Minister of State for Petroleum Resources, Dr Ibe Kachikwu
When the Federal Government announced that it was exiting Joint Ventures agreement with International Oil Companies (IOCs) in 2016, stakeholders were skeptical about its possibility.
The Nigerian National Petroleum Corporation (NNPC) announced last week that it had signed financing agreements with Chevron and Shell worth at least $780 million to boost crude production and reserves.
Nigerian National Petroleum Corporation said a joint venture agreement with Chevron Nigeria Limited would see the development of proven and probable reserves of 211 million barrels at the joint Sonam project.
“The project is expected to begin to bear fruits in (the) next three and six months,” Nigerian National Petroleum Corporation (NNPC).
said in a statement, adding it was targeting production of 39,000 barrels per day of liquids and 283 million standard cubic feet of gas per day.
It also said a joint venture with Shell Petroleum Development Company would lead to the development of a project comprising of 156 development activities across 12 oil mining licences in the Niger Delta oil hub.
Nigerian National Petroleum Corporation (NNPC) said the deal with Chevron would provide the $780 million needed to complete the Sonam project on which the US company has already spent $1.5 billion.
NNPC said the project with Shell, called Santolina required third-party funding of $1 billion, without saying whether this was covered by the deal.
Over the years, the Nigerian National Petroleum Corporation (NNPC) has struggled to fund its part of joint ventures with foreign partners through the cash-calls which often got delayed in the National Assembly which is responsible for approving the funding.
One of the priorities of the present government has been to exit the JV-cash calls model and shift to Incorporated Joint Venture which allows for counterpart funding and reliance on government part funding.
Joint Venture vs Incorporated Joint Venture
A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.
This task can be a new project or any other business activity.
In the case of Nigerian National Petroleum Corporation (NNPC) and its partners, NNPC holds 55-60 per cent while its partners like ExxonMobil, Total, Chevron hold between 40-45 per cent in the agreement.
Funding projects under these agreements require the Nigerian National Petroleum Corporation (NNPC) to provide its share of the capital in proportion to its stake in the agreement.
Under JV agreement, the operator usually requests for the funding of non-operating partners through the cash-calls.
Cash calls are requests for payment for anticipated future capital and operating expenditures, sent by joint venture operators to non-operating partners.
Most joint operating agreements (JOAs) include a provision that allows the operator to issue cash calls to non-operating partners.
On the other hand, Incorporated Joint Venture (IJV) is also referred to as a corporate Joint Venture.
But in this category of Joint Venture, the participants arrange for the incorporation of a separate legal entity to undertake the project on their behalf.
This will save the Nigerian National Petroleum Corporation (NNPC) from the embarrassing situation of not meeting its cash calls obligation to its partners.
Having been unable to settle its cash calls arrears over the years which has accumulated to over $7 billion as of December 2016, the Federal Government, through the Minister of State for Petroleum Resources, Dr Ibe Kachikwu, has been engaging the multinationals and other partners on how to settle the debts through crude oil lifting and how to embrace the IJV model.
Stakeholders’ reaction to Incorporated Joint Venture policy
A source that is very close to the Sonam Project being executed by Chevron on behalf of the partners, told Nigerian Tribune in confidence that practically, nothing will enter into the Nigerian coffers from the project in the next six months when the project must have been executed.
According to her, “lenders were skeptical to provide funding for the government to fulfill its obligation to the project.
Ridiculous interest rates were being demanded on the fund and the government was ready to pay.
“This is a huge cost to the country because it means practically nothing will enter the government’s coffers from the project in the next six months.”
When asked on the way forward for the government on the policy, she opined that government must hands off business including oil and gas business and allow private investors to manage the sector.
“I have been to several oil producing countries to negotiate contract terms. Private investors are best managers of the oil sector.
The government should formulate policy that will protect investment, environment and promote effective tax regime.
“I hope somebody is following the global development in oil sector where alternative sources of energy are being researched into daily to make them cheaper.
Hydrocarbon may become irrelevant in the next 40-50 years.
“The government should privatise the Nigerian National Petroleum Corporation (NNPC) and allow it to run as a private company and take decision privately rather than awaiting the approval of the national assembly before it can make counterpart funding available to its partners,” she said.
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