Nigeria to stop cash call payments to oil majors

Nov 03, 2007 01:00 AM

Nigeria plans to stop cash call payments to the five majors pumping the bulk of its oil output and instead wants them to raise money from international finance markets, President Umaru Yar'Adua has said.
Nigeria's oil industry is currently dependent on cash call payments to function and changing the financing arrangements would require the legal structure of the sector to be reformed.

Yar'Adua came to power in May and his government in August announced a restructuring of the oil industry, saying it would take six months to complete.
"Part of the reasons why we are restructuring our oil sector is to free the resources that we pay the oil companies under joint venture agreements for critical areas like power, education and health," Yar'Adua was quoted as saying. Yar'Adua wants oil companies to fund joint venture projects with money raised on the international finance market instead of relying on contributions from the federal government.

Nigeria, an OPEC member, is the world's eighth-biggest oil exporter. It is also Africa's most populous country with 140 mm people, most of whom live in desperate poverty.
The five multinationals operate joint ventures with the Nigerian state oil company and under the cash call system, the companies and the government are supposed to put in equal funding every year to maintain and develop their facilities. But the requirements presented by the companies have often been more than the government could afford and it has offered a lower amount -- about $ 4 bn per year in recent years.

The companies say that in some years the government has failed to pay up even the lower amounts promised, and they complain that as a result they are only able to fund high priority projects while others get delayed.
The companies are Royal Dutch Shell, ExxonMobil, Chevron, Total and Agip. Shell has cited insufficient cash-call payments as one reason why it will be unable to meet a 2008 deadline to stop gas flaring. It says it has not received enough funds to develop the gas gathering projects that would allow it to stop burning off gas associated with crude.

Yar'Adua had not previously spelt out that the reforms would mean an end to cash call payments.
The minister of state for oil, Odein Ajumogobia, said in September that one of the reforms being considered was to incorporate the joint ventures as private companies which would enable them to seek debt financing on international markets.

Source: / Vanguard
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