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Anxiety over $9bn Nigerian assets •London court sits on Tuesday

Anxiety continues to mount in government circles in Nigeria as a London court sits next next Tuesday in a case that may see Nigeria forfeiting up to $9billion in foreign assets.

The expected loss is in respect of an enforcement application to the United States of America and the United Kingdom courts by Process and Industrial Development, a British firm tied up in a legal dispute with the Federal Government.

The court case arose out of the failure of a contract awarded the company in 2010 to process wet gas to power Nigeria’s generating plants.

In January 2017, a London tribunal, organized under the rules of the Nigeria Arbitration and Conciliation Act, ordered Nigeria to pay P&ID $6 billion in damages, plus $2.3 million in uncollected interest.

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On 16 March 2018, a BVI-based engineering and project management company sought to enforce in the US a USD6.6 billion award it obtained in January 2017 against Nigeria. This is one of the highest arbitral awards known to date. It shows the importance of the Respondent challenging facts, assumptions and calculations provided by the Claimant and of providing alternative evidence to the Tribunal.

That figure has since been attracting interest at the rate of $1.2 million per day and currently stands at over $9 billion.

The next hearing on the case will come up in a London court on May 21, 2019.

A former Attorney General of the Federation, Chief Bayo Ojo is representing Nigeria in the case.

Brendan Cahill, Founder, P&ID, said the company looks forward to the UK and US courts granting enforcement rights that will allow it to collect what is rightfully its.

Cahill said: “If history is any guide – just look at how creditors seized Argentina’s naval frigate, while docked in Ghana.

“Efforts by Nigeria to evade this judgment will inevitably fall flat.

“The ball is in Nigeria’s court.

“If the government is prepared to find a good-faith solution.”

Cahill however indicated that the company was open to negotiations with the Nigerian Government to settle the dispute out of court.

He said: “P&ID remains open to a settlement on a reasonable basis, but we need a willing partner in government to help resolve this matter.

“The onus is on the Nigerian Government to act in good faith to find a solution.”

After the P&ID’s Gas Supply and Processing Agreement with the Federal Government failed, the company initiated arbitration proceedings in London, in line with the original contractual agreement between the parties.

Cahill said the company decided to go to court after several attempts at salvaging the deal were botched.

He said: “P&ID’s Gas Supply and Processing Agreement failed when the government did not uphold its commitments.

“In August 2012, after several attempts over two and half years by P&ID to salvage the agreement, including offers to renegotiate the deal, the company initiated arbitration proceedings.”

Cahill is saddened by the failure of such a promising project and government’s lack of interest in trying to resolve the dispute amicably, adding that the original project would have brought power and economic growth to Nigeria by supplying free natural gas for electricity generation, as well as building a highly successful commercial venture with a share of profits going to the Nigerian Government.

He said: “The P&ID project would have supplied 2,000 megawatts of electricity in a country where tens of millions do not have access to electricity.

“The award judgment was handed down by the independent arbitration panel because it represented the loss of profits for P&ID over the 20 years of the project.”

In late February this year, the Office of the Attorney-General of Nigeria issued a statement contesting the huge amount the court awarded P&ID as damages, largely on the grounds that the project did not actually kick off the ground.

But Cahill reacted to the statement, explaining that the company had already put in years of planning, field work, design and on-the-ground preparation.

He stated: “We spent two and a half years offering solutions, while the government consistently failed to deliver its side of the contract.

“This is a tragic ending to a venture that would have delivered low-cost electrical energy to hundreds of thousands of households throughout Nigeria, and would have brought vital revenue to the Nigerian treasury.”

Cahill and his late partner, Michael Quinn, had over 30 years’ prior experience of executing successful engineering projects in Nigeria before the failed P&ID project that is now in dispute.

 

Background

In January 2010, Process and Development Limited (P&ID or the Claimant) and the Ministry of Petroleum Resources of the Federal Republic of Nigeria (Nigeria or the Respondent) entered into a 20-year Gas Supply and Processing Agreement (GSPA). Under this agreement Nigeria would supply Wet Gas to P&ID, who would process it in a newly-built facility and return it in the form of Lean Gas. P&ID could then sell the by-products of the refinement process (natural gas liquids (NGLs) for their own profit.

Nigeria did not make arrangements for the agreed supply of Wet Gas, including building the necessary pipelines. In March 2013, P&ID treated this failure as a repudiation of the GSPA. By that date PI&D estimated that it had invested USD40 million in the project, although it had not yet acquired the land or built the facilities.

In July 2015, an ad hoc tribunal seated in London decided that Nigeria was liable to damages to P&ID. In a majority decision in January 2017, the tribunal awarded USD6.6 billion in damages to P&ID. The dissenting opinion estimated the loss at USD250 million over three years.

 

Claimant’s position

The Claimant estimated that the project would produce a net profit of USD5 to USD6 billion over a 20-year period.

Income projections were based on several assumptions relating to the expected yield of NGLs and the price of NGL. The Claimant estimated capital expenditure at USD580 million and operational expenditure at cUSD60 million per year.

The Claimant used a discount rate of 2.65% based on US Treasury bonds to represent only the time value for money.

 

Respondent’s position

The Respondent objected that P&ID should only be entitled to nominal damages as it had not fully performed its obligations under the GSPA at the date of the repudiation.

It argued that production would be disrupted by militancy in the Niger Delta so that utilisation should be reduced to 40-50%. The Respondent’s expert challenged the Capex calculation as being based on inadequate material.

The Respondent also insisted that damages could only be awarded for a period of three years as the Claimant had a duty to mitigate its loss and it should have pursued other investment opportunities.

The Respondent adopted a discount rate of 7% to reflect the risk of investing in Nigeria.

 

Approach taken by the tribunal

The Tribunal considered that there was no evidence that the Claimant was unable or did not intend to perform its obligations under the GSPA. Consequently, the Tribunal rejected the Respondent’s argument on nominal damages.

In addition, the Tribunal determined that there was no actual evidence that militancy in the Niger Delta had any impact on gas production or transport around the site earmarked by P&ID, or that other NGL prices than the ones forecast by the Claimant should be used.

In the absence of a meaningful challenge from the Respondent, the Tribunal agreed with the Claimant on key aspects of the measure and calculation of damages, including the 20-year period, the other underlying assumptions to project net income, and the discount rate. It awarded USD6.6 billion in damages together with pre and post-award interest of 7%. This interest rate reflects what PI&D would have had to pay to borrow the money or could have earned by investing in Nigeria.

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