More reasons have emerged why Nigeria’s Department of Petroleum Resources (DPR) decided to revoke four Oil Mining Licences (OML) belonging to Addax Petroleum.
BusinessDay had earlier reported on April 4 that the Federal Government had revoked the licences of OML 123, 124, 126 and 137 belonging to Addax Petroleum due to non-development of the assets by the company.
According to DPR’s CEO, Sarki Auwalu, over 50 percent of the assets had remained underdeveloped, resulting in loss of revenue to the Federal Government.
“Addax refused to develop the assets, and Addax were therefore not operating the assets,” Auwalu said.
The DPR boss pointed out that going by the country’s Petroleum Act, “the first reason for a revocation is when you discover that the asset is not being developed according to the business guidelines, because it is economic sabotage.”
The decision to revoke the licence and reassign them to Kaztec Engineering Limited/Salvic Petroleum Resources Limited has generated fresh debate about how the government handles oil licensing, most especially for troubled or non-producing oil assets.
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Niyi Awodeyi, CEO at Subterra Energy Resources Limited, says the government has been having a lingering battle over those assets for a long time, which is depriving Nigeria significant amount of oil revenue.
“Why keep something that is depriving the country of huge revenue, which we desperately need now when we can find other investors?” another source close to Nigeria’s petroleum sector, asks.
He notes that Addax has been having a long protracted battle with the Nigeria government over-under remittance on those oil fields.
The Nigerian government commenced legal proceedings against the Chinese-owned oil firm, Addax Petroleum Development Nigeria Limited in 2018 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 OMLs 123, 124, 126, and 137.
It also alleged the $3 billion unremitted funds came as a result of the oil multinational’s illegal and irregular reliance on Side Letters dated November 21, 2001, December 20, 2001, and August 24, 2004, which were never gazetted.
The Nigerian government alleged that 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 blocs.
Controversial ‘Side letters’
In 1998, Addax Petroleum, now 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 blocs 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, the lawyers prosecuting the case on behalf of the Nigerian government, Addax Petroleum fraudulently obtained a Side Letters 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 blocs.
The side letters were signed by Funsho Kupolokun, then special assistant on Petroleum and Energy to 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 Federal Inland Revenue Service (FIRS, 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.
Several meetings between Nigerian government officials – represented by the FIRS, DPR, and NNPC – and representatives of Addax Petroleum to reassess and resolve the underpayment between 2007 and till date have yielded no results.
All efforts to reach Addax via email to confirm or deny the latest development proved abortive.
