Waiver of Sovereign Immunity and Controversies Surrounding Nigeria’s Agreements with International Investors

Credit Enhancements and Guarantees provided by the Federal Government of Nigeria

Due to the significant funding provided for the Azura-edo IPP, which was estimated at Nine Hundred Million United States Dollars, the project was structured with several layers of credit enhancements and guarantees including the partial risk guarantee provided by the World Bank. However, to obtain the partial risk guarantee, the FG was also required to provide corresponding guarantees of its own, in form of an indemnity agreement between the FG and the International Bank for Reconstruction and Development (“IBRD”) to align with the guarantee provided by the World Bank.

The guarantees provided by the FG in the Azura-edo IPP where quite substantial and there are reports that the FG has been unwilling to grant similar guarantees for new power projects [(https:// businessday.ng/energy/power/ article/ fgs- unwillingness- togrant-sovereign-risk-guaranteeconstrains-new-power-projects/ FG’S unwillingness to grant sovereign risk guarantee constrains new power projects

by ISAAC ANYAOGU On Mar 19, 2019)]. However, this must be understood in the context of the substantial debt and equity financing provided to fund the project, as well as the number and status of the local and international investors.

Waiver of Sovereign Immunity

Sovereign immunity is a wellsettled principle of international law with significant historic roots, which protect a sovereign nation from being sued in the courts of other states, without its consent (Federal Republic of Nigeria & Ors V. Alhaji Mohammed Sani Abacha & Ors (2014) LPELR 22355(CA)). Sovereign immunity precludes the courts of a nation from exercising jurisdiction over a foreign country unless the foreign country agrees to submit to the jurisdiction of the court.

Simply put, sovereign immunity is a legal doctrine giving immunity to a sovereign state, such as Nigeria, from being sued in a foreign court or having any order or injunctive relief, judgment issued against it by a foreign court or otherwise having any judgment executed against it or its assets by any foreign court, without its consent.

Where a country waives its right to sovereign immunity in a contract, it simply means that where it breaches its obligations under the contract, the counterparty is entitled to institute proceedings and obtain a judgment against it in a foreign court and to enforce judgement, order or relief against the country and its assets, especially those over which security was granted in favour of the counterparty. This is an entirely different concept from a country ceding its sovereignty to the foreign counterparty or the country of the foreign counterparty.

Conclusion

Where the terms of the AzuraEdo IPP transaction and other agreements the FG has signed with foreign lenders to fund infrastructural projects are viewed in isolation, they may appear to be unfavourable terms. However, as this article has shown, understanding these agreements in the context of the important commercial and practical considerations in projects of such a scale, it is easy to understand the necessity of these clauses and to dispel any allegations of impropriety based on the terms in an isolated sense.

Nigeria is a country with a significant infrastructural gap, generally, and particularly so, in the power sector and without the ability to generate enough revenue to sufficiently fund infrastructural projects to bridge the gap. To guarantee access to the foreign investment which is essential for development, the FG needs to agree to terms which provide investors with adequate security that they will obtain the projected returns on their investment and that they will be able to compel the FG to perform its obligations under the contract. No reasonable investor will agree to provide several millions of dollars to fund a project without any means of holding the FG to its obligations and guaranteeing its ability to recoup the principal invested and a percentage of returns.