A few days ago, Nigeria won a historic, long-running court case against a little-known energy company. Losing that case could have been dire for its economy. Yet, the victory has received an underwhelming response from the markets.

The case pitted Nigeria against Process and Industrial Developments Limited (P&ID), a British Virgin Islands-based engineering firm. P&ID sought to claim $11 billion from the country. For context, that’s about one-third of Nigeria’s 2023 budget and over seven times its current health budget.

The economic atmosphere has been tense for days because the naira is having its worst run against the dollar in history. And so, news of Nigeria losing this case would have sent more panic into the markets. Nigeria had more than one channel through which it would have felt the pain of that case. But before looking at them, let’s get into the origin of this case.

How it started

The story of the P&ID case began in 2010 when P&ID signed a 20-year deal with Nigeria to build and operate a gas processing plant in Calabar, Cross River State. The plant was supposed to refine natural gas (also known as “wet gas”) into lean gas that Nigeria would receive free of charge to power its national electric grid.

The project was part of Nigeria’s plan to reduce gas flaring, which is the burning of excess gas during oil production, and to boost its electricity supply, which is notoriously unreliable and insufficient for its growing population.

However, the project collapsed because the Nigerian government did not supply the wet gas as agreed. P&ID claimed that Nigeria breached the contract and took the case to arbitration in London. The company began arbitration proceedings in 2012.

Five years later, a panel of three arbitrators in London decided 2-1 to award a $6.6bn judgment against Nigeria for what P&ID claimed was the complete value of losses it incurred on the project. The award was one of the largest publicly known sums granted against a country.

The chances of Nigeria overturning the award were initially considered slim, and its lawyers repeatedly missed deadlines to file an appeal. But in 2020, Sir Ross Cranston, a London High Court judge, gave it more time to prove its allegations of corruption in the case.

He found there was also a “strong prima facie case” that one of the company’s founders, Michael Quinn, had given “perjured evidence to the tribunal” to “give the impression that P&ID was a legitimate business and was able and willing to perform the [contract].”

Nigeria’s comeback

On Monday, October 22nd, Judge Robin Knowles of the Commercial Court of England and Wales agreed with Nigeria’s position and ruled that the contract was procured by fraud and corruption. According to Knowles’ ruling, the awards “were obtained by fraud” and “the way in which they were procured was contrary to public policy”.

But it’s not over. P&ID can seek permission to appeal against the ruling. Also, the judge said he wanted to hear more arguments from both parties before deciding whether to dismiss the award entirely or return the dispute to arbitration.

Nigeria’s court victory was supposed to ease the pressure on the naira at the forex markets. But it hasn’t improved after one week. Nevertheless, the naira’s downtrend hasn’t become steeper. The market’s passive response is likely because it doesn’t guarantee that dollar liquidity or any other fundamental will improve. It only means Nigeria’s fate won’t be decided by an external party. And there aren’t any surefire signs that these fundamentals will improve in the short term.

Also, Nigeria already carries a worrisome $108.3 billion debt burden and is still seeking more bailouts. The country has been spending most of its revenue on debt servicing. But it’s mostly public debt, so creditors are more patient. Paying P&ID would likely have required Nigeria to seek new loans and dig a wider hole in its coffers.

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