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Production Sharing Contract: Rivers wins $1.1bn derivation asset, Akwa Ibom $2.25bn

Rivers State has won a big case at the Federal High Court that can swell its treasury to the tune of $1.114bn, an amount more than its annual budgetary income. Akwa Ibom won even bigger, $2.256bn, about twice its annual income.

The amounts come from a case they filed in 2016 demanding for fair calculation from the Production Sharing Contract (PSC) which requires more share should the price of oil exceed $20 per barrel. These amounts had accumulated for years before 2016.

The Federal High Court sitting in Abuja presided over by Justice Taiwo O. Taiwo thus ordered the FG to pay Rivers State $1,114,551,610 and Akwa-Ibom $2,258,411,586.

These amounts would attract 10 percent interest until they are paid up. The FG is likely to appeal the judgment.

The money is the entitlement of Rivers and Akwa-Ibom States, based on the subsisting decision of the Supreme Court over production sharing contracts arising from the Deep Offshore and Inland Basin Production Sharing Contracts.

Justice Taiwo delivered the judgment in Suit No. FHC/ABJ/CS/174/2021 filed by the Attorneys-General of Rivers and Akwa Ibom States against the Attorney General of the Federation.

It would be recalled that in 2016 Rivers, Bayelsa and Akwa Ibom States, through their Attorneys-General, had sued the Federal Government, represented by the Attorney General of the Federation, at the Supreme Court in Suit No: SC.964/2016, seeking a declaration that there is a statutory obligation imposed on the Defendant (the Federal Government) pursuant to Section 16(1) of the Deep Offshore Inland Basin Production Sharing Act, Cap. D3 Laws of the Federation of Nigeria 2004, to adjust the share of the Federation in the additional revenue accruing under the Production Sharing Contracts if the price of crude oil at any time exceeds $20 per barrel.

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The states had asked the court to declare that the failure of the Defendant to accordingly adjust the share of the Government of the Federation in the additional revenue in the Production Sharing Contracts (variously approved by the Defendant) following the increase of price of crude oil in excess of $20 per barrel in real terms constitutes a breach of the said Section 16(1) of the Deep Offshore and Inland Basin Production Sharing Contracts Act and has therefore affected the total revenue accruing to the Federation and, consequently, the total statutory allocation accruing to the Plaintiffs by virtue of the provisions of Section 162 of the Constitution of the Federal Republic of Nigeria 1999, as amended.

The three oil producing states further prayed the court to issue a consequential order compelling the Defendant to adjust the share of the Government of the Federation in the additional revenue under all the Production Sharing Contracts in Nigeria’s Oil Industry within the Inland Water Basin Deep Offshore areas as approved by the Defendant from the respective times the price of crude oil exceeded $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.

At the Supreme Court, the Attorney-General of the Federation opted for an out-of-court settlement and consequently, terms of the settlement were duly drawn up by the parties and entered as the judgment of the court.

The judgment specifically stated that the reliefs in the amended originating summons relating to the larger interest of the Federal Government of Nigeria and the entire citizenry of the Federal Republic of Nigeria shall be diligently implemented.

It was also agreed that the Attorney-General of the Federation, working jointly with the Plaintiffs, should undertake to immediately set up a body and the necessary mechanism for recovery of all lost revenue accruing to the Federation Account in the past and up till the date of full recovery and accruing in future or an acceptable instalment payments thereof within 90 days next from the date of execution of these presents or its being made judgment of the court.

Following the judgment of the Supreme Court and in compliance therewith, the Attorney General of the Federation, the Defendant, constituted a body to determine the respective liabilities including the amount due to oil mineral producing states as derivation proceeds.

The report of that body stated among others that Rivers and Akwa Ibom States were entitled to $1,114,551,610 and $2,258,411,586, respectively, as derivation proceeds.

However, the AGF, without recourse to the governments of Rivers and Akwa Ibom States, unilaterally claimed to have settled with International Oil Companies (IOCs). It was this unilateral action on the part of the AGF, the Defendant, in the judgment of the Supreme Court that led the Plaintiffs, Rivers and Akwa Ibom States, to file the suit at the Federal High Court in Abuja.

Based on the suit filed by the states, the Federal High Court presided over by Taiwo Taiwo declared that Rivers and Akwa Ibom States were entitled to $1,114,551,610 and $2,258,411,586, respectively, as derivation proceeds.

The court also awarded a post-judgment interest of 10 percent in favour of the Plaintiffs until the final liquidation of the judgment.

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