Needlessly, Nigeria is enmeshed in an international row over a failed contract that threatens to wipe off a chunk of its brittle finances. Essentially, an Irish company has just secured a judgement debt amounting to billions of dollars against the country in a British court. Inked nine years ago, it is a 20-year gas supply and processing agreement between the firm and Nigeria that went awry. Naturally, the $9.6 billion awarded in favour of Process and Industrial Developments Limited has Nigeria running from pillar to post in its quest to salvage its assets that have been listed for potential seizure.
A mishmash of ineptitude, sluggish bureaucracy, an odious rent system and disrespect for contracts enforcement pushed Nigeria into the saga. The rigmarole commenced after the late President Umaru Yar’Adua and Rilwan Lukman, the then Petroleum Minister, sealed the GSPA with P&ID. On its part, government, through pipelines, would supply 400 million standard cubic feet of gas per day to its partner’s site in Calabar, Cross River State.
According to documents submitted by P&ID to London courts, it would process the wet gas into lean gas. The processed gas from the pact was enough to generate 2,000 megawatts of electricity. P&ID would sell 15 per cent of the propane, ethane and butane by-products on the international market, with an expectation of generating “$5bn to $6bn in profit over a 20-year period.” In terms of impact, the GSPA would have transformed Nigeria’s power sector, boosting jobs. The Federal Government was due 10 per cent shareholding in the business. This appears to be sound economics.
All of this might now be gone with the wind, with Nigeria battling to save itself from going bankrupt. The problem started during the political crisis of 2009 when Yar’Adua’s illness created a power vacuum. With his deputy, Goodluck Jonathan, unable to assume political control until February 2010, the petroleum ministry signed the deal. Indecisive as ever, the Jonathan government treated it dismissively. That official laxity would later cost Nigeria dearly.
From there, things degenerated into an extraordinary legal battle, first in London and then in Lagos. Claiming that Nigeria failed to install pipelines or supply gas and that it had spent $40 million on feasibility studies, licences, drawings and project management costs, P&ID filed a suit in 2012 in a commercial court in London to enforce the contract. Realising the inherent danger associated with this, Nigeria nominated Bayo Ojo (SAN) to a three-man panel in a bid to resolve the issue. At the end, Ojo’s minority report recommended that P&ID should be paid $250 million for breach of contract.
Yet, the suit dragged on, and government approached a Federal High Court in Lagos, which vacated the order of the London court. It did not work, forcing the government to negotiate a payment of $850 million with its estranged partner. The Jonathan administration still did not pay up. Nigeria continued to live dangerously, until the arbitration panel awarded $6.59 costs against it in January 2017. That is staggering, but that is where the Buhari government is also at fault. Buhari should have immediately entered into alternative dispute resolution with the P&ID or fully tackled the case in court. It is unpardonable that Nigeria sorely lacks direction and expertise at this level of government.
Furthermore, the court decided that Nigeria would pay $1.2 million daily, being the accrued interests P&ID would have realised in the project. This raised the debt to $9.6 billion. With the matter still not resolved either way, the figure could rise higher. After all, the court empowered P&ID to seize Nigerian assets anywhere in the world to compensate for the judgement debt. With our reserves falling to a five-month low of $43.67 billion last month, the debt poses a major threat to the economy.
Under pressure, Nigeria is belatedly fighting back. The Central Bank of Nigeria and the Ministries of Finance, Justice and Information last week rejected the claims of P&ID, describing the judgement as “punitive, unreasonable, unjustifiable and manifestly excessive and exorbitant.” Godwin Emefiele, Zainab Ahmed, Abubakar Malami and Lai Mohammed explained that because P&ID did not undertake any work in Calabar, the judgement would not stand. Mohammed said, “Clearly, the Federal Ministry of Petroleum Resources had enough competent experienced personnel to know that this kind of contract cannot be entered into without involving the NNPC and the IOC. But on the surface, I think it was a sham ab initio and the actors knew where they were going.” This is a good argument, but the government should have presented its case in court earlier and negotiated before things got to this stage.
For one, the British government has a powerful reach to move against Nigeria’s assets. In August 2018, ConocoPhillips seized some Venezuelan oil cargoes in the international waters after an arbitration panel awarded $2 billion in damages against the oil-rich country for abruptly expelling the American firm from the oil fields it was operating in the country. Venezuela later agreed to pay the damages before the cargoes were released.
Similarly, on August 23, South African authorities impounded an Air Tanzania Airbus plane that was flying from Johannesburg to Dar es Salaam over a $33 million debt awarded to a South African farmer, whose farmland was purportedly seized without compensation in Tanzania. Therefore, the Federal Government should be under no illusion.
Jonathan and Buhari’s failure to give the case the attention it deserved is appalling. Both of them cannot be totally extricated from the mess. Really, Nigeria should first look at itself hard and long in the mirror. It suffered a huge loss in 1985 when the Buhari-led military dictatorship shockingly terminated the N700 million Lagos metroline contract with a French firm. Nigeria was forced to pay a $78 million penalty for the egregious act. Already, Nigeria is reportedly at the risk of incurring other judgement debts of about $3.5 billion, mainly in the oil and gas industry — if it does not act fast.
Positively, Buhari has ordered the anti-graft agencies to step into the case with a view to identifying and prosecuting the culprits that pushed Nigeria into this seeming precipice. This is the right step, but the President will do better if he makes it a thorough one, demand daily briefings from the investigators and impose a deadline to conclude the matter.
