percent).
The calculation of the import parity price is based on the following variables: gasoline price FOB Italy, insurance and freight at US$25 per metric tons, and tax and marketing costs at N 8 per liter. The official exchange rate is used for conversion into domestic currency.
In this section, we focus on administrative controls and governance issues related to the operation of the JVCs, since they account for 97 percent of Nigerian oil production.
The 1991 MOU allowed a company to increase its after-tax margin by claiming the reserve addition bonus (RAB) as a credit against its PPT liability. The amount of RAB was based on additional proven or probable reserves in excess of the current year’s production.