With the next bid round expected soon, Niyi Ayoola-Daniels Esq examines the law and practice of oil bloc acquisition in Nigeria and argues that Nigeria should place national interest above sweet-coated globalisation principles

This write up examines the law and practice of Oil Bloc Acquisition in Nigeria. An attempt would be made to put a searchlight on the comparative analysis of practices in other jurisdictions like the UK and U.S. on modes of acquiring oil exploration licences. These practices would be linked with the Extractive Industries Transparency Initiative (EITI) principles on disclosure and publicity of oil royalty payment.

World over, there are two modes of acquiring oil exploration and production blocks. The first mode is what is generally referred to as Discretionary Allocation System while the second is the Competitive Bidding System.

Perhaps for reasons of strategic national interest, few countries use either system in its immaculate form. Generally, most countries have a modified mixture of the two systems. Even countries that are well known to have adopted a system based on competitive bidding have nonetheless enacted statutes and regulations that allow some discretion and variation in the award of oil exploration licences. It must always be remembered that crude oil occupies a special and sensitive position in any discussion, especially as it relates to security and national interest. The reality for now is that petroleum remains perhaps, the single most valuable asset of any nation. The price of crude oil alone exerts a powerful influence on all facets of global economy. The economies of all the industrialized and most developing countries are highly sensitive to the politics, price and availability of petroleum which with its all encompassing gripping influence on everything from transportation to constant power supply for home, offices and industries, to availability of agricultural fertilizer and ultimately food on our dinning tables. In today’s world, whether in times of war or peace, crude oil is easily the most politicized, most powerful and most important commodity in international trade and relations.
Oil Block Acquisition under Nigeria Law
Section 1 (1) of the Petroleum Act 1969 vests the entire ownership and control of all petroleum resources in, under or upon any lands in Nigeria (including lands under Nigeria’s Territorial Waters, Continental Shelf and the Exclusive Economic Zone) in the Federal Government of Nigeria.
Section 2 of that Act confers discretionary powers on the Minister of Petroleum Resources to grant an Oil Exploration Licence (OEL) to explore for petroleum, an oil prospecting Licence (OPL) to prospect for petroleum and an oil Mining Lease (OML) to search for, win, work, carry away and dispose of petroleum. And since seismic data are now generally available in Nigeria for most basins (Inland, Offshore, Deep Offshore, etc), oil companies do not apply for Oil Exploration Licence (OEL) these days. They apply directly for oil prospecting licence. Under paragraph 6 of First Schedule to the Petroleum Act, the Minister of Petroleum Resources is also conferred with discretionary powers to determine the duration of an Oil Prospecting Licence which shall not exceed five years including any period of renewal. But in the case of a Deep Offshore Licence the duration of an Oil Prospecting Licence is for a minimum period of 5 years and an aggregate period of 10 years. This is by virtue of Deep Offshore and Inland Basin Production Sharing Contract Act No. 9 of 1999. The maximum exploration area of OPL is 2,590 square kilometers. Generally a grant of OPL is subject to Federal Government participation as a special term or condition of the grant.
This term becomes operational once the OPL holder attains a level of commercial production of crude oil satisfactory to the Department of Petroleum Resources and the Minister of Petroleum Resources considers national participation to be in the public interest. The statutory authority for national participation is contained in First Schedule paragraph 35 of the Petroleum Act.
Eligibility Requirements for Oil Block Allocation in Nigeria
Section 2 (2) of the Petroleum Act provides that the Minister of Petroleum Resources may grant an OPL or OML “only to a company incorporated in Nigeria under the Companies and Allied Matters Act or any corresponding law”. It is clear from the provisions of all the relevant petroleum laws in Nigeria that the only mode of acquiring Oil Exploration and Production Rights is through discretionary allocation by the Minister of Petroleum Resources. Without a doubt there is no single provision for open competitive bidding system as a mode of granting exploration rights in Nigeria. There is nothing on the face of either the Petroleum Act or any of the regulations to show that the Minister is under any legal duty to give reason for granting or refusing to grant an OPL or OML.
It must be clearly restated here that under Nigerian law, there is no provision that says “Oil Block that receive no bid in open auctions are reserved for the next round”. THISDAY editorial of Monday November 13, 2006 while commenting on “Addax: An Oily Acquisition” wrote “with that sign up, Nigeria’s version of EITI (NEITI) started the open bidding for oil blocks in 2004. What that means was the outright cancellation of the President’s discretionary powers to award oil blocks”. With due respect to THISDAY editorial, these affirmations are inaccurate. To put the record straight, the first open competitive bidding system for petroleum acreage allocation in Nigeria took place in October 1990 and May 1991 and not in 2004 as claimed by THISDAY. This was well over a decade before Nigeria subscribed to EITI. According to guidelines published by the Department of Petroleum Resources (DPR) for the bidding exercise “open acreages were offered on the basis of competitive tenders (see Guidelines for offer of open acreages for Petroleum Exploration and Production in Nigeria, Ministry of Petroleum Resources, 1990.
Benefit of discretionary allocation system
One distinctive feature of discretionary allocation system is that it permits the government to grant licences to achieve specific national energy goals and objectives. Government policies should be built around striking a balance between globalisation which is the bedrock of open bidding system where the highest bidder takes all and national interest of a country.
It then becomes the task of government using the instrumentality of the law and regulatory guidelines to provide the machinery for achieving that balance. What that balance should be varies from time to time and from countries to countries depending on a country’s level of industrialization, its political stability, economic and technological sophistication and its human resource capacity. As laudable as the objectives of the EITI principles are, Nigeria should be discerning in its energy goals and objectives and not to slavishly adhere to the principles in its purest form. National interest should be paramount here. Ambitious and flirtatious quest to acquire juicy oil acreages in Nigeria by the powerful industrialized nations through open competitive bidding system especially by China should be thoroughly scrutinized. With a foreign reserve of $1 trillion, China can support any Chinese company to outbid any Nigerian Oil Company and acquire any oil acreage in Nigeria at any price. Although it must never be forgotten that globalisation and open bidding system have their own advantages, they also have their unique trappings. For this purpose, my suggestion is that Nigerian Government should through legislation, incorporate a mixture of discretionary allocation system and open bidding system in awarding oil block acreages. The objective of the former is to achieve the country’s national energy interest. This should be strategically anchored on continuous encouragement of indigenous Nigerian Oil Companies to acquire petroleum acreages and thereby enthroning a truly Nigerian Content policy in the exploration and production sector of the oil and gas industry.
Perhaps I should add that the creation of a mega and wholly-owned Nigerian Transnational Corporation like TRANSCORP is a step in the right direction.
Not only will this enhance the capacity of Nigerians to compete globally, it will also enhance the development of the local content policy of the Federal Government. This is because Nigerians would be in a better position to acquire greater stakes in the petroleum and other extractive industries within and outside Nigeria.
Legal Status of EITI principles in Nigeria
With due respect to THISDAY editorial, Nigeria signing up to EITI principles has not and cannot cancel the President’s discretionary powers to award oil blocks. Firstly, EITI principles are entirely voluntary. The Nigerian Extractive Industry Transparency Initiative Bill (NEITI Bill) is still before the National Assembly. It is not legally binding on Nigeria presently. By virtue of section 12 of the 1999 constitution, an International Treaty entered into by the Government of Nigeria does not become binding until enacted into law by the National Assembly. Before its enactment into law, it has no such force of law as to make its provisions justiciable. Secondly, the British and the U.S. compliance to EITI principles as would be shown in this write up, are not sacrosanct.
Thirdly, apart from the fact that the combined effect of the 1999 Constitution and the Petroleum Act authenticates and retains the discretionary powers of the President (as Minister of Petroleum Resources) to grant oil blocks, the UN Resolution 1803 on Permanent Sovereignty over Natural Resources recognizes the sovereignty of a state over its natural resources and the disposal of same on the basis of national interest.
Resolution 1803 states:
1. “The right of peoples and nations to permanent sovereignty over their natural wealth and resources must be exercised in the interest of their national development and of the well-being of the people of the state concerned.
2. In cases where authorization is granted the capital imported and the earnings of that capital shall be governed by the terms thereof, by the national legislation in force, and by international law. The profits derived must be shared in the proportions freely agreed upon, in each case, between the investors and the recipient State, due care being taken to ensure that there is no impairment, for any reason, of that State’s sovereignty over its natural wealth and resources”.
Discretionary Bidding System: British Experience
British energy goals have varied as North Sea development has progressed and different administrations have come to power. Under the Labour Government, the concern was with increasing governmental control over British oil reserves and instituting new system of petroleum taxation. Under Margareth Thatcher, the Conservative Party proudly adopted a system that was designed to achieve specific British energy goals.
To a considerable large extent, the energy goals of United Kingdom have been achieved through a system of discretionary licensing system. The British Government knew that the enormous capital resources of the foreign investor companies would allow them out bid the relatively small British oil companies. Thus the U.S. system of awarding oil block acreage based on open bidding system was first rejected by the British in favour of discretionary system of licensing. Today, British government practice is a mixture of the two systems.
The Experience of UK, Canada and U.S. with EITI Principles on disclosure and publicity on oil royalty payment
In the UK, the requirement for disclosure of composite profit and taxes paid by extractive industries is limited to only a segment or geographical area and not by British government itself. In the U.S. which is home to many extractive companies records of tax payment by listed companies are tracked through the Securities and Exchange Commission for its internal security records and for inspection by U.S. regulators. There is no law requiring such records to be published or otherwise made publicly available.
Perhaps it is only in Canada that there is a law on disclosure of oil royalty payment by companies registered in Canada but operating under another country’s jurisdiction.
Conclusion
Nigeria should constantly gauge its own national interest as it affects oil acreage allocation. The country must always scrutinize meticulously the sweet-coated globalisation principles championed by industrialized Western countries. And according to Dr. Steve Azaiki, “But to the extent that trade remains war by other means, the West will obviously deploy its arsenal to cajole and to corral its customers on the African continent. Where there are recalcitrant nations, the West will not hesitate to employ other means to achieve their objectives”.
It is therefore hoped that the National Assembly will be careful in adopting some of the principles of NEITI Bill which do not give primacy to Nigeria’s national interest. Any notion of transparency, disclosure and publicity in the Bill must be matched against national interest and security. This should be the overriding consideration.

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