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20 Jan

OIL AND GAS 1.6 REVERSION OF OIL RESIDUE

REVERSION OF OIL AND ELECTRICITY RESIDUE.

Reversionary interest connotes the right of the government to repossess title to natural resources that had initially been allocated to a corporate entity. E.g. a man lets his land to you for 3 years. After 3 years, the man can retake possession of the land.

Although Section 44(3) of the 1999 constitution vest ownership of petroleum in the FG, it fails to address the issue of reversion.

REVERSIONARY INTEREST IN ELECTRICITY: The Electricity Power Sector Reform Act 2005 vests ownership in the government. A license in this regard is the legal right granted by the NERC (empowered under Section 32) for the purpose of electricity transmission, trading, distribution and like activities. In Re An Application by Alliance Energy for Generation License, the court noted that such licence lasts for 10 years (though renewable) and reverts to the government when such time lapses or there is a breach of the terms of the licence. The licensee would be given notice of contravention and mandated to reorder steps. An application for renewal may be made after prescribed fees have been paid- Section 72. Licence cannot be transferred except with the prior consent of the commission-section 75.

There exists the generation, transmission, system operation, distribution and trading license.

In Minerals and Mining: Section 1 mineral and mining Act, Section 44(3) of the 1999 constitution, Section 1 Pact vest ownership of all minerals on the FG. Prior to the 1999 Minerals Act, there were various laws regulating specific minerals like the Diamond Trading Act, Gold trading Act, Tin Act, and so on.

One page to be updated.

In the Petroleum Sector:

In the SAPETRO’s case, the plaintiff held an oil prospecting licence of 1988. In 2008, half of the original area was relinquished. The plaintiff requested that it be allowed to continue to prospect in the remaining portion which was declined by the respondent. Its application for an oml in respect of the relinquished area was declined. At the Supreme Court, rather than pronounce on substantive issues, the court deliberated on whether or not leave of court is a statutory condition precedent to the exercise of right of appeal. Where it held that it was a mere non-compliance with rules of court amounts to a mere irregularity and held that the justice of the case required that the applicant be obliged. Just note the following points made in the case concerning reversionary right:

  • By virtue of Section 2 of the Petroleum Act, the grant of an OPL and OML and OEL is a discretionary power of the minister of petroleum resources.
  • The residue of the OPL can be relinquished to the government.
  • Even if the residue of the OPL is relinquished to the government, the minister has a discretion to grant an additional oml to the applicant from the residue- Regulation 2.
  • Where the minister declines to grant (as in this case), he cannot be challenged/compelled.

This decision shows that the minister is conferred with wide powers of discretion. This may encourage favouritism and abuse by an over-zealous minister. This wide powers may also scare foreign investor companies to other countries with favourable regimes. The law does not succinctly provide for automatic relinquishment. It is necessary that relinquishment and allocation must be a matter of law and regulation rather than discretion. In summary, there is no settled law/principle on reversion in the petroleum sector in Nigeria yet however, the SAPETRO’s case shows the wide powers of the Minister.

 

Isochukwu

Quite eccentric really

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