In June, I wrote an article about an impending tragedy ( READ REPORT)set to befall an unwitting and unsuspecting Nigeria led by a bunch of somnambulant muppets that masquerade as political leadership. The litany of how Nigeria has arrived at this point is a shocking narrative of incompetence, misconduct in public office, recklessness, ineptitude and a complete and utter abrogation of responsibilities.
It is only now, after the horse has well and truly bolted, that the Nigerian government appear to have woken up to the fact that it has had a $9.6 billion arbitral award confirmed against it. The claimant, process and industrial developments Ltd (P & ID), setting aside for a moment the fact that Nigeria is currently technically insolvent, has obtained a liability order of such quantum it simply cannot pay.
To most the award seems spectacular and more in line with an Investor State Dispute Settlement (ISDS). Yet the quantum of the final liability award was as a direct consequence of Nigeria’s tardiness and incompetence. More specifically the Nigerian Governments failure to challenge facts, assumptions and calculations provided by the Claimant and of providing alternative evidence to the Tribunal.
P&ID estimated that the project would produce a net profit of $5 to $6 billion over a 20-year period. They based their Income projections on a number of assumptions. Namely relating to the expected yield of Natural Gas Liquids (NGLs) and the forecast price of LNG. P&ID further estimated capital expenditure at $580 million and operational expenditure at around $60 million per year. These estimates combined to create an exponential outcome that many see as exaggerated, inflated, wildly over optimistic and grossly unfair. They also got away with using a discount rate of 2.65% based on US Treasury yield to represent the time value for calculating the net present value of their award.
The Nigeria Government argued amongst other things that since P&ID had not performed its own obligations under the contract it should only be entitled to nominal damages and furthermore in a bemusing and peculiar argument, any calculations would need to reflect the disruptive activity of militants in the Niger Delta which would have the effect of reducing profits by up to 50%.
They went further to argue that any damages should be limited to a period of 3 years as P&ID had a duty to mitigate its losses by pursuing other investment opportunities. They adopted a discount rate for discounted cashflow calculations of 7% apparently to reflect the risk of investing in Nigeria.
The Defendants arguments were feeble and unconvincing and were dismissed by the Tribunal. The Government did not challenge P&ID’s figures or provide alternative estimates or forecasts, a woeful and fundamental lapse, which as we scrutinise the Government failures in this saga will become a recurring theme, allowing the tribunal to accept P&ID’s figures for damages.
On that basis it awarded $6.6 billion in damages with pre and post-award interest of 7%. The rate of interest adopted as being the sovereign debt rate for Nigeria investment.
The Nigerian Government now seek to appeal the judgement and apply for a stay of execution to forestall the enforcement order while the set-aside request is considered. A set-aside request can be obtained fairly quickly. Given the paucity of options available to the Nigerian government, it would seem this should be the logical course of action.
Yet in the UK we are advised by legal experts that Nigeria would have to apply to set aside the order for enforcement and that may be difficult to achieve. As a set-aside request would have to prove there was an error in the ruling despite the judge’s decision not being legally controversial.
Lawyers representing the Nigerian government have also argued the award should not be enforced because England was not the correct place for the case, and even if it were, the amount awarded was “manifestly excessive”.
Yet again the decision on the UK as the seat of arbitration was made in 2016, and the arbitration award was made in 2017. The Nigeria Government had 28 days in each case to appeal. It ultimately appealed the former decision, but inexcusably only several months after the deadline for doing so had expired and the judge dismissed it. Equally unforgivably It couldn’t be bother to appealed the latter decision.
The irascible Nigerian ‘dis’ Information Minister Lai Mohammed has sought to assure Nigerians there was no imminent threat to Nigeria’s assets while the case was underway. But once the court makes its judgment into an order, which is expected in September, P&ID could start targeting assets.
The Nigeria government have ultimately and finally fallen foul of its own proclivity to disregard the sanctity of contracts which they repudiate at will with no consequences and scant regard. It is a harsh lesson that may well bankrupt the country and extend the already extreme poverty which exists in a country that has the largest number of people living in extreme poverty on the planet.
This is a catastrophe of the Nigerian Governments own making, but the Ministry of Petroleum Resources specifically. The Ministry is a well-known byzantine labyrinth of larceny and theft. The Nigerian Ministry of Petroleum Resources has been at the centre of most of the largest scandals in Nigeria’s history and is a firmly established hotbed of malfeasance and corruption.
Though I suspect this particular calamity has its origins in the profane and thoroughly rotten relationship that exists between elected politicians in Nigeria and the shadowy obscure ‘Cabal’ which is omnipresent in every administration. A hidden oligarchy that supports the kleptocracy that masquerades as a democracy.
The Nigerian President and Minister for Petroleum, has now belatedly instructed EFCC, the financial crime police to investigate the transaction. The Government strategy of seeking to identify culprits to criminalise may be counterproductive. In theory P&ID have the right to seize Nigerian assets, but the settlement will in all likelihood be a negotiated one. Any such negotiations will have to be conducted in ‘good faith’ in order to arrive at a solution. P&ID have already stated that such an action by the Nigerian Government will not make their legal obligation go away.
Under the Jonathan administration, Nigeria negotiated an out-of-court settlement with P&ID for a far smaller sum reputedly $850m. However, he left the payment to the incoming Buhari administration, which in an act of blithe folly set aside the settlement and asked its lawyers to return to litigation. It is unclear as to what the end game was and what if any advice was sought and from whom.
Jonathan assumed office in February 2010 and the allegation is that he was left in the dark as the deal had by then already been set in motion by Rilwanu Lukman, the Minister of Petroleum in his predecessors, President Umaru Musa Yar’Adua’s Administration. All this at a time when the cabinet and close allies of the late president had yet to recognise Johnathan’s presidential authority.
When Goodluck Jonathan Administration eventually took control of government, it is not difficult, if you understand Nigeria, to see how the new regime with a ‘cabal’ comprised of different actors neglected any previous contract awards. It is a sad truism that the most compelling reason in Nigeria to give Executive office holders two terms, is that it makes it more likely for projects to be successfully completed. It was only the inevitability of a huge arbitral award against Nigeria which forced the Johnathan Administration into negotiations with P&ID
Many commentators believe the same Yar’Adua cabal has reincarnated and coalesced around President Muhammadu Buhari.
The normally dozy Attorney General of the Federation (AGF), Abubakar Malami whose tardy performance in this matter has gone a long way in exacerbating the sorry mess Nigeria finds itself, says without irony he will prosecute everyone linked to the judgement debt.