Supreme Court grants Akwa Ibom, Bayelsa, River states suit for sharing formula of oil proceeds

Rivers State, Akwa Ibom State and Bayelsa State state instituted an action with suit number SC.964/2016 against the Federal Government at the Supreme Court in 2016. The basis for the institution of the action was for the court to interpret the provisions of Section 16(1) of the Deep Offshore and Inland Basin Production Sharing Contracts Act.

The section reads-“(1) 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 shall be economically beneficial to the government of the Federation.”

The foregoing provision requires that there should be an upward review of the share of the Federal Government of Nigeria anytime the price of crude oil rises above 20 dollars per barrel. However, the Federal Government hasn’t taken advantage of the earlier quoted provision of the law that has been in place since 1999. The standard that is being used by oil companies to date is still 20 dollars per barrel. The states alleged that between 2003 and 2015 the Federal Government lost an estimated sum of $1, 149,750,000,000 due to failure to do an upward review of the sharing formula.

They argued that the Production Sharing Contracts between the Federal Government and the International Oil Companies which fixed the present mode of sharing profit is no longer valid as the price of oil per barrel is no longer at $20. Therefore, there must be an upward review in line with Section 16(1).

The suit filed by the three states prayed the court to determine whether there is a statutory obligation imposed on the Federal Government under Section 16(1) of the Deep Offshore and Inland Basin Production Sharing Contracts Act to adjust the share of the Federal Government since oil price per barrel now exceeds $20. The states further sought an order of court declaring the failure of the federal government to increase its share as a breach of the law.

The parties to the matter came to an agreement and filed terms of settlement on April 6, 2018. The terms of settlement filed by parties was adopted by the Supreme Court as its judgement in the matter. The said terms of settlement was signed by the Attorney Generals of the three states and the lead counsel for the Attorney General of the Federation (AGF).

The content of the terms of settlement indicates that the AGF is to set up the mechanism for the recovery of the shares of the federal government within 90 days. The said recovery is to be from August 2003. In doing this, the AGF is to work with the three states as the solicitors of the three states or their nominated professional advisers are to be members of the recovery body.

Therefore, the terms of settlement has taken care of the prayers (a) to (c) of the three states. The prayers are reproduced below-

(a). “a declaration that there is a statutory obligation imposed on the defendant (the AGF/FG) pursuant to Section 16(1) of the Deep Offshore and Inland Basin Production Sharing Contracts Act, Cap D3 Laws of the Federation of Nigeria 2004, to adjust the share of the Government of the Federation in the additional revenue accruing under the Production Sharing Contracts if the price of crude oil at any time exceeds twenty dollars ($20) per barrel in real terms to such extent that the Production Sharing Contracts shall be economically beneficial to the government of the Federation; and a fortiori the component Federating States of the Federal Republic of Nigeria especially the 1st, 2nd and 3rd plaintiffs.”

b) “that the failure of the defendant (Federal Government) to accordingly adjust the share of the Government of the Federation in the additional revenue in the Production Sharing Contracts…” constitutes “a breach of the said Section 16(1) of the Deep Offshore and Inland Basin Production Sharing Contracts Act”

c) “ order compelling the defendant to adjust the share of the Government of the Federation in the additional revenue under all the PSC in Nigeria’s oil industry within the Inland Basin and Deep Offshore areas as approved by the defendant from the respective times the price of crude oil exceeded twenty dollars ($20) per barrel in real terms and to calculate in arrears with effect from August 2003 and recover and pay immediately all outstanding statutory allocations due and payable to the plaintiffs arising from the said adjustments.”