Nigeria’s $9bn negligence
The British Commercial Court, headed by British jurist Lord Hoffmann, recently endorsed $9 billion penalty against Nigeria for defaulting in a natural gas supply contract with the Process and Industrial Development Limited (P&ID). The judgement debt, estimated to be over 2.5% of the country’s GDP, is easily the biggest financial liability the country has ever […]
The British Commercial Court, headed by British jurist Lord Hoffmann, recently endorsed $9 billion penalty against Nigeria for defaulting in a natural gas supply contract with the Process and Industrial Development Limited (P&ID). The judgement debt, estimated to be over 2.5% of the country’s GDP, is easily the biggest financial liability the country has ever contended with. The debt was incurred in respect of a contract entered intoin 2010 by the country and P&ID, a company owned by two Irish businessmen Michael Quinn and Brendan Cahill.
Multiple reports on this scandalous debt point to a sad culture of negligence which manifested at every stage of the contract and arbitration. First, officials failed to fulfil Nigeria’s part of the bargain in the contract to supply natural gas to a processing plant in Calabar. The deal sealed while the late Rilwanu Lukman was Minister of Petroleum was meant to facilitate the production of gas for power generation. Nigeria was to supply wet gas free-of-charge to the contractors,using a pipeline meant to have been constructed by government and linked to P&ID production facility. On its part the company was to process the wet gas and return to government as lean gas at no cost to government. However, P&ID could benefit from the derivates from the natural gas. But over the years, government failed to supply natural gas to P&ID facility, hence the suit on the basis of a breach of contract agreement.
The case, which began with a decision by the arbitrators in London and the award of $850 million as penalty for Nigeria’s default, mutated to higher sums computed on a disturbing compound interest rate. It came to the sum of $6.6 billion for loss of income over the lifespan of the project and $2.3 billion in interest in favour of P&ID. This has put Nigeria’s foreign reserve of $44.9 billion at the risk of losing a whopping $9 billion, if an out-of-court settlement is not struck as soon as possible.
The Attorney General of the Federation and Minister of Justice, Abubakar Malami, has threatened fire and brimstone on Nigerians involved in the mess. But it is disturbing, and difficult to believe, that the Federal Executive Council (FEC) under President Muhammadu Buhari was ignorant of this court case which has been hovering since 2012. Perhaps, the probe should begin from the Ministry of Justice, not the ‘past administration,’ a constant refrain in Malami’s threats.
It is difficult to understand why the place of arbitration of a contract between Nigerian government and P&ID should be in London, another jurisdiction. Those who signed the contract agreement on behalf of government, and the officials who vetted the documents, should be made to explain. Secondly, it is necessary to know how much P&ID invested in the project. The Central Bank of Nigeria (CBN) should verify the claim that the company brought in $40 million investment. How could the interest of doubtful $40 million graduate to a staggering $9 billion debt in a space of nine years of unexecuted project?
Even as the government may be indulging in a blame-game and groping for scapegoats, its complacence remains unpardonable as the entire episode smacks of diminished discretion by the respective government officials whose statutory briefs cover the management of the country’s public debt portfolio. As the outrage over the debt is trending, the development has effectively amplified the traditional lackadaisical attitude of governments in Nigeria towards debt management, either from domestic creditors or offshore sources.
Now that the $9 billion scandal has been blown open, it is imperative for government to engage in fireworks, file a stay-of-execution appeal and engage in efforts to defend the country’s hard-earned $9 billion foreign reserve. Most importantly, the Ministry of Justice should do an audit of such court cases pending at international arbitration courts to ensure they are handled with seriousness and settled in such a manner that they do not threaten Nigeria’s foreign reserves.