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15 October 2018
Recent reports about developments in an ongoing corruption case in Italy, which alleges corruption in Nigeria by oil giants Royal Dutch Shell and Italian company Eni, have increased speculation as to whether any meaningful proceedings relating to the matter will ever be brought in Nigeria.
The matter started in April 1998, when – just five days after its incorporation – Malabu Oil and Gas Limited was allocated two oil prospecting licences by the Department of Petroleum Resources in Nigeria's Ministry of Petroleum. There is no evidence that the required process for such an allocation was followed. However, this is unsurprising as the allocations occurred when General Sani Abacha was Nigeria's head of state and the major beneficial interests in the company were held by the then-minister of petroleum and one of Abacha's sons, Mohammed. The Department of Petroleum Resources merely acted as directed.
On 8 June 1998 Abacha died suddenly in circumstances that have never been publicly disclosed. He was succeeded by General Abdulsalaam Abubakar, who immediately started the process that saw the restoration of an elected civilian government on 29 May 1999, headed by former military head of state Olusegun Obasanjo. Various decisions made during Abacha's time in government were reviewed and many were reversed – including the allocation of a number of oil prospecting licences. However, Oil Prospecting Licence 245 was not revoked and, after receiving a letter from the Ministry of Petroleum in March 2000 to that effect, Malabu made arrangements with Shell Nigeria Ultra Deep Limited (SNUD) – a special purpose vehicle owned by Shell Petroleum Development Company Nigeria Limited (SPDC) – to assign a 40% participating interest in Oil Prospecting Licence 245 to SNUD. This arrangement was subject to the approval of the Nigerian federal government, which had not yet been granted, when in July 2001 the allocation of Oil Prospecting Licence 245 to Malabu was revoked. In May 2002, after receiving bids, the government awarded Oil Prospecting Licence 245 to SNUD.
As of May 2002 when Oil Prospecting Licence 245 was revoked, Malabu had paid only $2 million of the $20 million signature bonus that was a condition for the grant of the oil prospecting licence.
Following the revocation of Oil Prospecting Licence 245 and its subsequent re-award to SNUD, Malabu resorted to litigation and submitted a complaint to a committee of the House of Representatives of the National Assembly, which issued a report in May 2003 recommending the immediate restoration of the oil prospecting licence to Malabu. It is unclear what the basis for such a recommendation was, especially given that Malabu:
While Malabu was pursuing these various remedies, SNUD proceeded to enter into a production sharing contract with the Nigeria National Petroleum Corporation (NNPC), which was now the nominal holder of Oil Prospecting Licence 245.
Since 1993, production sharing contracts had been the means by which the Nigerian state sought to develop its petroleum assets, following its inability to meet the funding requirements of the previous method employed – joint operating agreements or joint ventures. Under production sharing contracts, oil companies would receive oil prospecting licences, usually valid for between five and 10 years. The companies would incur all exploration costs in the oil prospecting licence area, and if oil was discovered in commercial quantities during the oil prospecting licence's period of validity, the costs would be recovered employing machinery in use since 1993, but codified and made law only in May 1999 (back dated to 1 January 1993). If no oil was discovered, the oil companies would bear the loss.
In November 2006 Malabu settled its litigation against the government, which agreed to return Oil Prospecting Licence 245 to Malabu on the condition that Malabu pay the sum of $210 million (less the $2 million previously paid). The restoration of the oil prospecting licence to Malabu meant that it was taken from SNUD, which promptly instituted arbitration proceedings against the government at the International Centre for the Settlement of Investment Disputes (ICSID). Between 2006 and 2011, former petroleum minister Dan Etete – who controlled Malabu after having ousted Mohammed Abacha during the latter's period of legal and political travails – sought to monetise an asset that he was unqualified to hold. Unfortunately, none of the parties with the ability to realise what was widely accepted to be an extremely valuable asset was prepared to engage directly with Etete. This fact led him to seek the assistance of middlemen to negotiate with potential purchasers on his behalf. One such middleman was Energy Ventures Partners (EVP), a BVI-registered company that was solely owned and managed by Nigerian and UK national Chukwuemeka Obi.
In 2011 the then-attorney general of Nigeria reported that a 'resolution agreement' had been reached between six different entities, relating to the Oil Prospecting Licence 245 disputes. These entities were:
Under this arrangement, Malabu 'surrendered' Oil Prospecting Licence 245 to the Nigerian government, which in turn allocated it to SNEPCO and NAE. NAE and SNEPCO were to each contribute $500 million (making $1 billion). This money was then to be paid into an escrow account with JP Morgan Chase, which had already been established and held an additional $207 million representing a signature bonus owed to the Nigerian government in respect of Oil Prospecting Licence 245. The attorney general advised that although the oil prospecting licence had been surrendered to the government, the government had no interest in it and was acting only as a facilitator of the settlement.
Consequently, none of the escrow funds – including the signature bonus – belonged to the Nigerian government. All of the escrow funds – save for $200 million frozen on the application of EVP in English proceedings that it commenced against Malabu seeking a commission on the sale of the oil prospecting licence to Shell and Eni – were eventually paid out, with the bulk ($800 million) being paid to Malabu's accounts with two Nigerian banks on instructions from relevant Nigerian officials, who were signatories to the account.
However, in an entirely unexpected development, a prosecutor in Italy commenced an investigation into the entire transaction, alleging that it was a cover-up for the distribution of bribes to Nigerian government officials by Eni and Shell executives. At the conclusion of the investigation, corruption charges were preferred against Shell and Eni, as well as former and current executives of both companies. Also charged were Obi and Italian national Gianluca Di Nardo. All of the defendants denied any wrongdoing. Obi and Di Nardo opted to be tried by a fast-track procedure available in Italy and on 20 September 2018 were reported to have been convicted of international corruption. They were both sentenced to a term of four years' imprisonment. Obi was ordered to forfeit $98.4 million frozen in Switzerland (possibly part of the $100 million verdict secured by EVP in its UK action against Malabu) and Di Nardo was ordered to forfeit Sfr21 million. Neither Di Nardo nor Obi was in court and both remain free pending anticipated appeals. Testimony in the case against the other defendants commenced on 26 September 2018 and all continue to deny any wrongdoing.
Most intriguing to Nigerian observers is that it is unclear what – if any – steps Nigerian authorities have taken or will take in relation to investigating any wrongdoing under Nigerian law. There appear to be numerous issues in respect of which inquiries might be undertaken. These include:
Given Nigeria's whistleblower policy, it is something of a mystery that nothing appears to have happened on this front.
For further information on this topic please contact Babajide Oladipo Ogundipe at Sofunde Osakwe Ogundipe & Belgore by telephone (+234 1 462 2502) or email (firstname.lastname@example.org). The Sofunde Osakwe Ogundipe & Belgore website can be accessed at www.sooblaw.com.
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