A controversial gas deal between the Federal Government and Process and Industrial Development, a firm founded by two Irish businessmen and incorporated in the British Virgin Island, has led to the award of $9billion against Nigeria. The transaction, which was sealed in 2010, shows lack of concrete terms of engagement, reports EMEKA UGWUANYI.
The judgment of a United Kingdom court granting Process and Industrial Development Limited (P&ID) the authority to seize Nigeria’s assets worth $9 billion has rattled stakeholders in the economy because of the impact, it would have if implemented. Last year, a United States’ court gave a $6.59 billion default decision against the Federal Government for disrupting the P&ID contract.
Andrew Stafford, Q.C. of Kobre & Kim, which represents P&ID, said the firm would enforce its rights and seize Nigeria’s assets “to satisfy this award as soon as possible”.
P&ID’s claim in the arbitration was mainly for loss of profit for the duration of the contract, which was $1.9 billion before it increased it to $5.9 billion because the agreement was based on an average oil price in excess of $100 per barrel over the contract period. Plans to settle the case, however, was spurned by the Muhammadu Buhari administration, which chose to return to the tribunal to further contest P&ID’s claims.
How the transaction started
On January 11, 2010, P&ID signed a gas supply and processing agreement with the Ministry of Petroleum Resources. Under the terms of the agreement, P&ID was to build and operate an accelerated gas the development project at Adiabo in Odukpani Local Government Area of Cross River State.
The government was to source and supply natural gas from oil mining leases (OMLs) 123 and 67 operated by Addax Petroleum to P&ID for 20 years to refine into fuel suitable for power generation. The lean gas to be produced from the wet natural gas was to be supplied to the Federal Government, while residual gas would be vested in P&ID as consideration for processing the wet gas to lean gas.
The initial volume of gas to be supplied was about 150 million cubic feet of gas per day, which would be come to about 400 million cubic feet per day during the 20-year period.
However, P&ID alleged that after signing the agreement, the Federal Government reneged on its obligation after it opened negotiation with the Cross River State government for allocation of land for the project.
P&ID said the failure to construct the pipeline system to supply the gas frustrated the construction of the gas the project, thereby depriving it the potential benefits expected from 20 years’ worth of gas supply, adding that several attempts to settle out of court with the government failed.
In August 2012, P&ID served the Federal Government a Request for Arbitration. The government argued before the tribunal that the failure of P&ID to acquire the site and build the gas processing facilities was a fundamental breach as no gas could be delivered until this was done.
But the tribunal ruled that the government’s obligations under Article 6B of the agreement did not depend on P&ID constructing the gas processing facilities. The tribunal upheld P&ID’s application requesting damages for alleged breach of contract by the government.
Two members of the three-man tribunal, Lord Hoffmann and Anthony Evans held that P&ID’s expenditure and income should have been about $6.597 billion if the gas supply and purchase agreement (GSPA) was duly performed by the government. Both officials said the award should be paid together with interest at the rate of 7 per cent from March 20, 2013.
The other member, who is Nigeria’s former Attorney-General and Minister of Justice, 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. Ojo said P&ID should not be paid more than $250 million as damages.
The tribunal said damages were calculated as the present value of 20-year income, minus certain capital and operating costs incurred from building and running the refining facility. Considering that the award was unpaid since 2013, accumulated uncollected interest at 7 per cent per year would be about $2.3 billion as of March 2018.
Although the government challenged the award, P&ID said Nigeria was bound by a treaty to pay up, having waived its right to immunity as a sovereign nation when it signed the agreement.
On March 16, last year, P&ID in its application seeking enforcement of the award said: “The final award is governed by such a treaty — the New York Convention. So, Nigeria’s status as a foreign sovereign does not deprive the court of jurisdiction to confirm the award.”
The government claimed it didn’t build the pipeline because the contract midwifed by the former Minister of Petroleum Resources Rilwanu Lukman was not favourable. Besides, there was no plant built by the Irish company. But two years later, the Irish company served arbitration notice on Nigeria.
The Federal Government under Dr Goodluck Jonathan sought for settlement even though it had canvassed among other issues that the construction of pipeline depended on the ability of the Irish company to secure land and build a plant. But the Irish company argued that it has lost billions of expected revenue for about 20 years.
The two parties reached a settlement for about $1.5 billion but Jonathan wanted a lower amount of say, $500 million. In 2014, the Jonathan administration pushed further and eventually got a final settlement of about $800 million. Jonathan accepted the terms of the settlement.
In 2015, the then Petroleum Resources Minister, Mrs Deziani Allison-Madueke, wrote a memo to the President for approval of payment in three tranches. Jonathan accepted the proposal but left the final instruction as to disbursement for President Buhari, who was then coming in for his first term of office.
However, Buhari debriefed a lawyer, who got the “lowest possible sum” but the government hired another lawyer, Bolaji Ayorinde (SAN), to set aside the settlement reached by the Jonathan administration. The parties submitted to full arbitration. However, our reporter couldn’t get who were the Federal Government lawyers that negotiated the contract signed on January 11, 2010.
Jonathan camp’s account
An aide to Jonathan, Reno Omokri, at the weekend, said his boss should not be blamed for the $9 billion judgment against the Federal Government.
Omokri said: “P&ID submits that it entered a gas supply and processing agreement with Nigeria’s Ministry of Petroleum Resources in January 2010. Pursuant to the agreement, P&ID claims that it would build the necessary facilities and then refine natural gas for a period of 20 years.
“Now, Nigerians should stop there and ponder. This transaction occurred in January of 2010. Former President Jonathan was not President in January 2010. During that time, he was completely shut out of power by an unelected cabal that ran Nigeria during the period of the ill health of the late President Umaru Musa Yar’adua, before the National Assembly courageously intervened on February 9, 2010.
“That cabal not only fought against the ascension of then Vice President Jonathan to the office of acting President, but went beyond that to take documents including budgets and contracts, to Saudi Arabia, and claimed that the then ailing President Umaru Musa Yar’adua had signed them.
“Nigerians may recall that the cabal announced on December 28, 2009, that the ailing President Yar’adua had signed a supplementary budget and other documents from his sickbed in Saudi Arabia, without the foreknowledge or acquiescence of then Vice President Jonathan or the Executive Council of the Federation.
“In fact, a week later, the Conference of Nigerian Political Parties (CNPP) came out with an exposé alleging that the signatures on the documents were forged and Femi Falana (SAN) took up the case in court.
“The man who packaged and arranged the signing of the contract with P&ID was a member of the cabal and Yar’adua’s minister for petroleum, the late Rilwanu Lukman. Lukman and other members of the cabal treated then Vice President Jonathan with disdain and kept him in the dark about their actions because he had no executive authority, as the then President was unable to hand over to him as constitutionally stipulated due to the suddenness of his ill health.
“That same cabal has resurrected and has now coalesced around President Muhammadu Buhari, with some of them being made either minister or formal and informal advisers. As a matter of fact, the main man behind that cabal is now one of the closest persons to President Buhari.
“Nigerians may want to note that while this controversial contract was signed in January of 2010, former President Jonathan only became acting President on February 9, 2010. So, if the Buhari administration is looking for someone to blame for this judgment against Nigeria, it should look at its own cabal.”
When Jonathan finally took over, according to Omokri, the deal was reviewed and found to be bad for Nigeria, so he insisted that the deal be renegotiated. P&ID refused and instead took Nigeria to arbitration.
Government’s plan
The Federal Government said it would do everything to defend the country and its assets across the world following the ruling by the United Kingdom, Business & Property Courts (the Commercial Court) presided by Justice Butcher, which granted P&ID the right to enforce a March 20, 2013 award earlier given against Nigeria by a District Circuit Court in Washington DC.
The Federal Government, through the Permanent Secretary and Solicitor General of the Federation, Dayo Apata, dismissed the ruling as “completely wrong and obviously unjustifiable.”
Apata, in a statement, said: “The damages awarded P&ID are clearly unreasonable and manifestly excessive and exorbitant. The courts went far beyond any legitimate protection of the commercial interests to overcompensate P&ID on a, frankly, gargantuan scale, and impose[d] a punitive award on Nigeria.”
The government has sought an appeal of the judgment of the English Court to secure a stay of execution.
Central Bank of Nigeria (CBN) Governor Godwin Emefiele reaffirmed Nigeria’s determination to resist the judgment.
“I am not scared at all,” the CBN governor told reporters. “Since the news about the judgment broke out, we have been discussing with our counsel, and they have advised that there are sufficient and strong grounds on the basis of which we could file a stay of execution and also an appeal against that judgment.
“We know the implication of that judgment and its impact on monetary policy. That is why the CBN is going to step forward and very strongly too to ensure we defend the country and defend the reserves of the Federal Republic of Nigeria,” he said.
Need for tidying up contracts
At the panel session of the conference of the Association of Energy Correspondents of Nigeria (NAEC) with sub-theme “Effects of the sanctity of contract on commercial operations,” held in Lagos, industry experts x-rayed the why contracts terms should be properly tidied up before parties involved in the transaction put pen to paper.
The experts who include the Group Managing Director, Aiteo Eastern Exploration and Production Company Limited, Mr. Victor Okoronkwo; Commercial Asset Manager, Oando Plc, Mr. Solomon Agba; Head Legal, Department of Petroleum Resources, Mr. Joseph Tolorunse; Director, Business Development, Axxela, Mr. Frank Umole; and Manager, Corporate Planning, Nigeria LNG Limited, Dr Yakie Ogon, stressed the importance of the sanctity of contract.
According to them, before contracts are signed, the parties involved should envisage future occurrences, possible changes in the market, benefits and losses in long and short terms, among others. It is unhealthy to renege on contracts mid-way because it creates distrust and lack of confidence. Before contracts are signed, all the possible setbacks and challenges should be factored, which is the more reason the National Assembly and the Presidency should expedite action on the passage of the Petroleum Industry Bill.