EXPROPRIATION IN OIL AND GAS – NNPC v FAMFA OIL (2012) 17 NWLR

Expropriation as a word has the ordinary dictionary meaning of taking property or money from somebody, either legally for the public good or illegally by theft or fraud*. Expropriation could also refer to the deprivation of a person’s property or a person’s economic interest or benefit from a property. It may be the taking over of the physical property or the economic benefit from the property. It could be:
Direct – the physical taking over of a person’s property
Indirect – actions or omissions that adversely affect or deprive a person of the economic interest or benefit of the property.

By section 44 of the Nigerian constitution, 1999 as amended, nobody’s property shall be taken over by the government without adequate compensation. The Nigerian Investment Promotion Commission Act also provides that no person’s property shall be expropriated without adequate compensation. If for example, government makes a law that no one should use kerosene, people will stop patronizing kerosene producers and that will amount to an indirect expropriation of the producer’s economic benefit. Expropriation could occur due to variation in licensing agreements, revocation of licenses amongst other causes. The provision against expropriation is designed to protect investors, especially foreign investors. The landmark case of NNPC v FAMFA Oil went to restate and establish these provisions in working terms.

In this case, FAMFA Oil was granted an Oil Processing License by the Federal Government and consequently entered into Joint Venture agreements with Star Deep Water Petroleum Limited and Petrobas. Later on, the NNPC sought to compulsorily acquire 40% of FAMFA’s interest in the Oil Processing License. FAMFA challenged this decision in court and the court held the purported acquisition illegal, null and void. The court held that the government could only participate in an Oil Mining Lease Grant. FAMFA Oil subsequently discovered oil in commercial quantities and obtained an Oil Mining Lease. Before the grant, the government had promulgated the Deep Water Block Allocations To Companies (Back in Rights) Regulations which was to apply to all deep water blocks issued before the regulations came into force and others as may be issued from time to time; giving the Federal Government a right of participation in such Oil Mining Leases by acquiring five-sixths of the allotee’s interest in the Oil Processing License and Oil Mining Lease under terms and conditions to be decided by the Federal government.

The Federal Government relying on this regulation and the earlier high court decision, sought to compulsorily acquire five-sixths of FAMFA’s equity interest and a 50% participatory interest on the block.
FAMFA Oil went to court seeking that the actions of the government be declared illegal, null and void. The Federal High Court disagreed and they (FAMFA Oil) appealed to the Court of Appeal who allowed the appeal. The Federal Government then appealed to the Supreme Court contending that the government had a right to participate in the Oil Mining Lease. The issue before the Supreme Court was whether the 50% acquisition by Federal Government was constitutional. This case held the attempted participation in the Oil Mining Lease by the Federal Government unconstitutional as it did not comply with paragraph 35 of the Petroleum Act which mandates the government to negotiate the terms and conditions of a purported participation in an Oil Mining Lease with the licensee or lessee and consequently offending section 44 of the constitution which precludes compulsory acquisition of movable property or interest in movable property except as prescribed by law. This case not only established the provisions against expropriation, it also established the principles of rule of law especially as to the supremacy of the constitution.

 

*Microsoft® Encarta® 2009. © 1993-2008 Microsoft Corporation. All rights reserved.

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