BREAKING NEWS, Oil & Gas
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Department of Petroleum Resources warns Joint Venture Partners, who want divest their interest in Nigeria, to comply with the provisions of the Petroleum Act of 1969
| By Anayo Ezugwu | Jun. 16, 2014 @ 01:00 GMT
THE federal government has accused the oil companies operating in Nigeria of diversion of interests, especially in the Joint Venture, JV, arrangements with the Nigerian National Petroleum Corporation, NNPC. It said the way and manner the oil companies are divesting its interests is a violation of the Petroleum Act of 1969, as amended.
The government also accused the JV partners of carrying out divestments in a way that is contrary to the provisions of the Petroleum Act of 1969, which requires that “prior consent of the minister of petroleum resources be obtained before the assignment of any right, power or interest in any Oil Prospecting License, OPL, or Oil Mining Lease, OML.
The Department of Petroleum Resources, DPR, said in a recent memo with reference number PI/1160/A/Vol.10/251, which was addressed to companies involved in the sale of assets, that “in virtually every transaction that takes place, the divesting parties apply to the minister for consent after the transaction has been consummated,” thereby giving the federal government a “fait accompli.”
The letter, which was signed by George Osahon, director, DPR, also pointed out that by failing to obtain the consent of the minister before the consummation of the deal as required by law, the divesting parties flagrantly contravene the provisions of the Petroleum Act of 1969. He noted that the approach of seeking ministerial consent after the deal has been consummated puts undue pressure on the minister and the regulatory agency, thus making it difficult for them to carry out the required due diligence on the capability and suitability of the new buyers to operate the assets.
Osahon also raised concern on the pricing of the assets being divested, saying that some of the offers were grossly out of tune with the value of the assets. “Ordinarily, the reference value of the assets should be the book value plus some ‘good-will’. However, government appreciates the commercial nature of such transactions and the legitimate need of companies to make ‘decent’ profit but this should not be at the expense of the huge negative impact that such bloated values have on government coffers from the viewpoint of taxation,” he said.
According to Osahon, another worrisome aspect of these divestment and acquisition transactions is the tendency by the sellers to impose conditions, which linger beyond the closure of the deals. “For example, a situation where buyers are forced into crude oil sale purchase agreements, CSPA, as a condition for sale of the assets simply fetters the right of the buyers to sell to whomever they wish, thus rendering them incapable of making reasonable commercial decisions.”
He further stated that the more severe implication of this arrangement was that the conditions literally diminished government’s revenues from the sales of crude oil by the buyers and warned that unless buyers entered into such agreements in their own free will, government would withhold consent to such transactions.
Osahon also warned divesting parties against imposing Domestic Gas Supply Obligation, DGSO, volumes on the buyers without the authorisation of the DPR, which has the responsibility to assign volumes in accordance with established principles. He warned divesting parties to strictly comply with extant provisions of the law, which requires prior consent of the minister and also reminded them that under Paragraphs 14, 15 and 16 of the First Schedule to the Petroleum Act, the minister reserves the right to impose a fee or premium or both before granting consent.
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