Over the weekend, a London-based court granted energy firm, Process and Industrial Developments Ltd (P&ID) permission to seize some Nigerian assets worth $9 billion. The verdict was given over a failed project to build a gas processing plant in the southern Nigerian city of Calabar.
Prior to Friday’s ruling, P&ID had in 2013 won a $6.6 billion arbitration case but that figure rose to over $9 billion with interest accrued over the six-year period. The amount is equivalent to some 20 percent of Nigeria’s foreign reserves and almost 2.5 percent of the country’s annual Gross Domestic Product (GDP), in what is potentially the largest financial liability in the African nation’s history.
The latest development highlights a risk to Nigeria’s foreign assets and could have damaging effects on its appeal to foreign investors. “P&ID is committed to vigorously enforcing its rights, and we intend to begin the process of seizing Nigerian assets in order to satisfy this award as soon as possible,” said Andrew Stafford, Queen’s Counsel of law firm Kobre & Kim LLP, which is representing P&ID.
The Nigerian government through its lawyers had tried to nullify the award on the basis that it was not a case to be heard outside its shores and that the amount awarded was “manifestly excessive.”
But the British judiciary rejected the argument, and in his ruling on Friday, Judge Christopher Butcher of the Commercial Court said he was “prepared to make an order enforcing the final award,” and would “receive submissions from the parties as to the precise form of order appropriate.”
Where it all started…
The Friday ruling is the climax of a case involving a 2010 deal in which the Nigerian government agreed to supply gas to a processing plant that P&ID would build and operate. The deal with P&ID company, based in the British Virgin Islands, was meant to be mutually beneficial for both parties.
The agreement provided for the company to “build a state-of-the-art gas processing plant to refine natural gas… (that) Nigeria would receive free of charge to power its national electric grid,” according to the company’s website. While P&ID intended to sell the byproducts from the process on the global market for “profits in the billions of dollars.”
However, London court documents released showed that the arrangement collapsed in 2012 after the government reportedly failed to live up to its side of the deal and without P&ID ever breaking ground on the plant.
Consequently, the closely held company, which was founded by two Irish businessmen specifically for the project, sued the Nigerian government for breaching the agreement by failing to provide the gas or install the promised pipelines. P&ID in January 2017 won the award of up to $6.6 billion, based on what it could have earned during the 20-year agreement. And with an accrued interest of $1.2 million a day, that amount rose to more than $9 billion – about one-fifth of Nigeria’s declared foreign reserves of $45 billion.
In its defense, the government’s legal team countered that English courts did not have jurisdiction to settle the dispute. This is because the original agreement was struck under “Nigerian law and that as a matter of Nigerian law the seat of the arbitration was Nigeria.”
According to court documents, the government’s lawyers added that the settlement was “manifestly excessive and penal.” But P&ID insisted that the English arbitration tribunal had the sole authority to decide where the case should be heard – and who should issue the final ruling, a claim that was backed by Justice Butcher.
As P&ID starts making applications to seize Nigerian assets in Britain, the country’s Solicitor General, Dayo Apata, told Reuters that the government would appeal the decision. But experts have said it would be difficult for the country to fully extricate itself.
“Under UK legislation, state immunity does not operate to protect a sovereign state where it has entered into an arbitration agreement,” a partner with United Kingdom (UK) law firm Fieldfisher, Simon Sloane, said.
Sloane added that it would be difficult for Nigeria to avoid paying compensation as going after state assets following arbitration had become very common over the past 15 years.
Moreover, the involvement of hedge fund VR Group, which has a stake in P&ID, signalled that it is unlikely to let the issue drop but a settlement can be agreed below the stated amount. “They could still come to a settlement. As it’s a consensual process the parties can agree to settle, and settle for significantly below the $9 billion figure,” Sloane noted.
Assets used for diplomatic purposes – such as the Nigerian High Commission building in central London – are not eligible for seizure, but commercial assets are, legal experts, say.