Muhammadu Buhari. Picture: AFP PHOTO/MUJAHID SAFODIEN
Muhammadu Buhari. Picture: AFP PHOTO/MUJAHID SAFODIEN

It might not have come as a surprise to those who follow murky Nigerian politics that its attorney-general and justice ministry want international oil companies to pay $62bn (about R941bn) in outstanding revenues.

Ostensibly, Nigeria is pulling its shakedown playbook on oil majors such as Chevron, Royal Dutch Shell and Total for shortchanging the government under a revenue-sharing agreement struck in the 1990s.  

It is never easy to root for David over Goliath. But the legal battle between Nigeria — a R6-trillion economy — and five international oil companies, whose combined market value is more than two times the size of the country’s GDP, is a rare exception.

Instead of owning up to its own failure to initiate contract reviews all these years, the Nigerian government accused international oil companies of shortchanging it of $62bn.

Under the 1993 law, Nigeria signed the revenue-sharing agreement that allowed oil companies to keep 80% of the sales from deep-offshore oilfields while the government took the remaining 20%.

It looks like Nigeria is a victim of a neocolonial commercial exploitation, but the contract had a clause that allowed the government to review the contract as and when the price of crude shot past $20 a barrel.

When the contract was signed, the price of crude was cruising at about $17 a barrel. It breached the contractual level three years later, but Nigeria, under Sani Abacha’s dictatorship, failed to initiate the review, presumably because the price was too volatile to rework the contract as it dropped below the contractual level in 1997.

However, from at least 2002, when the US was preparing to invade oil producer Iraq to find nonexistent weapons of mass destruction, crude oil has been trading at well above the contractual level until today.  

Instead of owning up to its own failure to initiate contract reviews all these years, the Nigerian government accused international oil companies of shortchanging it of $62bn, the money its attorney-general and the justice department argue would have flowed to the fiscus had it revisited the contract.

Nigerian attorney-general Abubakar Malami should only be reviewing the contract as the price of crude oil is well above the contractual level — $55 a barrel as of Friday. End of story.

But he wants to go further. He wants to turn back the clock and make up for missing the opportunity to review the contract when crude started trading comfortably above the contractual level.

Oil companies have rightly gone to the federal high court to challenge the government’s claim that they owe the state money, but they cannot escape the reality the contract reviews have been long time coming.  

The case against multinational companies has less to do with non-compliance with the contract by oil companies, and more to do with the Nigerian government trying to plug holes in its budget. Nigeria relies on oil for about 90% of foreign exchange. Oil prices rose to more than $100 a barrel in 2014 before a sharp drop that triggered a 2016 recession in Nigeria, and the economy is not expected to grow more than 2% in 2019.

Last week’s news came within days of President Muhammadu Buhari, who is serving his second term, unveiling a record 10.33-trillion naira, or R410bn, budget for 2020 to members of his parliament.

Since taking over in 2015, Buhari has been drawing up budgets that expose his government fiscal constraints. But not to worry, multinational companies provide a ready outlet for his government to the plug budget holes.

Shortly after he was swept to power in 2015 on promises to fight corruption, he stunned the MTN Group with the equivalent of a R76bn fine for failing to cut off unregistered users.  

MTN, which makes a quarter of its core earnings, or ebitda, in Nigeria, agreed to pay about 30% of that amount. However, in 2018 the SA company was in the Nigerian government’s crosshairs again, accused of sending the $8.1bn abroad without proper paperwork. It settled the dispute with just $53m in December 2018.

Chances are Nigeria will settle for far less than the $62bn it demands from oil companies. The question is who is next? Shoprite? Standard Bank?