Nigeria: Court voids two arbitration awards worth N840bn against NNPC

A Federal High Court sitting in Abuja has voided two separate arbitration awards worth $5.25 billion (about N840 billion) against the Nigerian National Petroleum Corporation, NNPC, in favour of some oil exploration companies in the country.
In the first case, the court voided the arbitration award of $3.45 billion and $1.8 billion award in the second suit.
Trial judge, Justice Adamu Bello, in the two judgments that lasted over three hours, held that the subject matter of the arbitration, the interpretation, application and administration of the Petroleum Profit Tax Act and the Deep Offshore Act, Education Tax Act and Company Income Tax Act were functions solely to be carried out by Federal Inland Revenue Service, FIRS, and not the oil companies as they had done and had wanted to continue doing.
FIRS had filed the action to impeach the arbitral proceedings initiated against NNPC by oil majors in the country outside the country, on the grounds that the tax issues raised in the arbitration proceedings were not resolvable by arbitration.
It would be recalled that Shell, Esso, Nigerian Agip, Total Exploration had, following a dispute over Production Sharing Contract entered into on April 19, 1993 over Oil Mining Lease, OML, 118 in Bonga oil field, dragged NNPC before an arbitration panel which sat in South Africa and another European country and awarded costs against Nigeria.
Even before the arbitration panels entered their judgments, FIRS was in court, contending that the issues raised by the oil companies in the arbitration  panels concerned  taxation, which reference had been made to the arbitration and was not one which was allowed by law to be settled by arbitration.
However, the award of $3.45 billion in the Shell-led arbitration claim was on the verge of being made in South Africa before the judgment was delivered. The award of$1.85 billion against NNPC was hurriedly made in favour of the ESSO/Mobil-led arbitration claim during the pendency of the case but has been rendered illegal by the judgment.
Again in the AGIP led arbitration claim, an award of $592 million was also hurriedly made overseas on October 3, 2011, after parties had been served the court processes on September 29, 2011. The Statoil and Chevron led arbitration claim is ongoing in London despite service of court processes and hearing of the FIRS case at the Federal High Court, Abuja.
All these arbitrations were taken overseas as venue contrary to express provisions that it will be anywhere in Nigeria. All the claimants asked for an injunction restraining NNPC from lifting oil from most of Nigeria’s prolific offshore oil fields until they (oil companies) have lifted such quantities as would satisfy their claims and thereafter to stop NNPC from lifting what in their opinion was in excess of their perceived allocation for tax oil.
Counsel to Shell was Chief Richard Akinjide, SAN; that for ESSO/Mobil,  Mr Eyimofe Atake, SAN; Mr Etigwe Uwa, SAN, appeared for NNPC; Mr Fagbohunlu, SAN for Statoil and AGIP, while Mr J. Ugboduma also for NNPC and Mr Lucuis Nwosu, SAN for FIRS, the plaintiff in all the cases in court.
FIRS had in the suit asked the court to determine whether the arbitral tribunal before which the oil companies had dragged NPPC, had jurisdiction to enter a valid award on the issue of taxation of the oil companies, which will have a binding effect on the plaintiff in the interpretation, application and administration of the Petroleum Profit Tax Act and the Deep Offshore Act, Education Tax Act, Company Income Tax Act, and any other statute for the time being in force in Nigeria.
It also asked the court to determine whether the arbitral tribunal in the case of Shell Nigeria Exploration and Production Limited; Esso Exploration And Production (Deepwater) Limited; Nigerian Agip Exploration Limited; Total E&P Nigeria Limited; and NNPC had jurisdiction to determine the subject matter of the arbitration, which deals with taxation of the oil companies, which is solely the duty of FIRS and a matter, which jurisdiction is conferred on the Federal High Court by the 1999 constitution.
FIRS had also asked the court for an order revoking the arbitration clause in so far as it relates to taxation or in the alternative an order excluding taxation and matters related thereto from the ambit of the arbitration agreement between the defendants.
* An order restraining the defendants, by themselves, servants, agents or counsel from continuing with, or purporting to take any benefit from or abiding by any obligations or rights no matter howsoever described or arising from the arbitral proceedings or awards made pursuant thereto.
* A declaration that the arbitration provisions in the Production Sharing Contract and the defendants submission to an arbitration on matters exclusively reserved for the Federal High Court is unconstitutional, null void and of no effect.
Under the said allocation mechanism, portions of available crude oil sufficient to generate proceeds to cover payment of Petroleum Profits Tax or PPT (as defined by the Petroleum Profits Tax Act, PPTA; Education Tax, as defined by the Education Tax Act, and Royalty and Operating Costs (as defined by the PSC) were allocated for payment of the said obligations.
The oil companies, being aggrieved with the computation by NNPC of the PPT, Royalty and Investment Tax Credit (ITC) due pursuant to the PSC, the PPTA and Deep Offshore and Inland Basin Production Sharing Contracts Act, DOIBPSCA, commenced an arbitration contending that the PPT and Royalty as calculated by NNPC were inaccurate and that as contractor under the PSC, they had the exclusive right to compute PPT and make same returns which the NNPC was obliged to send to FIRS without any amendments.
They added that NNPC had been lifting oil in excess of the amount allocated to it by the oil companies for defraying Royalty and PPT.
The oil companies had urged the arbitration panel to resolve the issue as to whether the PPT calculations of NNPC was right and in accordance with the PPTA and to determine whether NNPC had been over lifting crude oil, a determination must first be made by the arbitration tribunal as to what the PPT obligations of the defendants were, what Investment Tax Credit was due and how it was to be calculated.
The oil companies had also asked the arbitration panel to determine the method by which cost of oil was to be computed; the method by which PPT was to be computed, the method by which the ITC was to be computed and whether certain costs, such as signature bonuses, loans interest and non-operator cost were deductible from otherwise subject to capital allowances for PPT purposes.
In the panels, the chairpersons/umpires were white, forcing on NNPC a situation where the oil companies nominated a white man as expected, with a white umpire and a Nigeria, which made the outcome of the arbitration predictable.
Meanwhile, FIRS has asked the court to refuse the application for stay of execution of the judgment by the oil companies, contending that it will be a great disservice to the country, if the NNPC was made to pay the awards, which it argued were illegal.