The Story of Nigeria's $9 billion debt
A timeline of how Nigeria came to be on the hook for $9bn through incompetence and sabotage
On 16 March 2018, Process and Industrial Developments Limited (P&ID) filed a petition against Nigeria before the United States District Court, Washington DC, to confirm a ‘final award’ dated 31 January 2017. The story of how things got to this point is a long one and is still unfolding. But here’s what we currently know.
The final award results from a dispute between P&ID and Nigeria that arose under a Gas Supply and Processing Agreement dated 11 January 2010 between the ministry of petroleum resources of Nigeria and P&ID. According to P&ID, the agreement provided for P&ID to build facilities in Calabar to refine associated natural gas to be used in generating electricity. P&ID claims that Nigeria was to supply it with fixed quantities of wet gas over a 20-year period. In return for supplying lean gas to the state, P&ID would be allowed to retain natural gas liquids separated during the refinement process and sell them for its own profit.
P&ID claims it invested about US$40 million in the project but that the facilities were never built and no wet gas was ever delivered. P&ID alleged that Nigeria failed to meet its obligations to supply wet gas or complete construction of a pipeline that was necessary to transport the wet gas to the project site. The company said these failures led to the project’s collapse, costing it 20 years’ profits from the sale of natural gas liquids (NGLs).
And so P&ID filed for arbitration in 2012 against the Nigerian petroleum ministry. The original agreement provided for disputes to be resolved through ad-hoc arbitration under the Rules of the Nigerian Arbitration and Conciliation Act 2004 (ACA), with the ‘venue’ of the arbitration to be London or anywhere else agreed between the parties.
The three-member arbitration panel was chaired by The Right Honourable Lord Hoffmann, a retired British judge, with Bayo Ojo SAN representing Nigeria (he was appointed to save Nigeria money but he ended up charging Nigeria ‘international fees’ anyway) and Sir Anthony Evans QC representing P&ID. Following a series of hearings in London, the Tribunal issued a first part final award on 3 July 2014 determining that it had jurisdiction to determine its own jurisdiction under the English Arbitration Act 1996, which it held was the law of the seat of the arbitration. This was because Nigeria’s petroleum ministry had challenged whether the Tribunal had jurisdiction on the matter at all. On 17 July 2015, the Tribunal issued a second Part final award on liability concluding that the government’s failure to satisfy its contractual obligations was a breach of the agreement.
In December 2015, the ministry applied to the Commercial Court in London to set aside the liability award, but the Court dismissed the application in February 2016, finding that it had been filed more than four months out of the statutory period for such an application and that the grounds of the action had no merit. Refusing to accept this, the ministry turned to the Federal High Court of Nigeria, asking it to set aside the liability award. The Nigerian court duly obliged and in April 2016, it issued an order “setting aside and/or remitting for further consideration all or part” of the liability award on the grounds that the seat of arbitration is Nigeria and the reference to ‘venue’ in the arbitration clause is not definitive of seat.
Following the Nigerian ruling, Lord Hoffmann told the parties that the Federal High Court had no jurisdiction to annul the liability award and that the case would proceed to the ‘quantum phase’ – where the amount to be paid by the losing party is determined. On 31 January 2017, the Tribunal issued the final award, granting P&ID damages in the sum of a staggering US$6.597 billion. It arrived at this amount by calculating the present value of the 20-year income it would have received for the sale of the NGLs, minus capital and operating expenditures it would have incurred in the course of building and running the facility. Furthermore, the award was to accumulate interest at the rate of 7 per cent per year, working out at US$1.265 million per day. As of today, the total liability thus stands at approximately US$9billion as the penalty has been calculated from 2013.
Even though the Tribunal acknowledged that this was a ‘very large sum’, it nevertheless granted it on the basis that the agreement would have been ‘very profitable’ for P&ID and probably for the government too which told its own story about the kind of deals Nigeria always seems to get itself into. Bayo Ojo dissented on the basis that P&ID ought to have cut its loss and ‘cannot sit and fold its hands for twenty years expecting a windfall’ from the government. He also said the Tribunal had failed to make allowance for the possibility that operations would have been disrupted by militants in the Niger Delta, an ironic defence if ever there was one. Thus, in his carefully considered opinion, P&ID was entitled to damages for three years of operation and therefore should have been awarded no more than US$250 million. He had a point - there is no evidence that P&ID spent any money on the project beyond registering a company in Nigeria. The company claimed it had spent US$40 million on the project but Nigeria did not challenge this assertion and as such the tribunal accepted it as a fact.
In its petition to confirm the award, P&ID notes that Nigeria has not applied to have the final award set aside in London or anywhere else and that the time for doing so expired nearly a year ago. The company has asked the court to enter judgment against Nigeria as well as the Ministry.
And then the story gets messier. After the final award, Nigeria entered into negotiation with P&ID and somehow managed to get the company to accept a payment that was a tiny fraction of the award (thought to be less than US$200 million) with some add-ons including the cost of the land and, crucially, getting the project back on track. Bizarrely, Nigeria’s justice ministry then reneged on this agreement which meant that P&ID was left with no choice than to seek to enforce the award against Nigeria. But was this deliberate sabotage? Who exactly is behind P&ID? Nominally, it is owned by some Lebanese nationals but Nigeria’s hyperactive rumour mill has been whispering for some time that the Lebanese are merely a front for some powerful Nigerians. Thus, the US$100 million settlement was unacceptable to the real owners of the company and they were somehow able to get the justice ministry to renege on its own agreement.
At some point after all this, it appears that P&ID then sold the award to a US ‘vulture fund’ that specialises in collecting sovereign debts across the world. Argentina’s recent experience at the hands of Elliot Capital comes to mind – if the owner of the liability is such a fund, Nigeria may be in more trouble than it realises given the aggressive tactics they are known to employ in collecting debts.
A review of the Washington DC court record shows that Nigeria’s foreign affairs ministry was served with the petition by Fedex in March 2018 and had two months to oppose it. The document was received and signed for by the ministry on 27 March 2018. The two months expired by the end of May 2018 with Nigeria failing to appear to defend itself. The Solicitor General of Nigeria and Permanent Secretary of the justice ministry even contacted two American law firms on the issue but yet again stopped short of actually instructing them to defend Nigeria in the case. As the deadline approached, international law firms sent letters to Nigeria’s justice minister, the dozy Abubakar Malami, informing him of the gravity of the situation and the need to act urgently. All the letters went unanswered.
And so, following Nigeria’s failure to defend the Washington DC court case, a default judgement was rendered against Nigeria on 5 June 2018, confirming the award.
Where the cash strapped country will find the resources to pay such a debt is anyone’s guess. Given how the case has so far played out, the government is likely to sit back and wait for the inevitable embarrassment to unfold - perhaps a Nigerian ship or building being seized - before shaking out of its reverie. At any rate, the elections due in 2019 are currently all consuming for the government with hardly any capacity left to handle such a complex matter. The default judgement can be appealed - by showing extraordinary reason why the country failed to appear within the stipulated time - but Nigeria has so far shown no hurry to do this.
And so, as of today, Nigeria is on the hook for US$9 billion and counting.