James Emejo in Abuja
The Revenue Mobilisation Allocation and Fiscal Commission (RMAFC) wednesday called for caution and wider consultations among stakeholders prior to the proposed conversion of Nigeria’s oil and gas Joint Venture Contract (JVs) to Incorporated Joint Ventures (IJVs) in order to ensure the full protection for all parties.
The commission, which took out time to highlight merits and demerits of the two business models, noted that revenue inflow into the Federation Account and its timing could change significantly “if and when” the government decides to transit from the JVs to the IJVs.” In a statement signed by its Head, Public Relations, Mr. Ibrahim Mohammed, and made available to THISDAY, RMAFC argued that the JVs are currently being managed professionally and profitably.
It said: “Under the JVC arrangement, the Federation receives its share of Equity Crude which represents 100 per cent revenue and the Federation pays JV Cash Call which represents the cost of production, Equity Crude received less JV cash call is gross profit which is 100 per cent profit, Petroleum Profit Tax (PPT) which is presently at 85 per cent will still be paid from the 45 per cent or 40 per cent shares owned by the IOC’s while payment of royalties as required by law is common in both models.”
However, the commission warned: “In the case of IJVs, equity crude will no longer be received. Equity crude which is 100 per cent profit will be lost as the IJVs will only pay taxes at 65 per cent of operating profit since the IJV will be registered in Nigeria. The Federation will only receive dividends at the end of the financial year of the IJV companies commensurate with Federation holding which will be less than 50 per cent.
“Interim dividends may or may not be paid during the financial year. Furthermore, there is no guarantee that the Federation will be receiving dividends regularly as in the JVC which comes monthly.”
It further argued: “However, in the case of IJVs, the Federation will no longer make Cash Call payments which has always been a burden on the annual federal government budget. The IJV companies will source for funds to finance their programmes.
“In view of the advantages and disadvantages highlighted above and given the sensitive nature of the issue at stake especially its implications on the nation’s political economy, the commission strongly advised that before a final decision is taken on the matter, wider consultations with critical stakeholders should be made to carefully examine the two options before transiting from the JVC to IJV.”
The clarification and caution came in reaction to a newspaper publication titled: ‘Letter to my Countrymen” by Atedo Peterside who advocated for the replication of the successful NLNG model in the divestment of assets in the Joint Venture Contracts (JVC).
Peterside had opined that the JVC should be converted to Incorporated Joint Ventures (IJVs) where the Federation stake is capped at below 50 percent across all the Oil Producing JVs.