KNOC wins battle against Nigerian government

Korean National Oil Company (KNOC) won a major battle against the Federal Government over the revocation of two oil blocks allocated to it under the administration of President Olusegun Obasanjo. The Federal High Court sitting in Abuja quashed the decision of President Umaru Musa Yar'Adua to revoke the oil prospecting licence, saying the action was illegal, unconstitutional and unreasonable in the face of law.
Justice Mustapha Abdullahi, who presided over the court, said that the plaintiffs including KNOC Nigerian East Oil Company, KNOC Nigerian West Oil Company, Tulip Energy Resources Nigeria and NJ Exploration are entitled to the OPL 321 and 323. Defendants in the suit include the president of the Federal Republic of Nigeria, the Ministry of Petroleum Resources, Minister of Petroleum Resources, the Attorney-General and Minister of Justice, ONGC Videsh and OWEL Petroleum Services Nigeria.

The president had acted ultra vires in the disputed contract, through the Minister of State for Petroleum, said the court. Abudullahi held that the president has no power to void the allocation of OPL 321 and 323 belonging to the applicants in the manner it was done. He, however, explained that the President has the power to revoke such licences by virtue of section 5 (1) of the 1999 Constitution of the Federal Republic of Nigeria. But section 2 of the Petroleum Act 1969 confers on the Minister of Petroleum (and not a Minister of State) the power to revoke oil prospecting licences, he added.
Abdullahi, who also dismissed the preliminary objection, said that the power of revocation must be exercised in compliance with section 36 of the constitution with respect to fair hearing.

He described former President Obasanjo as a "double-barrel" President for combining the portfolio of minister of petroleum with his executive office. He explained that if the letter sent to the applicants had been authored by the senior minister, his finding would have been different.
The submission that the applicants did not pay the Signature Bonus of $ 485 mm was faulted because they actually asked for extension of 180 days as required by law. The bidding committee, he said, approved the extension and that the applicant in 2005 during the signing of contract had paid the sum of $ 175 mm.

Abdullahi argued that the revocation of the licence without informing the licensee before the expiration of the time was malicious. The President's letter only adduced non-payment of signature bonus as the ground for revocation, he said.
He restrained the defendants perpetually from interfering with the applicants' contractual duties as contemplated in the contract agreement, either through their agents or by themselves. After reviewing the submission of lawyers at the closing of their arguments, Justice Abdullahi said that the applicants complied with the terms of the agreement.

The plaintiffs had perpetually challenged the revocation of oil prospecting licence for two oil blocks, insisting that it signed a valid contract withthe Federal Government. The defendants said that the contract was revoked because of the plaintiff's failure to fulfil the terms and conditions of the contract.
The plaintiffs through Babatunde Fagbohunlu (SAN) of Aluko and Oyebode Law Firm, in their final submission said it was a misconception of fact for the defendants to claim that the contract was invalid.

Fagbohunlu urged the court to enter judgment in the plaintiff's favour by asking the defendant to restore the licence and declare that the purported revocation of his client's licence was illegal, unconstitutional and should be voided. He said that if the applicants had been given the opportunity to pay the signature bonus they would have paid $ 231 mm as the money currently exists in a stand-by letter of credit which they had asked them to provide. Fagbohunlu said that the only complaint was the signature bonus which was not paid in full.
"The common ground between parties is that $ 92.3 mm has been paid in cash. The money has not been returned and even if returned, it will not be accepted because the applicants have spent more," he observed.

Continuing, he said: "Throughout the period of two and a half years after the signing of the PSC and side letter, the two parties were operating on the basis that the arrangement under the PSC were operating side by side. There is no evidence before your lordship that they changed their mind."
"Somebody petitioned them; they considered the petition in the four walls of their office; they gave no notice of the petition to the applicants; they came to a decision on the petition that side by side letter was no longer effective and that the signature bonus had to be paid in full. They still did not inform the applicants of the decision."

According to him, the President did not act under the authority of any law and urged the court to hold that the president acted beyond his power. However, Mrs Agatha Mbamali, who represented the Federal Government, told the court that the government was dissatisfied with the performance of the Korean Oil Company who failed to invest in the downstream sector as agreed by both parties.
She said that the contract was revoked because the Federal Government did not give its approval for the letter of credit being used by the Korean company.

In his address before the court, counsel to OWEL Petroleum Services Nigeria, Dr Alex Izinyon (SAN), submitted that the contract was revoked in the overall interest of Nigerians and urged the court to dismiss the suit in its entirety. The court had renewed its order restraining government from taking over or disturbing the KNOC from carrying out petroleum exploration of the two oil blocks in spite of the ownership of Oil Prospecting Licences (OPLs') 321 and 323.
Reacting to the judgment, the lead counsel for the applicants, Chief Robert Clarke (SAN), said the judgment was a bonus to the country as the world would see credibility in the judicial system and the need to do business with the country.