The Supreme Court judgment on oil revenue
The Supreme Court, on October 17, delivered a consent judgment in the case between the Attorney General of Rivers State and two others and the Attorney General of the Federation. The judgment ordered the Federal Government to immediately commence steps to recover all the revenues lost to oil-exploring and exploiting companies due to wrong profit sharing formula arising from the failure to implement the Production Sharing Contract (PSC) entered into since August 2003. The judgment mandated the Federal Government to increase its share of revenue under the PSC whenever the prices of crude oil exceeded $20 per barrel in line with Section 16 (1) of the Deep Offshore Inland Basin Production Sharing Contract Act.
Since 2003, the Federal Government has failed to implement the contract which was reached with the oil majors. According to the terms of the contract, revenue sharing was supposed to be reviewed in line with increases in the prices of crude oil. But successive governments have failed to take advantage of the agreement. Appalled by this situation, three littoral states that would have been prime beneficiaries of the contract if it had been implemented went to court to address the situation. They contended that the Federal Government had been short-changed on its supposed share of estimated earnings of $1,149,750,000,000 under the PSC between 2003 and 2015. According to them, the huge losses suffered by the Federal Government was due to the failure of successive Ministers of Petroleum Resources for over 15 years to kick-start the re-adjustment of the sharing formula of 60 per cent share of oil profits to the Federal Government and 40 per cent to the oil companies.
This judgment by the Supreme Court is no doubt a great relief, particularly given the revenue situation of all tiers of government in the country. We commend the affected states for taking the matter to court. We urge other states with related grievances to take appropriate steps to seek redress through the court system. It is indeed surprising that the Federal Government allowed foreign oil companies to feed fat on the Nigerian economy. This rip-off could not have happened without the connivance or neglect of those responsible for the enforcement of the contract. It therefore behoves the Federal Government not only to obey the ruling of the apex court but also to ensure that those responsible for the situation are held to account.
Given the fact that it was the Federal Government that failed to exercise its right to upwardly review its revenue share when the prices of crude oil exceeded $20 per barrel, it is not clear how it would recover the huge revenue lost in the contract arrangement from the oil majors. It is is however clear that the judgment seeks to recover the loss. We call on all stakeholders to engage their consultants in the contract review process to ensure equity and compliance with relevant legislation and the the Supreme Court decision.
The consultation process seems to have commenced with the closed-door meeting between President Muhammadu Buhari and the governors of Rivers, Bayelsa, Delta and Akwa Ibom states on October 30 over the matter. We are however of the view that the process of redress should be a matter of public knowledge. Importantly, the president must address the country on how such a monumental loss was allowed to happen over such a long period of time. Furthermore, we note that officials of the Federal Government who had previously been implicated in corruption scandals involving the oil majors have gone scot-free, while their counterparts in foreign countries were put in jail.
Fighting corruption has been a major plank of the policy of President Buhari’s government. Addressing the circumstances that led to this huge revenue loss is a major opportunity for the government to demonstrate its resolve to address corruption by instituting transparency in the oil contracting process. The government must give account to the Nigerian people on the steps it is taking to prevent a recurrence of such failure to enforce a beneficial contract.