By - Tobi Idowu
A British court ruled last week that the Nigerian government should pay an engineering and project management company, Process and Industrial Developments Ltd. P&ID, $9bn (about N3.2 trillion) in assets.
The ruling came after the company urged the United Kingdom Business & Property Courts (the Commercial Court), presided by Justice Butcher, to enforce a March 20, 2013 award against Nigeria by a District Circuit Court in Washington DC. The ruling thus converted the arbitration award into a domestic UK judgment against Nigeria.
The sum of the award had been $6.6bn in 2017, but the figure with interest has now accumulated to about $9 billion, which represents over one-third of Nigeria’s 2019 budget.
How It Happened
P&ID entered an agreement with the Nigerian government, through the Ministry of Petroleum Resources, on January 11,2010, to build a natural gas plant.
Alongside the building of the plant, which would be located at Adiabo in Odukpani Local Government Area of Cross River State, P&ID was also to be responsible for its operations, under the terms of the agreement.
The agreement also stipulated Nigeria would get 85% of the non-associated gas at no cost for electrical generation and industrialisation. While P&ID would receive the remaining 15% of byproduct – methane, propane, butane – to sell on the commercial markets, Nigeria still would receive proceeds from its 10% stake in the company’s ownership.
“The lucrative natural gas liquid by-products (propane, ethane, butane) of this processing would be sold by P&ID on the international market, with expected profits in the billions of dollars,” the firm said on its website.
Also on its website, the firm stated the deal would have allowed it to “build a state-of-the-art gas processing plant to refine natural gas…[that] Nigeria would receive free of charge to power its national electric grid”.
Nigerian government responsibility, however, was to source for natural gas from oil mining leases (OMLs) 123 and 67 operated by Addax Petroleum and then supply to P&ID to refine into fuel suitable for power generation in the country.
An initial volume of about 150 million cubic feet of gas per day was agreed on, but that would later increase to about 400 million cubic feet per day during the 20-year period stipulated in the agreement.
The Legal Battle
According to P&ID, after it opened negotiations with the Cross River State government for allocation of land for the project, the Nigerian government reneged on its obligation. The firm then took the government to arbitration over the failure of the deal.
The tribunal, constituted under the rules of the Arbitration Act 1996 (England and Wales) and the Nigerian Arbitration and Conciliation Act (CAP A18 LFN 2004), was organised in London, in line with the original contractual agreement between the two parties. The three-member tribunal included Nigeria’s former attorney-general, Bayo Ojo.
P&ID said Nigeria’s failure to meet its own part of the bargain, especially the failure to construct the pipeline system to supply the gas, frustrated the construction of the gas project, which has deprived the company of the potential benefits from over 20 years’ worth of gas supplies.
The company also revealed that attempts to settle out-of-court with the Nigerian government failed.
However the Nigerian government argued before the tribunal that “the failure of P&ID to acquire the site and build Gas Processing Facilities was a fundamental breach and that no gas could be delivered until this has been done.” The government then asked that the award to be set aside.
The Tribunal Verdict
The arbitral tribunal ruled that Nigeria had repudiated its obligations under the GSPA and that P&ID was entitled to accept the repudiation and claim damages for breach.
It also maintained the Nigerian government’s obligations under Article 6B were not conditional upon P&ID having constructed the gas processing facilities.
Further, it stated that damage suffered by P&ID was the loss of net income the company would have received if the government kept its side of the contract.
As a result, the tribunal held that P&ID’s expenditure and income should have been about $6.597 billion if the GSPA was duly performed by government. It said the award should be paid together with interest at the rate of 7 per cent from March 20, 2013.
Nigeria in danger of losing Primed Assets
City A.M. which published the court ruling, reported that the British judge who delivered the ruling, said that P&ID “can take 20 per cent of Nigeria’s foreign reserves.”
“The figure was calculated based on what the company was estimated to have earned over the course of the 20-year agreement,” City AM said; noting that, “P&ID now says interest accrued means it is owed $9bn.”
“Today’s decision means that the arbitration is converted into a legal judgement, allowing P&ID to attempt a seizure of the assets.” City AM said.
The medium also added that Counsel to P&ID, Andrew Stafford, expressed satisfaction at the court judgment.
“We are pleased that the Court has rejected Nigeria’s objections both to the arbitration process and to the amount of the award, and that it will grant permission to P&ID to begin enforcement of the award in the United Kingdom,” Stafford was quoted to have said.
“P&ID is committed to vigorously enforcing its rights, and we intend to begin the process of seizing Nigerian assets in order to satisfy this award as soon as possible,” the P&ID Counsel added.
Might Nigeria Disobey The Tribunal!
In a report by the AFP, the government’s legal team contested that the firms damages claim is “manifestly excessive and penal.”
Notably, the government also told the Commercial Court in London that English courts did not have the authority to rule on the dispute.
It argued that as the original deal was made under Nigerian law, “the seat of the arbitration was Nigeria.”
Or rely on a minority ruling?
Two members of the three-man tribunal, Lord Hoffmann and Anthony Evans, had been in unison in giving the majority ruling.
According to Premiumtimes, the other member, Nigeria’s Bayo Ojo, in his minority ruling said although P&ID was entitled to compensation for the breach, its damages could not have been more than three years from the date of the alleged breach.
Apart from being a new company incorporated in 2006, Mr Ojo noted the project could not have started yielding benefits earlier than 2015.
Ojo had reportedly said, in 2017, that the highest amount payable as damages to P&ID should not be more than $250 million; but since the final award remained unsettled since 2013, it attracted an additional $2.3 billion in uncollected interest as of March 2018.
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