FG Orders IOCs to Pay Outstanding Oil Revenues on PSCs

• Gives 14-day deadline
• Threatens defaulters with contract termination

Davidson Iriekpen

The federal government has given International Oil Companies (IOCs) operating in Nigeria’s deep offshore and inland basin a 14-day ultimatum to pay all outstanding revenues on Production Sharing Contracts (PSCs), THISDAY has learnt.

The government said the revenues are in compliance with the Supreme Court judgment last October, which noted that the IOCs are in default of adjusting the revenue accruals in accordance with the provisions of section 16(1) of the Deep Offshore and Inland Basin Production Sharing Contracts Act, Cap D3, Laws of the Federation, 2004.

In one of the letters written by the federal government’s consultants/recovery agents, Trobell International, directing Statoil Nigeria Limited to pay $5.5 billion, the government threatened that any IOC, which refuses to pay would have its PSC terminated.

The letter cited by THISDAY, was titled, ‘Outstanding Revenue on OML 128 Pursuant to section 16(1) of the Deep Offshore and Inland Basin Production Sharing Contracts Act, Cap D3, Laws of the Federation, 2004’.

The government also threatened to file a complaint against such defaulting oil firm at international fora under the Foreign Corrupt Practices Act in the United States of America and other related international protocols for failing to observe the mandatory obligations under Section 16(1) of the Deep Offshore and Inland Basin Production Sharing Act.

Following a suit filed by the Attorneys-General of Rivers, Bayelsa and Akwa Ibom States, the Supreme Court in a landmark judgment on October 17, 2018, had ordered the federal government to adjust its share of proceeds from the sale of crude oil whenever the price exceeds $20 per barrel.

The order was a fall out of the terms of settlement between the Attorney-General of the Federation (AGF) and the plaintiffs.

The court in a unanimous ruling, ordered that the 13 per cent derivation that was due to the oil producing states be paid upon recovery, in accordance with Section 162 of the 1999 Constitution (as amended).

The seven-man panel of the apex court, which included the Chief Justice of Nigeria (CJN), Justice Walter Onnoghen, also ordered that effect should be given to the provisions of Section 16(1) of the Deep Offshore and Inland Basin Production Sharing Contracts Acts Cap, Laws of the Federation, 2004.

The said Section 16(1) of the Act reproduced hereunder for your reference states, “The provisions of this Act shall be subject to review to ensure that if the price of crude oil at any time exceeds $20 per barrel, real terms, the share of the government of the federation in the additional revenue shall be adjusted under the production sharing contracts to such extent that the production sharing contracts be economically beneficial to the government of the federation.”

To give effect to the Supreme Court judgment, Trobell International, in the letter, stated that after a thorough investigation, Statoil ought to have paid the sum of $5,561,689,751.43 being the principal sum and interest outstanding owed to the federal government in default of adjusting the accruals.

The letter, which THISDAY gathered was also dispatched to other IOCs stating various amounts they were owing the federal government, said it arrived at the amount Statoil owed after a painstaking calculation by technical experts and accountants and a review of the documentation submitted to it by the Federal Inland Revenue Service (FIRS).

The letter, which was dated January 14, 2019 read, “The claim for outstanding revenue to the Federal Government of Nigeria is made pursuant to section 16 (1) of the Deep Offshore and inland Basin production sharing contracts Act, Cap D3, Laws of the Federation, 2004 and the obligations contracted to under the production sharing contracts to operate within the confines of Nigerian laws relevant on the subject matter.

“These sums have become due in consequence of the extant provisions of section 16 (1) of the Deep Offshore and inland Basin Production sharing Contracts Act, Cap D3, Laws of the Federation, 2004 and the undisputed facts that have crystallised in order to give the said section consequential effect.

“On the 17th of October, 2018, the Supreme Court of Nigeria in its original jurisdiction gave judgment and ordered that effect should be given to the provision of section 16(1) of the Deep Offshore and Inland Basin Production Sharing Contracts Act, Cap D3, Laws of the Federation, 2004.

“The Federal Government of Nigeria appointed our firm as Consultant and Recovery Agent to recover these sums and upon a painstaking calculation by Technical experts and Accountants in the relevant and material areas and a review of the documentation submitted by your Organisation/Company to the federal Inland Revenue Service (FIRS) arrived at a figure of USD5,561,689,751.43 only being the principal and interest outstanding/owed by your organisation/company to the Federal Government of Nigeria in default of adjusting the revenue accruals in accordance with the provisions of section 16(1) of the Deep Offshore and Inland Basin Production Sharing Contracts Act, Cap D3, laws of the Federation, 2004.

“Take notice that should your organisation/company fails to pay the said sum within 14 days from the receipt of this letter, we have the firm instructions of the Federal Government of Nigeria to recover the said sum by all legal means possible, including exercising any or every option available under the Production Sharing Contract and the relevant laws.

“Take further notice that Federal Government of Nigeria reserves the right to take such appropriate and direct sanctions such as the termination of contract and the exercise of the power of ‘shut-in’ in order to give effect to the judgment/order of the Supreme Court of Nigeria dated 17th October, 2018 including but not limited to filing a complaint in the international fora under the Foreign Corrupt Practices Act in the United States of America and other related international protocols for failing to observe the mandatory obligations under Section 16(1) of the Deep Offshore and Inland Basin Production Sharing Act, Cap d3, Law of the Federation, 2004 and in consequence thereof shortchanging the Federal Government of Nigeria and expropriating what is due from the additional revenue accruing long after the price of crude oil had exceeded $20 per barrel in real terms.”