Nigeria is $9bn in hock to a gas-processing company after it was found to have reneged on the terms of a 20-year agreement.
Is Nigeria the villain or the victim in what has become a $9bn dispute between that state and a company specially formed for a gas processing deal with Abuja?
The company, Process and Industrial Development (P&ID), signed an agreement with Nigeria’s ministry of petroleum resources in 2010. In terms of this 20-year deal, Nigeria was to supply ‘wet gas’ to the company. P&ID would process it in a specially constructed facility and remove, for its own use, the natural gas liquids before returning ‘lean gas’, suitable for use in power generation, to Nigeria.
Barely two years later a dispute had arisen, with the company claiming that Nigeria had failed to supply the wet gas as it had contracted to do. After unsuccessful attempts at settlement, P&ID served notice of arbitration. Its initial statement to the three arbitrators complained that Nigeria had repudiated the agreement and claimed damages of almost $6bn plus interest, mostly related to expected profits that would now be lost.
After the arbitrators began work their jurisdiction and their final award of $6,597,000,000 was challenged by Nigeria. P&ID then asked the UK high court for an order allowing the company to enforce the award as though a court order. Last week high court judge, Christopher Butcher, issued such an order.
This means P&ID may now begin action to seize Nigerian assets, worldwide, to the value of $6,597,000,000 plus interest of 7 % pa running from March 2013 until payment. The total now due stands at over $9b. That is about 20 percent of Nigeria’s foreign reserves, estimated by CEIC data to have been $45.1 bn in June 2019.
Nigerian pro-government commentators claim officials signed the contract without authorization. And while P&ID says that Nigeria failed to provide gas, the company’s critics argue that though P&ID did not even start building the processing facility it claimed $40m for ‘preliminary expenses’.
Butcher’s closely-reasoned 28-page judgment points out an inconvenient fact that these critics seem to have overlooked: the poor performance of Nigeria’s legal team. Butcher repeatedly notes how evidence was not led on crucial points disputed by Nigeria or that the country’s lawyers failed to make deadlines.
In one paragraph for example, Butcher responded to argument by Nigeria’s counsel: ‘(T)he difficulty with these submissions … is that the Federal Republic of Nigeria had remedies for any procedural unfairness, but it did not utilise them.’ He listed other steps that Nigeria could have taken but did not, ‘and the time for doing so is long past’.
The moral is summed up in a review by international accounting and tax specialists Grant Thornton. It describes the award as ‘quite remarkable’, both in absolute terms and given that P&ID had invested just $40m at the time the arbitration began. Repudiation of the contract occurred very early but the tribunal said it had no evidence that P&ID would not have performed its obligation. Thus, the award reflects full compensation over the intended 20 years of the contract. ‘This shows the importance of a Respondent challenging facts, assumptions and calculations provided by a Claimant and providing alternative evidence to the Tribunal,’ concluded Grant Thornton.
A blogpost by one of Nigeria’s most prominent law firms points out another painful reality. During the presidency of Goodluck Jonathan, a $850m settlement agreement was reached between the parties. But in 2015 the incoming Buhari administration decided not to give effect to that agreement, opting instead for further negotiation intended to set aside the award completely.
If the previous settlement deal had gone through it would have been less than 10 percent of this month’s award.
Reacting to the Butcher award, Nigerian officials said their legal team had been instructed to appeal, and to ask for a stay of execution.
- Financial Mail, 22 August 2019