Monday, June 16, 2008

Between the Federal Government and oil multinationals

THE other week, President Umaru Musa Yar'Adua, acting on the advice of an ad hoc committee set up by his administration to investigate the implementation of contracts for huge offshore oil fields signed in 1993, ordered Royal Dutch Shell and Exxon Mobil to refund the sum of $1.9 billion (or about N223 billion).

According to the Federal Government, this sum of money represents outstanding payments due to the government from the Production Sharing Contracts (PSCs) from the Bonga and Erha Oilfields. Included in the said sum of N223 billion is an outstanding $850 million (or N98.4 billion) from Bonga oilfield contracts and $646.3 million (or N76.5 billion) from Erha oilfields, in addition to a sum of $414 million (or N48.4 billion) accruable from Bonga gas sale and tax revenue from gas sales on the contracts.

At least one of the two oil giants affected by the presidential order has reacted, drawing the Federal Government's attention to the dangers inherent in a retrospective abrogation of bilateral agreements. According to Shell, "we would like to reinforce that following recent statements relating to retroactive changes to fiscal terms, we are very concerned about the future potential implications for investor confidence in Nigeria...." That warning may very well be a factor to ponder over, considering the near-sacrosanct nature of bilateral agreements. However, even though the full contents of the 1993 contractual agreements, known as "Production Sharing Agreements", are undisclosed, a number of possibilities are worth considering: President Yar'Adua's directive for the recovery of the whopping sum of $1.9 billion from the oil moguls may have been actuated by strange discoveries in the 1993 contracts which afforded the oil

multinationals a tax holiday that was at variance with the facts and with the doctrine of public policy.

Under normal circumstances, a contract is binding on the parties to it, but it may be voided or voidable in so far as it contravenes public policy. To have resiled from the bilateral contracts made some 15 years ago, the Federal Government must have discovered that they (the contracts) were patently reprehensible - so obviously contrary to public policy - that they must be peremptorily styled illegal. The general principle, founded in public policy, is that any transaction that is tainted by illegality in which both parties are equally involved is beyond the pale of the law.

It is not impossible that the Nigerian negotiators in 1993 corruptly or ignorantly acquiesced in vital aspects of the contracts involving huge offshore oil fields, thereby intentionally or unwittingly and unduly benefiting the more knowledgeable authorities of the multinationals. It is not also unlikely that the Presidential ad hoc committee came upon some constructive fraud, a situation in which the representor had no honest belief in the truth of his statement. The oil industry is a highly technical terrain involving slippery gradients and scientific elements that cannot be said to be mutually intelligible to both the oil multinationals and the Nigerian officials.

In any contract involving this situation, that is, where one party alone possesses full knowledge of almost all the material facts, the law requires that party to show uberrima fides (utmost good faith). He must make full disclosure of all material facts known to him; otherwise the contract may be rescinded. Besides, there is a clear breach of the doctrine of public policy if it is clear, either directly from other circumstances, that the design of one or both of the parties is to defraud the revenue, whether national or local. It has also long been established that any contract is illegal which tends to corruption in the administration of the affairs of the nation (Blachford vs. Preston (1799) 8 Term. Rep. 89.

For a long time, the oil multinationals in Nigeria have practised creative accounting, fortuitously fleecing the country of its vast oil fortunes. Under the abrogated 1993 contracts, the oil companies - Shell and Exxon Mobil, were to recoup their elastic investment before splitting revenue from oil production with the State. That arrangement literally gave the companies a carte blanche to plough over the oil fields gratuitously, appropriating staggering sums of money to themselves in terms of investment recovery.

We are persuaded that all existing Production Sharing Contracts (PSCs) between Nigeria and all oil multinationals should be renegotiated forthwith. The Federal Government must make sure that the negotiators on the Nigerian side are not only persons with unimpeachable integrity but also men and women who are conversant with the arcane language of petroleum technology. Additionally, since bilateral agreements - between Nigeria and multinationals - are in the nature of treaties, all the renegotiated PSCs and kindred agreements should be made subject to ratification by the National Assembly.