That $9bn Award Against Nigeria
You are forgiven if you think an English high court just awarded a $9 billion fine against Nigeria in a case of breach of contract with Process and Industrial Developments Limited (P&ID), a little-known Irish engineering and project management company. Actually, the award was made as far back as July 2015 by an arbitration panel sitting in London. What happened in London on Friday was a failed legal move by Nigeria to stop the enforcement of that judgment. If it is implemented, Nigeria’s bank accounts in the UK, where parts of our foreign reserves are warehoused, would be at risk and that would be a catastrophe for our international trade, to put it in a less scary language.
Although Nigeria is fighting tooth and nail to stop the enforcement of what is easily one of the largest arbitration awards in human history, anyone familiar with the entire fiasco loss of “potential” income. Nigeria argued knows that we are fighting a tough battle. that P&ID was supposed to have acquired We are primarily basing our objection on the the land in Cross River and built the processing fact that Nigeria is a sovereign state and “has facility before the government could build a an absolute right to obtain an authoritative gas pipeline to site. The company, however, determination of its sovereign immunity”. Put argued that Article 6(b) of the GSPA did not another way, we are arguing that we have state any such precondition. Apparently, immunity as a sovereign nation — and therefore the federal government had not shown any the judgment cannot be enforced against us. seriousness in building the pipeline and P&ID We are also arguing that P&ID did not fulfil its too had started foot-dragging. With the way own part of the contract and cannot, therefore, the arbitration was going against Nigeria, the be making any claims on us. federal government started making moves to
Let us briefly go over the genesis of the settle the dispute out of court. Offers were transaction, which could end up in an made to P&ID to that effect. apocalypse. P&ID was founded by Irishmen P&ID agreed to accept $850 million in Michael Quinn and the late Brendan Cahill, two compensation, negotiated down from an men who had had over 30 years’ experience initial proposal of $1.5 billion by a government in engineering projects in Nigeria. In January committee. The payment was to be made in 2010, the federal government entered into a four tranches — $100 million at first and then 20-year gas and supply processing agreement in three instalments of $250 million each. These (GSPA) with P&ID to build a gas processing were in the last days of President Jonathan, who facility. P&ID was to refine associated natural gas had lost his re-election bid. He still wanted the into non-associated gas to power the national figure reviewed downwards, but decided to leave electric grid. Dr Rilwanu Lukman, who died matters for in-coming President Muhammadu in 2014, was the minister of petroleum at the Buhari. However, the Buhari administration, time (President Umaru Musa Yar’Adua was without a cabinet in place, did not follow up. on a medical trip to Saudi Arabia). P&ID then got the award in July 2015 — $6.6
Under the agreement, Nigeria was to receive billion for “loss of income” over the lifespan 85 per cent of the refined non-associated gas, of the GSPA and $2.3 billion in interests. free of charge, for power generation and In fairness to Buhari, when he came in, industrialisation. P&ID would receive the Nigeria’s economy was already on its knees. remaining 15 per cent and the by-products – Oil prices were down, there was forex crunch namely methane, propane and butane – which and states were owing salaries. The last thing it would export. Nigeria would also benefit on his mind was an $850 million payment for from the export proceeds through its 10 per a project that never was. It seemed somebody cent stake in P&ID. As in all agreements, there whispered to Buhari to ignore the settlement are obligations on both parties: the Nigerian agreement because of the “PDP factor”. That government was to supply 150 million standard was a very wrong approach, I would say. cubic feet (scf) of gas per day to the plant. This If Buhari did not like the figure, he could was to rise to 400 million scf in the life of the have further negotiated it down. Nigeria is a project. The gas was otherwise being flared sovereign entity and agreements are binding on by the oil-producing companies. all administrations. The P&ID guys complained
But there was an initial obligation on the that they waited in vain for Nigeria’s phone country — the GSPA required the government call, so they continued with the arbitration to build a gas supply pipeline to the P&ID and got the huge award. facility to be located in Adiabo, Odukpani LGA, What is the way forward? Nigeria is doing Cross River state. The gas was to be sourced everything possible to make sure the judgment by the government from OMLs 67 and 123 is not enforced. P&ID had instituted “recognition operated by Addax Petroleum. And this was and enforcement” proceedings in the UK and where everything began to go wrong. Nigeria the US. It won in both jurisdictions and this did not build the pipeline. P&ID said it had would allow them to seize (“attach”) Nigeria’s spent about $40 million on the project and assets in both countries. However, Nigeria filed the failure of Nigeria to build the gas pipeline objections in the UK and the US on the basis of had breached the agreement. The crisis went the country’s sovereignty. P&ID asked the US unresolved and in August 2012, the company court to dismiss Nigeria’s objection as “frivolous” activated the arbitration clause, filing a case of but the court has refused to do so, which gives breach of contract against Nigeria in London. us a ray of hope. Sadly, the English court on P&ID sought a compensatory award for Friday dismissed Nigeria’s objection, which
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means the award can be enforced in the UK. We will surely appeal.
Now, here are my thoughts. If we had been a serious set of people, this gas project was going to benefit us tremendously and we should have followed through. For one, it would have helped in addressing gas flaring. The associated gas was to be refined for power generation. That would have improved power supply. Also, we would have earned forex from the export of the by-products. Meanwhile, when things were going wrong, we should have mounted a strong defence. When judgment was given against us in July 2015, we went to sleep. We could have challenged the tribunal immediately. We waited till 2018 before starting any serious challenge. What a shame.
P&ID argued that we did not build the gas infrastructure but the government has also said we cannot build a pipeline to a facility that does not exist. We are now asking: what did P&ID do to deserve the award? How can you award judgment for the full value of what they could have gained when they too did not build anything? This is a strong argument, but what did we canvass during arbitration? Why are we raising these issues now? We submitted to arbitration and are bound by the outcome. It is clear to me that we did not defend ourselves properly and diligently. We changed our lawyers midway and kept expanding the legal team — for the purpose of “job creation”.
Ab initio, the terms of the contract did not protect us in case P&ID failed to deliver. All international-standard contracts provide for contingent liabilities on both parties. We left ourselves so vulnerable in this one. I wish Lukman were alive to explain what he was thinking when he approved such a contract, which I understand was not vetted by the attorney-general of the federation at the time, Chief Michael Aondoakaa. The terms of the contract are a sad commentary on the way we sign agreements in Nigeria. No wonder some analysts question the fairness of the GSPA in the first place. But we cannot run away from it. We must find a bloodless way out of the quandary.
I still do not believe the P&ID issue is hopeless for Nigeria. To start with, $9 billion is so huge it is unrealistic to expect Nigeria to pay. But our “sovereignty” argument also looks pale to me. I do not pretend to be a lawyer, but when a state goes into a commercial transaction, it waves its sovereign immunity. This is not politics; this is business. We can fight this case for years, keep paying lawyers millions of dollars and still lose. I would, therefore, advise the government to call these P&ID guys for a meeting and quietly resolve this irritating matter over coffee and sandwiches. A soft answer turns away wrath. Enough of legal fireworks. Let’s go for reconciliation.
Above all, though, we must stop signing agreements that can hurt us gravely if we default — as we are indeed likely to default. Nigeria is notorious globally for not respecting the sanctity of contracts, much less the rule of law. Investors always complain about our historical culture of impunity. Unfortunately, we can behave anyhow within our territory but there is civilisation outside there and we cannot escape it. Evidently, too, there is lack of patriotism in the some of the agreements government officials sign. There is no personal liability when things go wrong. Heads don’t roll. People don’t go to jail. The attitude is like: whose money is it, anyway? Sad.