Energy

Nigeria National Petroleum Corporation to Renegotiate Contracts with Oil Companies

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The Managing Director of the Nigerian National Petroleum Corporation (NNPC), Ibe Kachikwu, has stated that the corporation intends to renegotiate its production-sharing agreements with oil majors in its effort to clean-up the country’s petroleum sector.

Speaking on Tuesday in France on a state visit with President Buhari, Mr Kachikwu said the corporation would overhaul its contracts with companies such as Shell, Chevron, Eni and ExxonMobil to extract as much benefit as possible for Nigeria

On assumption of office, President Buhari had made Petroleum Sector Reforms one of his top priorities. However, reforms have not been pursued in the sector through legislative means. The Petroleum Industries Bill (PIB) which is a major reform bill of the Petroleum Sector, has been stuck in Nigeria’s legislature for six years, it is not yet clear whether the draft bill will be promoted, redrafted or scrapped by the Nigerian National House of Assembly  elected in March.

Industry experts have expressed concern whether it is realistic for the government to attempt to renegotiate petroleum production-sharing agreements/terms now, in the context of low crude oil prices.

Changing contractual terms outside of legislative frameworks could lead to legal action against the government and could add to uncertainty over its oil revenues. Any forced renegotiation, could cause fiscal instability and exposure to claims for breaches of investment rules in local and international courts/tribunals.

Mr Buhari had last month cancelled Crude Oil Offshore Processing Agreements and crude swap deals for refined products begun under his predecessor. His administration is also investigating the trading firms who partnered with the NNPC deals to see if the government had been denied revenues.

Investors are increasingly concerned about a lack of direction on fiscal policy from President Buhari, nearly four months in office, Buhari is yet to name a cabinet or economic policy advisers.

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