Yemisi Izuora/Agency Report
The federal government is seeking $62 billion from oil companies under regulations that allow the government to revisit revenue-sharing deals on petroleum sales if crude prices exceed $20 a barrel, the attorney general told Reuters on Thursday.
“Computing the amount that should be credited to the Nigerian government if the law was effectively applied, that translates to around $62 billion against the IOCs (international oil companies),” Abubakar Malami said in a telephone interview.
Oriental News Nigeria,reports that the Production Sharing Contracts (PSCs) were entered in good faith for the purposes of advancing the Economy of this great country Nigeria and the profit motive of the contracting parties.
At the point in time when this was necessary, the country was lying prostrate in revenue and considering the enormous capital involved in setting the oil production course, the Oil companies generously decided to source the funds to invest in the great business not minding its unpredictable nature and that is hugely commendable. However this was done under a documentation called Production Sharing Contract (PSC).
The contract stipulates that if oil is found and produced, the oil companies which have invested tremendous funds will allocate a fraction of the oil for royalty, another portion for cost of their investment and another percentage for Tax and then the final fraction becomes the profit oil. At the time these contracts were entered, the price of crude oil was at $9.50 per barrel.
The production sharing contracts are governed by the laws of the Federal Republic of Nigeria. In effect, the law on the subject is the Production Sharing Act, then a decree, effective from 1993. There are very important clauses under this law in Section 16 (1) and section 16 (2).
Specifically, Section 16 (1) which is in focus here stipulated that “if at any time the price of crude oil exceeds $20 per barrel in real terms, the share of the Federal Government of Nigeria in the additional revenue shall be reviewed to make it economically more advantageous to Nigeria’’ while section 16(2) specified that after a tenure, the national assembly shall review the Act.
It is therefore estimated that, subsection one of section 16 does not require the intervention of the national assembly. Instead it imposes a duty on the oil companies and contracting parties, led by NNPC, to by themselves review the sharing formula so as to make it more economically advantageous to the Federal Republic of Nigeria.
In order words, it’s an inescapable duty binding on all the contracting parties.
It was the failure to observe and abide by this clause either by dereliction of duty or by wilful mischief that neither party reviewed the sharing ratio to be more economically advantageous to Nigeria as stipulated in the PSCs even when oil prices have exceeded $20 per barrel.
In fact, at the time the first oil was struck by the Nigeria Agip Energy, the price of oil was already at $28.50 per barrel. In putting the ceiling $20 per barrel, it was presumed that oil prices will not be able to exceed twice its price at then. That is, $9.50 per barrel. Thereafter the oil prices kept rising. It got to $60 per barrel when SNEPCO got oil, $65.00 per barrel when Total/Elf got oil and it got to $95.00 per barrel when SNEPCO got oil at Bonga, yet no party cared to effect the terms of the binding contracts.
Section 162 of the constitution of the Federal Republic of Nigeria required that 13 per cent of the crude oil revenue earned by the country should go to the oil producing states. In other words, whose responsibility is it to do this? It is the Federal Government of Nigeria, because it occupies the position of trustee for the oil producing states.
The Attorney-General of these states after reviewing this position believe they should get more. They did not hold the oil producing companies responsible for the shortfall. Instead, they believe that their trustee being the Federal Government of Nigeria should get the additional revenue.
So they decided to test this law by inviting a legal team to approach the supreme court of Nigeria so as to invoke this original jurisdiction to determine whether this law has been obeyed. If it is not obeyed then determine whether the Federal Government of Nigeria is not liable to them in terms of revenue loses.
They sued the Federal Government as represented by the office of the Attorney-General of the Federation.
Through an ill-advised contravention, some lawyers applied to join in that case despite being warned that this is a case of the states against the Federal Government and when one lawyer was insistent on abusing the order of the Supreme Court, he was slammed with 8million Naira fine.
The Supreme Court in a unanimous decision in October, 2018 said this claim is well founded and directed the Attorney General of the Federation to constitute a committee to carry out the recovery from the Oil Companies.
The Law Firm ‘‘TEMPLARS’’ published an article in an international magazine titled: “A COUP against PSC Contractors? Re: Attorney General of Rivers State & 2 Others v. Attorney General of the Federation: Impending review of the Deep Offshore and Inland Basin Production Sharing Contract Act” which gave rise to the multiple lawsuits by the Oil Companies against the Federal Government of Nigeria, NNPC and the Lead Consultant, Trobell International.
The current sharing formula is hugely biased in favour of the oil producing companies who currently take 80 per cent while Nigeria as a country takes 20 per cent even though they have since wholly recovered their cost of production through cost oil.
In spite of this position, Paul McGrath, Chairman of the Oil Producers Trade Section (OPTS), Bayo Ojulari, Managing Director of Shell Nigeria Exploration and Production Company and others expressly challenged the decision of the Supreme Court on the Production Sharing Contract.
But the question is whether or not any person or entity local or foreign can challenge the decisions of the Supreme Court of Nigeria?
In a closed door meeting with stakeholders in Abuja on Thursday, 3rd October, 2019, the Attorney General of the Federation and Minister of Justice, Abubakar Malami, SAN, stated that without prejudice to the existing lawsuits, the Federal Government position is clear on the relationship with business communities in Nigeria.
He further stated that there is no hostility intended towards any local or foreign investments in Nigeria.
Nevertheless, the Government will ensure that the duties and responsibilities associated with the Laws in Nigeria are followed and respected by Nigerians and foreign investors in order to create enabling business environment where mutual respect for law and order provides a win win situation.
The Attorney General of the Federation and Minister of Justice emphasized that within the context and the rules of engagement there are loaded and multiple considerations.
For instance, the P & ID is a most recent case in hand where criminal prosecutions had to be resorted to. Notwithstanding however, the Attorney General of the Federation and Minister of Justice reassured the stakeholders that the Federal Government is open to discussion on the matter.