Introduction
The 2021 Marginal Field Bid Rounds ("The Bid Rounds") concluded with 57 marginal field assets awarded to 161 companies by the
According to the Guidelines for the Award and Operations of Marginal Fields in
However, despite the Guidelines and competing parties having individually submitted bids for specific fields, the DPR jointly awarded some fields to competing parties who bid independently. The implication is that these competing parties who submitted separate bids are now joint awardees and will be required to be joint venture partners to manage and operate the field. This development in the award process appears to be a deviation from the process envisaged under the Guidelines, and the amalgamation of bidders have thrown up specific issues.
In previous articles written by the firm, we had considered several issues, particularly concerning the status of the Guidelines as a statutory instrument, the corporate governance structure, loan security and quality of the assets to potential financiers1. However, the focus of this article shifts from the concerns of the potential financers to that of the bidders of the marginal fields. For instance, while bidders may have chosen initially to bid in consortiums due to the financially consuming nature of the bid, the amalgamation of these bidders becomes a merger of different consortiums which may complicate the carefully designed arrangement that each bidding consortium had.
This article therefore examines the bid process, potential areas of recourse for aggrieved bidders and mechanisms that can be adopted to resolve disputes that may arise.
Bid Process
Historically, disputes typically arise concerning the bid processes undertaken by government agencies. Such disputes usually relate to how the bid process was conducted, the integrity of the bid process, the selection criteria, allegations of unjustified disqualifications and revocations of successful bids. While some of the disputes have been found to be lacking in merit, there are some that the courts have considered meritorious, and the decisions of the courts have caused some disruptions to the ownership and management of the assets.
For instance, during the privatization process of the
The Guidelines & Inequality of
The Guidelines serve as DPR's Request for Proposal (RfP) or Expression of Interest (EoI). Thus, the deviation from the Guidelines and amalgamation of competing parties for the joint award of some fields may be interpreted as a breach of DPR's bid obligations towards the parties.
Although there is limited case law in
Additionally, parties may allege that they made offers to be solely awarded specific bids pursuant to DPR's Guidelines. Still, through the joint awards, DPR introduced a counteroffer by introducing new terms into the bid process. Although the parties may have accepted the counteroffer, there is a possibility that parties may allege they were constrained to accept due to the inequality in bargaining power3 between them and the DPR.
In
Therefore, based on this principle, aggrieved awardees may argue that the new terms introduced by the DPR constitutes a "take it or leave it" contract for which they may seek recourse from the Nigerian courts based on unfair terms or based on the inequality in bargaining power.
Expropriation
Parties should also be aware that they may have a cause of action where there has been expropriation (direct or indirect) against their assets. Direct expropriation may occur where a marginal field licence has been directly voided, revoked, or compulsorily acquired by the government. Indirect expropriation (or "creeping expropriation") occurs when there has been the implementation of enactments, policies, treaties, directives, etc., which negatively impacts investments (or impacts the grantees' ability to operate the assets) to the extent that it can be interpreted as an expropriation.
For direct expropriation, the Nigerian courts and arbitral tribunals are typically known to favour the investor and order the government to fulfil its agreement with the investor.
For instance, in the 2003 bid round, the
KNOC therefore instituted a matter,
Likewise, in FGN v.
Furthermore, foreign shareholders of awardees of the marginal fields may be able to find recourse for expropriation by instituting investor-state disputes against the government despite:
- having no direct contractual relationship with the government; and
-
there being no investment treaty between the state of the investor and
Nigeria .
In a recent decision by the
ICSID also found that the Nigerian Investment Promotion Commission Act has a sufficient framework for investors to commence investor-state arbitration against
This decision implies that foreign shareholders who may be from jurisdictions in which there is no investment treaty with
Contractual Disputes with
To further regulate the post marginal field award phase and ensure uniformity of agreements, the DPR provided a suite of template agreements to govern the relationship between the amalgamated grantees. These agreements include (1) An Agreement to incorporate a
Notwithstanding, it is not uncommon for disputes to arise on issues such as default in payment or other contractual obligations, allocation of profits, duties of the operator, etc.
The suite of template agreements provide for a two-tier dispute resolution procedure whereby parties are required to first refer their dispute to the Alternative Dispute Resolution Center8 (ADRC) in the Nigerian Oil &
Where parties are unable to settle through mediation at the ADRC, they may resort to arbitration pursuant to the Arbitration Rules contained in the Schedule to the Arbitration and Conciliation Act, Chapter A18, LFN 2004. Additionally, the suite of agreements provide that the arbitration shall take place at the
Conclusion
The Bid Rounds is expected to generate not less than
Therefore, it is essential that where parties are unable to settle disputes amicably through the mediation process at the ADRC, parties ensure that they immediately trigger any applicable arbitration process as this will afford an expeditious and party-controlled resolution of disputes while also helping to preserve parties' investments and interests in the marginal fields.
Footnotes
1. Aelex, 'INVESTING IN MARGINAL FIELDS - KEY CONSIDERATIONS FOR FINANCIERS' (AELEX,
2. [(2012) 18 NWLR (Pt.1332) 209]
3. Inequality in bargaining power refers to a situation wherein one party to the transaction is in a less privileged position that affords him fewer alternatives than the other party.
4. [(1987) LPELR-3494(SC)]
5. [FHC/ABJ/M/146/2009]
6. (SC 268/2001)
7. ICSID Case No. ARB/13/20
8. The ADRC was established on
9.
10.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Ms Perenami Momodu
AELEX
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Tel: 1279 3367
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