FG Drags Addax Petroleum, NNPC To Court Over $3.09bn Unremitted Oil Tax
The federal government has dragged the Chinese-owned oil firm, Addax
Petroleum Development Nigeria Ltd before the Federal High Court in
Lagos over the company’s alleged under-remittance of $3 billion in
taxes and royalties.
The government is claiming in the suit before Justice Mojisola
Olatoregun that the sum represented outstanding claims against the oil
company under the Petroleum Profit Tax Act and Petroleum (Drilling and
Production) Amendment Regulation 2003 over Oil Mining Leases (OMLs)
123, 124, 126, and 137.
The government also alleged the $3 billion unremitted funds came as a
result of the oil multinational’s illegal and irregular reliance on
Side Letters dated 21st November 2001, 20th December 2001, and 24th
August 2004 which were never gazetted.
Apart from Addax Petroleum Development Nigeria Ltd other respondents
listed in the suit are: Addax Petroleum Exploration Nigeria Ltd, the
Nigerian National Petroleum Corporation (NNPC), the Ministry of
Petroleum Resources/Department of Petroleum Resources, and the
National Petroleum Investment & Management Services (NAPIMS).
The federal government is urging the court to grant an order directing
the NNPC, Ministry of Petroleum/DPR, and NAPIMS from further
allocation of crude oil explored from OMLs 123, 124, 126, and 137 to
Addax Petroleum pending when the company furnishes the court
verifiable Bank Guarantee from Nigerian banks to cover the monetary
claims of the plaintiff.
The government is also seeking an order restraining the NNPC,
Petroleum Ministry, and NAPIMS from dealing with Addax Petroleum as
well as stopping them from transferring or assigning their interest in
the OMLs to another person.
They are also seeking an order compelling the Nigerian agencies to
file an affidavit of facts detailing the company’s assets, properties,
and funds.
When the suit came up for hearing on Friday, Justice Olatoregun
granted the government leave to serve court papers on the NNPC, the
third respondent in the suit, whose office is situated in Abuja,
outside the court’s jurisdiction.
The government move to recover the funds from Addax is coming after
media reports on how the Chinese firm allegedly paid millions of
dollars in bribes to Nigerian officials to secure juicy contracts in
the oil industry.
In 1998, Addax Petroleum, a subsidiary of China’s Sinopec Group, one
of the world’s largest oil and gas producers, entered into a
Production Sharing Contract (PSC) with the NNPC (as concessionaire) in
respect of OPL 98/118 and OPL 90/225.
Four years later, the company discovered oil in commercial quantities
and the OPLs were converted into Oil Mining Leases (OMLs) 123/124 and
126/137.
The PSC entered by the two parties required Addax Petroleum to pay
royalties on any oil produced from the relevant oil blocks at the rate
of 20 percent as stipulated by law. It also provided that the
Petroleum Profit Tax Act (PPTA) applicable to the contract areas shall
be 65.75 percent for the first five years, starting from the first day
of the month of the first sale of the oil, and 85 percent thereafter.
But, according to the Statement of Claim filed by D.A Awosika &
Partners on behalf of the government, Addax Petroleum fraudulently
obtained a Side Letter in 2001 and 2004 which were “never gazetted”
and which they used in calculating their taxes and royalties.
The calculations in the side letters fixed the PPT payable by the
company at 60 percent and, rather than the 20 percent flat rate of
royalty, provided for a graduated rate depending on the volume of oil
produced from the oil blocks.
The side letters were signed by Engineer Funsho Kupolokun, then
Special Assistant on Petroleum and Energy to former President Olusegun
Obasanjo (in 2001) and Olabode Agusto, then Director General/Special
Adviser on Budget to the President (in 2004).
“Several objections and protests were raised by FIRS (Federal Inland
Revenue Service), NNPC, and DPR to the reliance on these side letters
by the Defendants to bypass, supplant, and subvert the process,” the
government’s lawyers stated in their claim.
“In 2003, in order to give effect to the graduated royalty regime
stated in the side letters, the Minister of Petroleum Resources (Mr.
Obasanjo) issued the Petroleum (Drilling and Production) Amendment
Regulations which provided for graduated royalty rates for onshore and
shallow offshore PSC which did not account for royalty by tranches.
“The Petroleum (Drilling and Production) Amendment Regulations 2003
when made was given retrospective effect from the first day of
January, 2000, which was the same date of commencement of the
graduated royalty rates contained in the side letters.”
Several meetings between Nigerian government officials – represented
by the FIRS, DPR, and NNPC – and representatives of Addax Petroleum
reassess and resolve the latter’s “colossal underpayment” to the
government between 2007 and 2012 yielded no results.
In one of the meetings, which it was discovered that the company’s
application of the graduated royalty rates as provided for in the
Petroleum (Drilling and Production) Amendment Regulations 2003 as
contained in the side letters was erroneous.
Rather than relying on the applicable royalty rates in calculating
their daily production volume, Addax Petroleum allegedly developed a
practice of slicing their volume rate of royalty to different tranches
of production thereby significantly reducing their royalty
obligations.
Government calculations of under-remittance showed that the company
withheld $1.3 billion in royalties and $1.7 billion in PPT.
But Addax Petroleum maintained its right to the use of the side
letters for computing the taxes on its operations and dragged the
government over accusations of a breach of their 1998 PSC on the oil
blocks.
In suit FHC/ABJ/CS/1099/2014 filed before former chief judge of
Federal high court Ibrahim Auta, the company sought a judicial
approval towards their continued use of the side letters to compute
its financial obligations to the Nigerian government.
However, on 26th May, 2015, three days before the administration of
then president, Goodluck Jonathan, handed over to his successor,
Muhammadu Buhari; the government negotiated a controversial out of
court settlement with Addax Petroleum, agreeing to pay the company
$3.4 billion (about N1 trillion).
Court papers filed by the Nigerian government’s lawyers stated that
Addax Petroleum “surreptitiously teamed up” with some officials of
DPR, FIRS, and NNPC to execute certain terms of settlement which was
eventually made the Consent Judgment of court notwithstanding the
pendency of several applications yet to be heard by the same court.
“In executing the said terms of settlement, the authorities were not
sought, no approval at Federal Executive Council level was given, the
governing boards of the FIRS, NNPC and DPR did not authorize those
officers that executed the bogus terms of settlement to so act,” the
lawyers argued.
However, in one of President Buhari’s first moves to clean Nigeria’s
corrupt oil industry, the NNPC in a letter to Addax Petroleum endorsed
by the president and dated 7th September, 2015, reversed the agreement
entered into by the previous administration.