By - Adedoyin Shittu
That $9.6 Billion award against Nigeria in an arbitration by a British court on August 16, 2019 has generated a lot of interest in and out of the country and brought P&ID (Process and Industrial Developments Limited) onto the lips of many; a firm that was non-existent to many before the ruling. Not only is the gas firm determined to seek vengeance against the “perceived” injustice meted on it by the Nigerian government, the Nigerian government have argued that the company never even scratched the surface of Nigeria soil but want to reap where it has not sown. The panel of arbitration done in London ruled that Nigeria was liable for the failure of the contract and should pay the Irish firm a sum of $ 6 .597 bn as the profit that the company would have made in the 20 years tenure of the contract . It also ruled that the company should be paid seven per cent interest until the award was settled. This is what has snowballed into $ 9 .6 bn judgment debt against Nigeria.
Reacting to the judgement, the firm has instructed its lawyers to identify Nigeria’s assets that could be seized to recover the money. The firm can target real estate, bank accounts or any kind of moveable wealth of the country after proving that the asset is extremely for commercial purposes and not related to Nigeria’s operations as a sovereign state. While the Nigerian government has vehemently rejected the judgement and have filed objections in the UK and the US on the basis of the country’s sovereignty. The country arguing in line of the nation’s sovereignty have base their objection that Nigeria as a sovereign state has an absolute right to reject a foreign judgement. Simply put, the judgment cannot be enforced against us. This argument is futile because it has never worked for any country. The country is also arguing that P&ID did not fulfil its own part of the contract and cannot be making any claims to justice.
The P&ID contract with the federal government of Nigeria (FGN) has simply become known as Gas Supply Processing Agreement (GSPA) and it was signed on behalf of the Federal Government by Rilwan Lukman, the former minister of Petroleum Resources on January 11 , 2010 with P&ID. This deal was signed during a season of uncertainty in Nigeria, at a period occasioned by the medical trip undertaken by the late President Umar Yar ’ Adua without transmitting power to Vice – President Goodluck Jonathan. In fact Yar ’Adua had gone to Saudi Arabia in November 2009 and did not return from that trip alive but his corpse was returned to Nigeria on May 16 , 2010 . While he was away , a cabal reportedly headed by the then Attorney General of the Federation , Mr Michael Aondoakaa , ensured that Jonathan was kept outside the mainstream of government business. It was indeed a ruckus at the period. It was not until February 10, 2010 that Goodluck Jonathan was finally given free rein to take the seat of acting president, by this time the deal had already been signed. In a report by the Nation, the former AGF, Mr Aondoakaa said he was not aware of the deal.
Nigeria known for crude oil is one of the top oil producing countries in the continent but Nigeria’s gas reserves are about three times the value of her crude oil reserves. Nigeria is one of the top ten nations in the world with huge natural gas reserves. It was conceived by former president Olusegun Obasanjo in 2006 the idea of building gas facilities that would supply gas to power stations across the country to improve the country’s power supply.
On 21 July 2006, P&ID (Nigeria) Ltd was registered to serve as its operating company in the country and on August 7, 2008; P & ID approached the Federal government under the late President Umaru Yar’adua with a proposal to build a proposed gas plant in Calabar. Prior to the submission of the proposal, P&ID had carried out an extensive two-year scale of feasibility studies. They had also purchased the licenses for the technology required to operate the gas stripping plant, propylene plant, the production of detailed engineering drawings and its internal project management costs. P&ID had also hired several engineering firms to provide procurement and construction, which comprised about 100 volumes of documentation, a 3-D software model of the plant which was necessary to implement the project on the ground.
In the proposal, the project was detailed to be executed in 2 phases; the first phase focused on constructing a gas stripping plant to refine associated natural gas from it wet form into non-associated natural (Dry) gas. The second phase involves the construction of polymer grade propylene plant that would make use of propane from the stripping plant to produce polymer grade propylene, butane and ethane to be sold on international markets.
There were obligations on both parties: the Nigerian government was supposed to construct pipelines that would supply 150 million standard cubic feet (scf) of gas per day to the P&ID plant. This was to rise to 400 million scf in the life of the project. The gas was otherwise being flared by the oil-producing companies. It was agreed that the refined natural gas would be supplied to the power generating stations by the federal government free of charge. Nigeria was to receive 85 percent of the refined non-associated gas to supply to power stations. This would have increased the generating capacity of the national electric grid by 2000Watts and also increase industrialisation of the country. The remaining 15 percent and the by-products – namely methane, propane and butane would be exported by the firm for commercial purposes. The proceeds from its sale would be used by P & ID to take care of its own costs, Nigeria would also benefit from the export proceeds through its 10 per cent stake in P&ID.
The federal government was tasked on the construction of a gas supply pipeline of a 24-inch pipeline from OML 123 to supply wet gas to P&ID for the first phase of the project, while P & ID agreed to build a pipeline of 70 km in length free of charge to facilitate the delivery of 250 MMSCuFD of wet gas for the second phase.
On 11 January 2010, P&ID finalised a 20 years agreement plan with the federal government and it was signed on by Rilwan Lukman, who was the minister of petroleum resources.
Clearly this was a good project but what went wrong? Everything went south when the federal government did not build a gas supply pipeline to the P&ID facility to be located in Adiabo, Odukpani LGA, Cross River state. The gas was to be sourced by the government from OMLs 67 and 123 operated by Addax Petroleum. Sources within the Cross River State government told THISDAY in a recent post that it was unaware of any negotiations for land allocation to P& ID by the previous administration in the state.
After several attempts by P&ID to salvage the agreement for over two and a half years, including offers to renegotiate the deal, the company initiated arbitration proceedings, filing a case of breach of contract against Nigeria in London in August 2012. P&ID claimed to have spent about $40 million on the project and the failure of Nigeria to build the gas pipeline had breached the agreement.
The parties had agreed that in case of differences between them concerning the interpretation or performance of the agreement, and if they fail to settle such differences or disputes amicably, then a party may serve on the other a notice of arbitration under the rules of the Nigerian Arbitration and Conciliation Act (Cap A18 LFN 2004). The contract also stipulates that the arbitration award shall be final and binding upon the parties while the venue of the arbitration shall be London, England or otherwise as agreed by the parties. This is why the arbitration took place in London.
The three man Arbitration panel
On August 22, 2012, P&ID served the Jonathan administration its notice of arbitration and on September 19, 2012, the company appointed Sir Anthony Evans to act as its arbitrator while Nigeria appointed Chief Bayo Ojo (SAN), a former Minister of Justice and Attorney General of the Federation, as its arbitrator. The two arbitrators appointed a British jurist, Lord Hoffmann to be chairman of the arbitral tribunal effective January 29, 2013.
At the arbitration court in London in 2012, P&ID began by filing claims of $40m expenses and proceeded to add “lost earnings” in the twenty-year tenure of the agreement based on impossible operation benchmarks of more than ninety percent capacity utilization and a patently unrealistic expectation that oil never fell below $100 per barrel.
The federal government under the Jonathan administration had moved to settle the dispute out of court and tried to negotiate a deal with P&ID when it was clear that the arbitration will not be moved in Nigeria’s favour. The former President had constituted a team comprising of former Petroleum Minister, Diezani Alison-Madueke, Justice Minister, Mohammed Bello Adoke, former Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo -Iweala and ex-NNPC GMD, Andrew Yakubu to negotiate an out-of-tribunal settlement with P&ID.
The firm had finally agreed to accept $850 million in compensation after a period of an initial proposal of $1.5 billion. The payment was to be made in four batches — $100 million at first and then in three instalments of $250 million each. This agreement was made few days to Jonathan’s exit from the government on May 30, 201o and he had lost his re-election bid. Sources said he still wanted the figure reviewed downwards, but decided to leave matters for in-coming President Muhammadu Buhari. Sources also confirmed that details of the negotiated settlement were included in the handover notes to Buhari.
However, the Buhari administration, without a cabinet in place did not follow up the matter after he was sworn into office in 2015 as he ignored the settlement agreement and was not duly represented in the Arbitration Panel sitting in London in 2015. P&ID then got the award in July 2015 — $6.6 billion for “loss of income” over the lifespan of the GSPA and $2.3 billion in interests.
It took the Nigerian government more than the statutory period of four months to appeal the judgment with an excuse that there has been a change of administration in Nigeria and that ministers including the attorney general had only just been appointed.
The nation, therefore, requested for an extension of time to act on the outcome of the Arbitration Tribunal as well as to set aside the liability award, the appeal was dismissed by Phillips J. on grounds of no merit.
Following its failure to have its appeal in the English court, the minister of petroleum resources tried to contest the proceedings at the Federal High Court, Lagos, and it was ruled in favour of Nigeria but this was was dismissed by P&ID as “abusive and as a deeply unattractive attempt to forum shop.”
Lord Hoffmann told the parties that the Federal High Court had no jurisdiction to annul the liability award and on January 31, 2017, the tribunal issued the final award, granting P&ID damages in the sum of $6.597 billion with an accumulated interest at the rate of 7 per cent per year, working out at $1.265 million per day.
Following the New York Convention which allows winners of arbitral awards to enforce them in signatory countries; on March 16, 2017, P&ID filed a petition before the US courts to confirm the award. For some unknown reason, Nigeria failed to either appear in court or mount its defence which led to a United States District Court issuing a default judgement affirming a $6.59 billion arbitral award against the Federal Government, plus $2.3 billion in interest.
Reports have it that Nigeria’s foreign affairs ministry was served with the petition in March 2018 and had two months to oppose it but the two months expired and Nigeria failed to appear to defend itself.
In the lead up to the judgment by the English Commercial Court, reports has it that Attorney General Malami allowed time for acknowledging service in both the United States and London to lapse without filing any response and the Nigerian lawyers in both jurisdictions had to apply for ex post facto extensions of time and make the necessary apologies and explanations to the court.
Botch in the contract
P&ID before the 2010 signing with the FGN had no operational history and nothing was known about the company, it was like a new company put together newly but its founders, Brendan Cahill and Michael Quinn. However the founders claimed to have a 30 -year track record of planning and delivering projects in Nigeria.
Going through their archives and what they have done in Nigeria over the years, they have registered some failures in delivery from the Nigerian government so that makes them familiar with workings in the Nigrian terrain and how new administration usually renege on projects by previous administration.
The signing of this contract between the federal government and P&ID also shows that Nigeria was not duly represented and the clauses in the contract is what is hunting Nigeria now because it was tilted to favour the Irish firm. Even the Attorney General at that period has denied the knowledge of the contract. The only persons who could give answer to why it was signed with such clauses is the late president Yar’Adua and Rilwan Lukwan and they are both dead.
P&ID also claimed that the failure of the federal government to construct the pipeline system to supply the gas frustrated the construction of the gas project, and deprived it the potential benefits expected from 20 years’ worth of gas supplies. Now the same firm wants to dish itself a massive sum of $9 Billion without investing in a single penny in construction in the country. Chief Bayo Ojo said the highest amount payable as damages to P&ID should not be more than $250 million and a new company is not even expected to start making profit immediately after startup.
It should be noted that nothing in the narration of P&ID made them deserve that sum because nothing suggested in British and American courts that P&ID engaged in much toil between 2010 and 2012. The sum lost was only invested in feasibility studies. They never cracked any soil in Calabar to erect the envisaged gas processing plant (as expressly stated in the contract pact), to which Nigeria was expected to lay hundreds of kilometres of pipes.
The contract itself sounds ludicrous and looks like an attempt by some persons to defraud the government in collusion with foreigner partners. In the wake of this arbitration, VR Capital, a sovereign debt hedge firm founded and run by London-based hedge fund manager Richard Deitz, well known for buying distressed sovereign debt, with a track record in Russia (1998), Argentina (2001), Greece (2012) and Ukraine (2014) among others had acquired a 25% stake in P & ID. The company is trying to pull levers of power in the U.S. and the U.K. to make Nigeria settle or, failing that, enable the company to start seizing assets. The involvement of VR Capital Group is a clear indication that there was a high degree of confidence in the outcome of P&ID’s case.
What is the economic implication of the $9.6 Billion Stake against Nigeria
Total budget for the fiscal year of 2019 in Nigeria is N 8.92 Trillion and the country have a ruling to pay P&ID the sum of N3.2 Trillion, that is 36% of the budget of 2019 and 45% of the revenue generated by Nigeria for 2019. Just one organization! Nigeria budget definitely cannot carry it.
At the end of 2018, Nigeria foreign reserve stood at about $47 Billion and at the end of July 2019, Nigeria foreign reserve was at $44.9 Billion and a $9 billion (20% of Nigeria foreign reserve) will make Nigeria reserve to go down to about $35 Billion if enforced. This is dangerous to every Nigerian because the value of the Naira will drop drastically. The foreign reserve is used to manage the strength of the Naira and the cost of doing business at the forex market also becomes high for Nigerians.
While no mention of a resettlement to find an amicable solution to the issue have been said by the Nigerian government, the government said it would oppose the arbitration award by the English court in favour of P&ID.
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