That $9bn Award against Nigeria By Simon-Kolawole – TheNigerialawyer

SimonKolawolelive By Simon-Kolawole, Email: [email protected]^[1], sms: 0805 500 1961

You are forgiven if you think an English high court just awarded
a $9 billion fine against Nigeria in a case of breach of contract
with Process and Industrial Developments Limited (P&ID), a
little-known Irish engineering and project management company.
Actually, the award was made as far back as July 2015 by an
arbitration panel sitting in London. What happened in London on
Friday was a failed legal move by Nigeria to stop the enforcement
of that judgment. If it is implemented, Nigeria’s bank accounts in
the UK, where parts of our foreign reserves are warehoused, would
be at risk and that would be a catastrophe for our international
trade, to put it in a less scary language.

Although Nigeria is fighting tooth and nail to stop the
enforcement of what is easily one of the largest arbitration awards
in human history, anyone familiar with the entire fiasco knows that
we are fighting a tough battle. We are primarily basing our
objection on the fact that Nigeria is a sovereign state and “has an
absolute right to obtain an authoritative determination of its
sovereign immunity”. Put another way, we are arguing that we have
immunity as a sovereign nation — and therefore the judgment cannot
be enforced against us. We are also arguing that P&ID did not
fulfil its own part of the contract and cannot, therefore, be
making any claims on us.

Let us briefly go over the genesis of the transaction, which
could end up in an apocalypse. P&ID was founded by Irishmen
Michael Quinn and the late Brendan Cahill, two men who had had over
30 years’ experience in engineering projects in Nigeria. In January
2010, the federal government entered into a 20-year gas and supply
processing agreement (GSPA) with P&ID to build a gas processing
facility. P&ID was to refine associated natural gas into
non-associated gas to power the national electric grid. Dr Rilwanu
Lukman, who died in 2014, was the minister of petroleum at the time
(President Umaru Musa Yar’Adua was on a medical trip to Saudi
Arabia).

Under the agreement, Nigeria was to receive 85 per cent of the
refined non-associated gas, free of charge, for power generation
and industrialisation. P&ID would receive the remaining 15 per
cent and the by-products – namely methane, propane and butane –
which it would export. Nigeria would also benefit from the export
proceeds through its 10 per cent stake in P&ID. As in all
agreements, there are obligations on both parties: the Nigerian
government was to supply 150 million standard cubic feet (scf) of
gas per day to the 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.

But there was an initial obligation on the country — the GSPA
required the government to 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. And this was where
everything began to go wrong. Nigeria did not build the pipeline.
P&ID said it had spent about $40 million on the project and the
failure of Nigeria to build the gas pipeline had breached the
agreement. The crisis went unresolved and in August 2012, the
company activated the arbitration clause, filing a case of breach
of contract against Nigeria in London.

P&ID sought a compensatory award for loss of “potential”
income. Nigeria argued that P&ID was supposed to have acquired
the land in Cross River and built the processing facility before
the government could build a gas pipeline to site. The company,
however, argued that Article 6(b) of the GSPA did not state any
such precondition. Apparently, the federal government had not shown
any seriousness in building the pipeline and P&ID too had
started foot-dragging. With the way the arbitration was going
against Nigeria, the federal government started making moves to
settle the dispute out of court. Offers were made to P&ID to
that effect.

P&ID agreed to accept $850 million in compensation,
negotiated down from an initial proposal of $1.5 billion by a
government committee. The payment was to be made in four tranches —
$100 million at first and then in three instalments of $250 million
each. These were in the last days of President Jonathan, who had
lost his re-election bid. He still wanted the figure reviewed
downwards, but decided to leave matters for in-coming President
Muhammadu Buhari. However, the Buhari administration, without a
cabinet in place, did not follow up. 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.

In fairness to Buhari, when he came in, Nigeria’s economy was
already on its knees. Oil prices were down, there was forex crunch
and states were owing salaries. The last thing on his mind was an
$850 million payment for a project that never was. It seemed
somebody whispered to Buhari to ignore the settlement agreement
because of the “PDP factor”. That was a very wrong approach, I
would say. If Buhari did not like the figure, he could have further
negotiated it down. Nigeria is a sovereign entity and agreements
are binding on all administrations. The P&ID guys complained
that they waited in vain for Nigeria’s phone call, so they
continued with the arbitration and got the huge award.

What is the way forward? Nigeria is doing everything possible to
make sure the judgment is not enforced. P&ID had instituted
“recognition and enforcement” proceedings in the UK and the US. It
won in both jurisdictions and this would allow them to seize
(“attach”) Nigeria’s assets in both countries. However, Nigeria
filed objections in the UK and the US on the basis of the country’s
sovereignty. P&ID asked the US court to dismiss Nigeria’s
objection as “frivolous” but the court has refused to do so, which
gives us a ray of hope. Sadly, the English court on Friday
dismissed Nigeria’s objection, which means the award can be
enforced in the UK. We will surely appeal.

Now, here are my thoughts. If we had been a serious set of
people, this gas project was going to benefit us tremendously and
we should have followed through. For one, it would have helped in
addressing gas flaring. The associated gas was to be refined for
power generation. That would have improved power supply. Also, we
would have earned forex from the export of the by-products.
Meanwhile, when things were going wrong, we should have mounted a
strong defence. When judgment was given against us in July 2015, we
went to sleep. We could have challenged the tribunal immediately.
We waited till 2018 before starting any serious challenge. What a
shame.

P&ID argued that we did not build the gas infrastructure but
the government has also said we cannot build a pipeline to a
facility that does not exist. We are now asking: what did P&ID
do to deserve the award? How can you award judgment for the full
value of what they could have gained when they too did not build
anything? This is a strong argument, but what did we canvass during
arbitration? Why are we raising these issues now? We submitted to
arbitration and are bound by the outcome. It is clear to me that we
did not defend ourselves properly and diligently. We changed our
lawyers midway and kept expanding the legal team — for the purpose
of “job creation”.

Ab initio, the terms of the contract did not protect us in case
P&ID failed to deliver. All international-standard contracts
provide for contingent liabilities on both parties. We left
ourselves so vulnerable in this one. I wish Lukman were alive to
explain what he was thinking when he approved such a contract,
which I understand was not vetted by the attorney-general of the
federation at the time, Chief Michael Aondoakaa. The terms of the
contract are a sad commentary on the way we sign agreements in
Nigeria. No wonder some analysts question the fairness of the GSPA
in the first place. But we cannot run away from it. We must find a
bloodless way out of the quandary.

I still do not believe the P&ID issue is hopeless for
Nigeria. To start with, $9 billion is so huge it is unrealistic to
expect Nigeria to pay. But our “sovereignty” argument also looks
pale to me. I do not pretend to be a lawyer, but when a state goes
into a commercial transaction, it waves its sovereign immunity.
This is not politics; this is business. We can fight this case for
years, keep paying lawyers millions of dollars and still lose. I
would, therefore, advise the government to call these P&ID guys
for a meeting and quietly resolve this irritating matter over
coffee and sandwiches. A soft answer turns away wrath. Enough of
legal fireworks. Let’s go for reconciliation.

Above all, though, we must stop signing agreements that can hurt
us gravely if we default — as we are indeed likely to default.
Nigeria is notorious globally for not respecting the sanctity of
contracts, much less the rule of law. Investors always complain
about our historical culture of impunity. Unfortunately, we can
behave anyhow within our territory but there is civilisation
outside there and we cannot escape it. Evidently, too, there is
lack of patriotism in the some of the agreements government
officials sign. There is no personal liability when things go
wrong. Heads don’t roll. People don’t go to jail. The attitude is
like: whose money is it, anyway? Sad.

AND FOUR OTHER THINGS…THE EL-ZAKZAKY SHOW
I thought the federal government had shown enough good faith in
allowing Sheikh Ibraheem El-Zakzaky to go for medical treatment
abroad, but it would appear the leader of the Islamic Movement of
Nigeria (IMN) is trying to turn it into a circus. The level of
public sympathy he currently enjoys derives from the fact that the
military massacred hundreds of his followers and he has been in
detention for over four years. This is totally indefensible in a
democracy. However, we have now entered the phase in which those
who would normally not touch El-Zakzaky with a barge-pole are now
his sympathisers and chief advocates just to play politics.
Opportunism.

RED HERRING
Ask Alhaji Muhammadu Sanusi II, the emir of Kano, why there is so
much insecurity in Nigeria and he will establish a link between
monetary and fiscal policies, youth unemployment, poverty and
crime. Ask Alhaji Muhammadu Bashar, the emir of Gwandu, the same
question and he will tell you straight off: “It’s the homosexuals,
stupid!” There are emirs and there are emirs. Alhaji Abdulaziz
Yari, the former Zamfara governor, once blamed fornication for the
outbreak of meningitis in his state. Since he left office, EFCC and
ICPC are also discovering other possible causes, such as his
eight-year mismanagement of state resources as well as personal
aggrandizement. Shame.

EYE SERVICE
Anytime President Muhammadu Buhari is in Daura, his home town,
there is always uninterrupted power supply. So was the case during
the Eid al-Adha last weekend. Unable to stomach the deceit, leaders
from the five local government areas under the Daura emirate told
the president that they only enjoy 24-hour electricity when he is
in town. It reminds me of when Gen. Ibrahim Babangida, then
military president, visited Ondo state in 1991 or 1992. One
resident wrote an open letter to Babangida, asking him to “please
visit again” because suddenly, “the bad roads were either tarred or
repaired, the streets were cleaned up and we had 24-hour power
supply”. Sham.

NAMING AND SHAMING
The Ekiti state government has started something unusual: naming
and shaming those convicted of rape in the state. The first
dishonour goes to Rev Asateru Gabriel, now described as “formerly”
of St. Andrew’s Anglican Church, Ifisin-Ekiti, who was convicted
for defiling a seven-year-old girl and is currently serving a
five-year jail term. Many would consider this to be a good
sociological initiative. The typical Nigerian is more worried about
being publicly shamed than feeling guilty for doing a bad thing. We
prefer shame to guilt. Nonetheless, I would be more delighted if
this will go hand-in-hand with a massive crackdown on rape in our
society. No rapist should go scot-free. Perverts.