The decision by the National Assembly to amend the Deep Offshore (and inland basin production sharing contract) Act is a huge victory for Nigeria. The articles and clauses of complex legislation may not appear to be the stuff to set pulses racing. But there should be no doubt: this is a watershed moment for our economy, our institutions and our people.
As a result of this amendment, Nigeria could earn an extra billion dollars a year from our oil. These are funds that will help restore our schools and hospitals, repair our roads and infrastructure and give our armed forces the support they need to keep us safe. That is a big win. But it is about more than just the money.
There is no doubt that the Deep Offshore Act had to change. The original law that provided for the operation of oil licences in deep water was introduced by the military regime back in 1993. New techniques in drilling and computer modelling were then beginning to emerge, allowing for the exploitation of oil in water depths that had previously been impossible. Fiscal terms were based on the industry’s long-term outlook for oil prices of around USD18-20/ barrel, above which profits were hardly taxed at all.
Crucially, the 1993 contract provided only for a review of terms. Oil passed USD20 barrel in 2003 but companies could, and did, refuse to accept any changes. The ‘business as usual’ lobby made sure that every attempt until now to amend the law ended in failure.
But more than 25 years on, advances in technology have substantially reduced costs to industry and oil has consistently traded way above that anticipated range. For international oil companies, this has been a regulatory bonanza. A better balance between reasonable profits and a fair tax regime would years ago have delivered the billions we need to invest in Nigeria’s future.
The amendment calls time on this contractual anachronism. But it should not be seen in isolation, or as a ‘one off’. President Muhammadu Buhari pushed for the amendment as part of an ambitious programme to overhaul a corruption-saddled and under-performing oil and gas sector.