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Nwoko: Nigeria will earn millions of dollars renegotiating production sharing contracts


Uwemedimo Nwoko

Attorney General and Commissioner for Justice, Akwa Ibom State, Mr. Uwemedimo Nwoko, is one of the lawyers that represented the state in the lawsuit filed by the attorneys general of Rivers, Bayelsa and Akwa Ibom states, where the contention was that sections of the Deep Offshore and Inland Basin Production Sharing Contracts Act had not been followed by the Federal Government. He told the Deputy Bureau Chief, South South, ANIETIE AKPAN that even when oil prices went up to $120 per barrel, Nigeria was still sharing with the oil companies as if the oil prices were at $9 per barrel.

Should Be Grateful To Akwa Ibom, Rivers and Bayelsa States For National Interest Litigation

What necessitated the lawsuit ab initio?
THE case was conceived as a product of political exigency of the Niger Delta states particularly, and by extension Nigeria. It was to basically draw attention to the fact that international oil companies were not really taking the interest of their host communities and the nation into consideration in their operations, and that Nigeria’s very share of proceeds and benefits from the oil industry were not coming.

Sometime around 1993, the then military government entered into a contract with oil companies as there was, in the deep offshore and inland basins of the country, a lot of oil and gas and the cost of exploration and exploitation was quite huge. So, they proposed to the Federal Government to fund the offshore and the inland basin exploration. But the Federal Government at that time did not have enough money to embark on such project, so this led to the oil companies entering into a contract with the Federal Government and a sharing formula was agreed to the effect that the oil companies would recoup their investments in the very expensive deep offshore exploration and exploitations.

At that time, oil was selling at about $9 per barrel, and the two parties did agree that at any point in time that the price of crude oil will exceed $20 per barrel, both parties would sit down and renegotiate the sharing formula as contained in the law.

With this agreement, the oil companies went into offshore exploration, but the truth of the matter is that the Federal Government enacted this decree, which took effect from January 1, 1993, which was called the “Deep Offshore and Inland Basin Production Sharing Contract Decree.” Not long after the contract was signed and the law enacted, oil prices shut above $20, but nobody ever went back to raise the issue in the contract and the decree so that the sharing formula could be revisited as provided for in Section 16 (1), which states that, “the provision of this decree shall be deemed due to ensure that if the price of crude oil as signed exceeds $20 per barrel, the share of the Federal Government in the additional revenue shall be adjusted under the Production Sharing Contract (IPSC) to such an extent that the production sharing formula shall be economically beneficial to the government of the federation.

Sub-section 2 of Section 16 provides that, not withstanding the provision of Sub-section 1 of this section, the provision of this Act (decree) shall be liable to a review after a period of 15 years from that date of commencement, and every five years thereafter. So, Section 16 (1) and (2) since 1993 have never been revisited, the contract has not been reviewed, and sharing formula has not been reviewed and this is of course to the detriment of the Nigerian federation.

In view of this, the three plaintiff states of Akwa Ibom, Rivers and Bayelsa came together and decided, on the instructions of their governors, the three attorneys general filed a suit against the Federal Government with the Attorney General of the Federation as defendants. Why we did this is that we were so convinced that the Federal Government owes it a duty to enforce an act of the National Assembly, a special legislation, which heaps the responsibility on the Federal Government to enforce because this sharing contract is operated by the Federal Government on behalf of the entire states and the people of Nigeria. So, we felt that it is the Federal Government that failed in its duty to call for a renegotiation of the sharing formula, and the review of the contract in accordance with Section 16 of this law. When this matter was taken to court, it was not difficult to convince the court and the Federal Government also realised that our claim was legitimate and indeed we were not even antagonistic. It was just calling the Federal Government’s attention to its responsibility that it had abdicated and failed to perform. The Federal Government agreed that it would perform that function, and so we entered into terms of settlement with the Federal Government urging the court to order it (the Federal Government) to enforce the law in section 16 (1) and (2) of the Deep Offshore and Inland Basin Production Sharing contract.

When was the matter instituted and what were the various claims?
The case was filed in 2016. The claims were very simple. We urged the Supreme Court to first, determine the question whether by virtue of the provision of this law the Federal Government does not owe the people of Nigeria, particularly the plaintiff states, the duty to call for review of the sharing formula of the contract, but of course it did. Then we urged the court if the answer to our question is in the positive, (that is, the Federal Government has that responsibility) the court should order it to proceed to demand and take steps to ensure the review of the sharing formula under that law as stipulated in Section 16.

Why were the international oil companies not part of the suit?
They were not part of the suit because it does not concern them; it was not their business, and we did not join them because it is not for them to call for a review, but the Federal Government. It is not the oil companies that are saddled with the task of enforcing Nigerian laws, it is the Federal Government. In other words, the responsibility of enforcing Section 16 (1) and (2) of the Act does not rest with the oil companies, but the Federal Government, and that is why we did not need to join the oil companies because they had no role to play in the matter. We took on the Federal Government whose constitutional responsibility is stated in the Act.

With this favourable verdict, what is the next line of action?
The terms of the judgment stipulated that the Federal Government and the plaintiff states should set up a team and call for all the records of every barrel of oil exploited and sold in Nigeria from the time oil prices exceeded $20 per barrel. The Department of Petroleum Resources (DPR) should have this data in its kitty just as all the oil companies know what they have produced as the DPR has the records of what has been sold over the years. These are the aspects that the parties would eventually look at and the relevant agencies of the NNPC and other strategic bodies responsible for keeping such records should be able to present such data. When this data is gathered, the attention of the oil companies would be drawn to the facts on ground, and then the parties would sit down and carry out the discussion. As stipulated in the law, the parties shall adjust the sharing formula and the oil companies and the Federal Government will sit down and negotiate the extent of adjustment, the sharing formula under the contract, and then of course, arrive at a position (as stipulated by the law) that is economically beneficial to the government of the federation.

What benefits will the judgment bring to the state?
The judgment was not just for Akwa Ibom State; it was a national interest litigation; it was an action we commenced collectively in the entire interest of the people because the benefits of the judgment would accrue to the Federation Account. It is not to the benefit of the three states per se, but to the Federation Account. The law in question, that is the Deep Offshore and Inland Basin Production Sharing Contract Act provides that at any point in time that oil prices will exceed $20 (per barrel), the Federal Government will enter into a renegotiation of the sharing formula. Incidentally, it turned out that even before the first oil was struck by the Nigeria Agip Oil, off the waters of Rivers State, oil price had already gone above $50 and that was during the Babangida era. But the Federal Government failed to renegotiate the sharing formula with the oil companies ever since. Even when oil prices went up to $120, Nigeria was still sharing with the oil companies as if the oil prices were at $9.

So what is the implication of this judgment financially to Akwa Ibom State and Nigeria?
Much more revenue will be accruing to the Federation Account to be shared among the three tiers of government with the interest covered by the litigation going beyond the three plaintiff states and even the Niger Delta region because the revenue that will accrue to the Federation Account will be distributed to the entire nation. The people of Nigeria will be grateful to the three states of Akwa Ibom, Rivers and Bayelsa and their respective governors, who initiated this national interest litigation and we are also grateful to the Supreme Court for standing firm to protect the interest of the Nigerian federation as against the oil companies. The oil companies did everything to frustrate this case by bringing an application through the Lagos Chamber of Commerce and Industries, but to the credit of the Supreme Court and integrity of the justices, they refused to be influenced against the interest of Nigeria and stood firm and assumed jurisdiction and decided the case in the interest of the Nigerian federation.

Will any arrears be paid?
Definitely they will pay heavy arrears. In the terms of settlement assigned between the Federal Government, through the Office of the Attorney General of the Federation, and the governments of Akwa Ibom, Rivers and Bayelsa states (the plaintiffs), is that both parties will come together and set up a team that will verify these arrears looking through the entire production data in Nigeria through the relevant agencies of the government to know how much has been involved and the length of time, and then of course what will be due to the federation will be ascertained. The investigation will bring up the date when it exceeded $20 and how much due but certainly it will be much”.

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