To build virile, sustainable national institutions, uphold due process in diverse arenas and grow the nation’s economy, the sanctity of contracts must be respected. This is the pathway through which Nigeria can be taken seriously by international investors the country cherishes, as well as by other nations.
An awareness of this necessity clearly must have informed President Muhammadu Buhari’s enlightened intervention to reverse the misapplication of authority and miscarriage of justice in the matter of needless revocation of oil leases operated by Addax Petroleum Exploration Nigeria Ltd.
Addax Petroleum was established in 1994 and since August 2009 has been a subsidiary of the Sinopec Group, one of the largest oil and gas producers in China, the biggest oil refiner in Asia and the third largest worldwide.
On Friday, April 23 2021, President Buhari handed down an executive approval for restoration of the leases on OMLs 123, 124, 126 and 137 to the Nigeria National Petroleum Corporation (NNPC) which is in Production Sharing Contract (PSC) with Addax Petroleum. The leases belonging to the federation were revoked on March 30, 2021.
Mallam Garba Shehu, the Senior Special Assistant to the President on Media and Publicity, confirmed the development in a statement in Abuja on Friday. According to Shehu, the restoration of the OMLs to Addax Petrleum was in line with the current administration’s commitment to the rule of law, fairness and enabling a stable business climate for investment. He stressed that the development reaffirmed the commitment of the Buhari administration to the rule of law and sanctity of contracts and quoted the President as directing DPR to retract the letter of revocation of the leases.
More, the President also directed NNPC to utilize contractual provisions to resolve issues in line with the extant provisions of the Production Sharing Contract arrangement between NNPC and Addax.
The Presidential aide’s words: “The restoration of the blocks to NNPC will boost the organisation’s portfolio, thereby making the corporation to, in the long run, boost its crude oil production and in turn increase the revenue it generates to the Federation Account.”
More specifically, the Nigerian government, through the DPR, had erroneously revoked the four OMLs, alleging the company’s inability to comply with targets. Two weeks ago, a committee set by President Buhari to investigate Addax submitted a report, wrongly accusing the petroleum company of “economic waste.”
The committee led by a former Senator, Magnus Abe, said $1 billion had been invested in the contract but that Addax Petroleum called it off over an issue that was totally unrelated to the project. It alleged that the action put over 3000 Nigerians out of work, the committee said. Talk of giving a dog a bad name.
Shortly, like an entity working towards a set agenda, the DPR inaugurated a team to evaluate the “revoked assets” of Addax Petroleum Exploration Nigeria Ltd. DPR’s spokesperson, Paul Osu told Nigerians that, “DPR had recently revoked the four assets of Addax Petroleum Exploration Nigeria Ltd., namely OMLs 123, 124, 126 and 137 due to the non-development of the assets by the company.”
He further stated that a team of experts will evaluate the current status (As-is) of the revoked assets, including liabilities post revocation, in order to facilitate takeover of the assets by the new operators – Kaztech/Slavic Consortium. New operators? But the whole contrived game fell through with the President’s swift intervention.
What were the key issues involved in the apparent conflict between the Department of Petroleum Resources (DPR), an entity under the Nigeria National Petroleum Corporation (NNPC) and Addax Petroleum?
Tracking back, the NNPC/Ashland Production Sharing Contracts (PSCs) on OMLs 123/124 (formerly OPL 98) and 126/137 (Former OPL 118) were signed in 1973 and terminated after 25 years of operation. Thereafter NNPC signed another PSC with Addax Petroleum in 1998, on the same OMLs which were guided by the Petroleum Act and premised on OMLs 123 and 124 considered as one Contract Area and OMLs 126 and 137 considered as one Contract Area.
OMLs 123, 124, 126 and 137 are highly prolific assets with oil reserves of over 450 million barrels of oil and 5 trillion standard cubic feet of gas. OMLs 123, 124 and 126 are currently producing while OML 137 is a green field. Specifically, Clause 19 of the Production Sharing Contract clearly spells out the ground for the Termination of the PSC by the Concessionaire (NNPC) and this is predicated on any of the following four premises:
Addax defaults in the performance material obligation; Addax assigns its rights and interests under the contract without written notice and prior written consent of NNPC; Addax is adjudged insolvent bankrupt or to has made restitution to its creditors by a Court of competent jurisdiction in Nigeria; or that Addax liquidates or terminates its corporate existence.
It is vitally important to note that the PSC is a contract between the Concessionaire (NNPC) and the Contractor (Addax) and that clearly the regulator (DPR) is nowhere a party. But curiously in this case, the DPR exceeded its regulatory jurisdiction to terminate the contract
The key essentials of contract stipulate having two willing parties, meeting of minds between the parties and existence of consideration. Given the circumstances of the entire revocation, it is not illogical to clearly see that the regulator clearly erred and overstepped its bounds by not only terminating the contract between Addax and NNPC but also concocted a nonexistent contract between NNPC and KEL/SPR
Were the flawed revocation allowed to stand the government would have shot itself in the foot by this poor disposition towards contractual matters. But good a thing, clearly the President was far better informed on the issues at play. This is especially so, as already Nigeria has a poor reputation with respect to adherence to the rule of law and sanctity of contracts which the circumspect President Buhari administration has been making effort to correct.
Export of petroleum is the mainstay of the Nigerian economy and the major source of revenue for the country. The sector also contributes over 80 and 70% of export earnings and total government revenue, respectively.
Nevertheless, the country suffers from an inadequate supply of usable energy due to inadequate development and inefficient management of the energy sector.
Currently, most of Nigeria’s domestic petroleum products needs are met through importation, as the domestic refineries are not capable of supplying enough to meet the ever growing demand.
Against this backdrop, foggy policy moves in the critical sector could undermine economic progression and the transformation agenda of the current administration. The abrupt revocation of Addax Petroleum oil leases and re-awarding them to other entities do not serve the best interest of the nation. If the President was not as firm as he has demonstrated, it could best be imagined what muddle the DPR would have needlessly caused.
Significantly, whether or not certain persons conspired to ‘defraud’ Nigeria through the aborted revocation, the country would have found herself in another difficult strait if President Buhari had not stepped in to correct this mess. This would have been hugely unhelpful, given the current seismic global economic environment.
To manage this seismic environment requires a bold, well-informed and experienced leader on duty. With the aggravations seeded by rising tendencies and incidences of protectionism, new nationalism and anti-globalization – especially in the western hemisphere – it is clear that green-horns have no business playing in the strategic oil and gas sector.
To adroitly read and proactively react to a laundry list of fluid scenarios which include international geopolitical and trade tensions that unquestionably impact the dynamics of global trade require the firm guidance of a listening President. This is because these strains often spawn threats to macro-economic stability of the nation powered by the energy sector. In this case, President Buhari has demonstrated clear leadership and deserves commendation.
For keeping faith and demonstrating uncommon leadership and commitment in a particularly challenging period of the national journey, the President deserves kudos.
––Shittu, a public policy analyst, writes from Abuja.
