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2/ For context we at @Global_Witness last year commissioned an oil consultancy to analyse the deal. It found that 2011 Shell/ Eni deal will cost Nigeria nearly $6bn in revenue over the deal's lifetime compared to a standard Nigerian oil contract. globalwitness.org/en-gb/campaign…
3/ The hearing's started and the Public Prosecutor of Milan's expert witness is introduced as Dr Dayo Ayoade, a lawyer and lecturer on oil law at the University of Lagos.
4/ Dr Ayoade explains that under a 2010 Nigerian law, in place before the 2011 deal Nigerian owned companies must be considered first in receiving oil licenses. Eni and Shell's subsidiaries NAE and SNEPCO would not be considered Nigerian owned.
5/ Dr Ayoade explains that after the civilian government came to power in 1999 the military rule-era system of discretionary allocations of oil licenses was stopped because of its abuses and lack of transparency. A competitive bidding system was put in.
6/ Discretionary allocations are still allowed in "marginal fields" but Dr Ayoade explains that these small fields can't be compared to OPL 245, which has two oil fields ZabaZaba & Etan estimated to hold over 500 million barrels of oil. Making it one of the biggest in Nigeria.
7/ Dr Ayoade says that in his view is was anomalous that the Nigerian Government chose to conduct this settlement in this case when Malabu had failed to pay the $210m signature bonus to acquire the OPL 245 license in the first place. Nigeria could have revoked the license.
8/ Dr Ayoade considered it was strange that the Minister of Petroleum was not closely involved, instead the deal centred on the Attorney General. Yet the deal gave exemptions from taxes, awarded an oil license outside the usual process and restricted government rights.
9/ Dr Ayoade is asked about the role of Department for Petroleum Resources. He highlights the letter from their most senior civil servant objecting to the deal just before it was signed. The letter called the deal "highly prejudicial to the interests of the Federal Government"
10/ Dr Ayoade also found it concerning that Eni had not been involved the case but then was in a settlement for resolving a dispute that they had not been part of.
11/ Dr Ayoade explains that tax exemptions are built into tax laws or can be given by Executive orders, directives by the President which have to be recorded in the Federal Gazette. The deal is not in line with the law as the FGN cannot give an exemption without an order or law.
12/ Dr Ayoade is asked about the stabilisation clause in the deal. He says a model contract and Nigerian law allows for such clauses but they are open to question. courts have raised concerns that these clauses tie the hands of the National Assembly.
13/ Dr Ayoade says Shell and Eni's deal resembles a sole risk contract. Under Nigerian law sole risk deals in deep water are only allowed where the license holder is a Nigerian owned company. OPL 245 is an exception to this.
14/ Dr Ayoade explains that under production sharing contract you have Royalty Oil, Cost Oil, Tax Oil and Profit Oil. Shell and Eni's production sharing deal does not include cost oil or profit oil split with the government so its not in line with Nigerian law.
15/ Dr Ayoade says its also highly unusual and not in line with the law that under the deal for Nigeria to exercise its rights to buy back in to a stake in the license it would have to pay up front, the contract tries to overturn the law.
16/ Dr Ayoade says using escrow accounts is normal practice with International Oil Companies but the $1.1bn payment into an escrow account and an account with the Nigerian Government to pay a private company Malabu Oil and Gas is concerning. This was done to shield the companies.
17/ Dr Ayoade is asked about the value of the block, which he says is one of the biggest in Nigeria. He says he has instead relied on the evaluations by Shell and Eni,
18/ Now onto cross examination. But first the court has questions they'd like to put to Dr Ayoade about the indigenous policy, the Nigerian House of Representatives that censured Shell & ENI over the deal, how courts treated the resolution agreement and dropping of litigation.
19/ The lawyer for Descalzi is anxious that the report by Resources for Development and Dr Hubert was used in his review. The prosecutor offers to submit the report (already annexed to Nigeria's submission) and call Dr Hubert as a witness if needed. globalwitness.org/documents/1952…
20/ No questions on cross examination from defendants. We're back in court tomorrow to hear the expert witness for Nigeria. In the meantime check out Take the Future, published last November, which examines some of the issues being discussed in court globalwitness.org/en-gb/campaign…
