Nigeria dodges economic ruin in UK court’s overturning $11bn P&ID award

Onome Amuge

Nigeria has long struggled with a lack of electric power, a problem that has only been exacerbated by the country’s practice of flaring natural gas associated with oil production, rather than using it to generate power.

In an effort to address this issue, the Nigerian government launched the Accelerated Gas Development Project (AGDP), which includes a gas supply and processing agreement (GSPA) aimed at increasing the use of natural gas in the country.

Under the terms of the agreement, Nigeria sought to increase the use of natural gas in the country, including for power generation and the reduction of flaring. It was hoped that this would lead to a cleaner and more energy-secure future for Nigeria.

On January 11, 2010, a bilateral document was signed in Nigeria between the Nigerian government and a company registered in the British Virgin Islands called Process & Industrial Developments Limited (P&ID), which was founded by Irish businessmen Michael Quinn and Brendan Cahill.

The agreement, which later became the subject of controversy, was intended to provide a framework for the development of natural gas resources and the reduction of gas flaring in Nigeria.

Under the terms of the GSPA, the Nigerian government was to supply a certain amount of “wet” gas, which is natural gas containing hydrocarbons, such as ethane, propane, butane, and heavier gases, to processing facilities built by P&ID. P&ID was then to process the gas and deliver “lean” gas, or natural gas that has been stripped of other hydrocarbons, to the Nigerian government for use in power generation. In addition, P&ID was to retain the natural gas liquids separated from the gas, which it could then sell domestically or export for additional profit.

Although the GSPA was intended to last for 20 years or more, it never got off the ground. Neither Nigeria nor P&ID fulfilled their obligations under the agreement, and the gas processing facilities were never constructed. P&ID subsequently claimed that Nigeria had breached the terms of the GSPA, which led to a long-running legal battle between the two parties.

It is worth noting that the GSPA was not the only agreement between Nigeria and P&ID; the parties had also entered into a separate engineering, procurement, and construction (EPC) agreement, which would have covered the actual construction of the gas processing facilities.

In the third year of the GSPA, P&ID began an arbitration proceeding against Nigeria under the terms of the arbitration clause in the agreement. This process allowed P&ID to seek compensation for alleged damages caused by Nigeria’s failure to fulfil its obligations under the GSPA.

After reviewing the arguments made by both parties, the private arbitration tribunal concluded that it had the authority to hear the case and make a decision. Based on the evidence presented, the tribunal determined that Nigeria had failed to meet its obligations under the GSPA and had committed a breach that justified termination of the agreement. As a result, the tribunal ordered Nigeria to pay $6.6 billion in damages, with interest at the rate of seven percent beginning on March 20, 2013.

These findings were made in a final award, dated July 17, 2015, and a final award, dated January 31, 2017, known as the “Final Award.”

After the judgement, Nigeria requested an extension of the deadline for making payment, as well as relief from sanctions. These requests were granted by Judge Ross Cranston of the Business and Property Courts of England and Wales in September 2020. This gave Nigeria additional time to pay the award.

Meanwhile, the delay in payment had resulted in an accumulated interest rate of seven percent, amounting to $1 million per day. By the time the final ruling was reached, the amount owed had grown to over $11 billion.

In the years that followed, the Final Award became the subject of significant legal debate and controversy. Nigeria raised various objections, challenging both the Award on Liability and the Final Award. It also made further allegations of bribery, corruption, and perjury against P&ID, alleging that these actions had influenced the awards in P&ID’s favour.

P&ID categorically denied all of these allegations, labelling them as “false and dishonest.” This created an extremely contentious and complicated legal landscape surrounding the dispute, as the parties continued to challenge each other in court.

October 23, 2023, will go down in history as a momentous day for Nigeria, as the country finally obtained a favourable ruling from the Commercial Courts of England and Wales regarding the controversial $11 billion arbitration award to P&ID.

In a lengthy verdict that was sent via email by Justice Robin Knowles, it was made clear that the key factor in Nigeria’s legal victory was the discovery of fraud in the gas processing contract between Nigeria and P&ID. This fraud provided a clear and decisive basis for the Nigerian government’s case, and ultimately resulted in a verdict in their favour. The full verdict detailed the extent of the fraud, and the compelling evidence that supported the decision.

The recent judgement has significantly altered the course of a long-running legal battle that has attracted worldwide attention and put a great strain on Nigeria’s financial resources.

According to analysts, the revelation of fraud within the gas processing contract proved to be a decisive factor, providing Nigeria with the means to successfully challenge an award that had previously appeared to be unassailable.

They also noted that in addition to its significance for Nigeria, the ruling has broader implications for the global business community, emphasising the critical importance of transparency and integrity in all international business agreements.

Wahab Shittu, principal partner at WK Shittu & Co. and a senior lecturer at the University of Lagos  (UNILAG), offered his perspective on the verdict, arguing that the contract was deliberately signed with the intention of committing fraud. He pointed out that those who signed the contract on behalf of Nigeria, as well as those who represented Nigeria in the matter, were complicit in this deception.

In Shittu’s opinion, the company in question was essentially created with the intention of bribing its way into lucrative contracts in Nigeria. He cited the findings of the British court, which found that the company had been designed to defraud the Nigerian people.

Shittu also spoke about the institutional failures and collusion that were highlighted by the judgement, emphasising the greed and selfishness that led to the attempt to defraud Nigeria. He expressed concern about the damage that this kind of behaviour can have on the country’s development, its reputation, and the welfare of its people.

“How do you sign a contract of that magnitude without taking the office of the attorney general into consideration. How do you sign that as an agency without looking at all the checklists? We have enough laws here. We have a sufficient legislative framework that will prevent this kind of infiltration of our system but there was a collision because of an obvious attempt to subvert the system,” he noted.

The senior lawyer went on to imagine the consequences that could have occurred if the judgement had not gone in Nigeria’s favour. He noted that given Nigeria’s current economic challenges, such as liquidity issues, a judgement that went against the country could have been disastrous.

Shittu further noted that had the judgement not gone in Nigeria’s favour, it could have had severe repercussions for the federal government’s operations, as foreign assets would have been at risk and the country’s foreign reserves could have been severely depleted. He added that the nation’s fiscal and monetary policies would have been severely impacted, causing significant instability amongst other  far-reaching implications for Nigeria’s future.

According to Shittu, the successful outcome of the case was the result of a collective effort by a number of key organisations and agencies within Nigeria. He highlighted the work of the Federal Ministry of Justice, the attorney general of the federation, the Economic and Financial Crimes Commission (EFCC) under Ibrahim Magu, the Ministry of Petroleum Resources, and the Nigerian Financial Intelligence Unit (NFIU). He emphasised the importance of this collaboration, and the critical role each of these organisations played in securing the positive outcome.

“All of these agencies collaborated and it dramatises the beauty of synergy rather than agencies getting themselves involved in needless rivalries. If they collaborate and they harmonise resources together by way of synergy, you can see what that can translate into and that’s what has delivered this outcome,” he said.

In the words of Lateef Fagbemi, the attorney general of the federation and minister of justice, the overturning of the $11 billion arbitral award that had been made against Nigeria in 2017 in favour of Process and Industrial Developments Limited (P&ID) was a condemnation of exploitative international investors.

Fagbemi further remarked that the judgement should serve as a deterrent to investors who seek to take advantage of developing countries like Nigeria for their own financial gain. He stressed that such predatory investors should be stopped from preying upon countries like Nigeria, which are still working to develop and improve the lives of their people.

According to the justice minister, the arbitral award had placed the assets of Nigeria and its agencies all over the world at risk of attachment, which could have led to a significant reduction in foreign reserves and caused serious damage to the country’s monetary, fiscal, and other policies.

He stressed that the award would have had devastating consequences for the people of Nigeria, as it would have severely limited the country’s ability to invest in its development and improve the lives of its citizens.

“This successful result is a decisive victory for the people of Nigeria who stood to lose over $11 billion, and for the Nigerian administration which has now reached a milestone in its mission to challenge the scourge of corruption,” he added.

Fagbemi also hinted that the UK court is expected to hold additional hearings to determine the costs that will be paid by P&ID, as well as other matters that are still to be resolved.