EDIDIONG IKPOTO examines the possible repercussions an adverse ruling in the ongoing P&ID trial could have on Nigeria’s already strained economy
Judgment on the protracted legal tussle between Nigeria and hedge fund-backed Process & Industrial Development Ltd isn’t expected for at least several weeks; nonetheless, given the multiple beatings the Nigerian economy has suffered in recent memory, the stakes are hard to overstate with regard to what the consequences of an adverse ruling could mean for Africa’s largest economy.
The trial has its origin in a failed 2010 gas deal between Nigeria and P&ID, a British Virgin Islands-registered firm founded by two Irish businessmen.
The two Irish nationals – a former music manager, Michael Quinn (who died in 2015) and his business partner Brendan Cahill had been previously contracted to repair tanks and planes for the Nigerian military.
In 2010, P&ID was awarded a 20-year contract to process gas for Nigeria’s domestic energy market. Two years later the firm commenced arbitration proceedings, claiming that the Nigerian government had failed to build the required infrastructure for the energy project, which translated to reneging on the contract.
A resulting arbitration led to a $6.6bn award for P&ID that has now increased to more than $11bn with interest.
In a matter of weeks, London’s High Court will consider whether to overturn an order by an international arbitration tribunal in 2017 which asked Nigeria to pay $6.6bn in damages to P&ID for lost profits related to the failed energy project.
Impact on Nigeria’s economy
According to economists who have weighed in on what happens to be one of the biggest arbitration feuds in history, Nigeria’s economy could suffer a crisis on a devastating scale depending on the outcome of the case.
It is understood that a negative ruling could cost Nigeria up to $11bn, which is about one-third of the country’s foreign reserves. The penalty would significantly wreck Nigeria’s economy, which, in recent years, has been stretched almost to breaking point.
Speaking with The PUNCH, an economic expert at the Pan-Atlantic University, Lagos, Olusegun Vincent noted that Nigeria’s international investors are already following the case with keen interest, as a judgment debt of this magnitude could affect the country’s economic climate in many ways.
Olusegun, a public policy economist believes that the frequently reported figures of Nigeria’s external reserves may not be a factual representation of forex held by the Central Bank of Nigeria, particularly due to the lack of available audited reports to back up the apex bank’s claims.
He further expressed worry that Nigeria’s ability to obtain loans from its creditors could suffer a huge blow should the court rule against Africa’s largest economy, particularly given an already alarming debt profile that has already called the country’s creditworthiness into question.
He said, “We don’t even have that kind of money. When you say you have $36bn in reserve, in this era of opaqueness, who has audited our external reserves to confirm that it is $36bn? When last was CBN audited? If that judgment comes through and we are asked to pay, I’m telling you, we cannot afford it. If Nigeria cannot, what will happen to Nigeria? It would be like a country that has a bond obligation that cannot pay that obligation. The moment that happens, at the level of international relations.”
On his part, renowned economist and academician, Professor Akpan Ekpo described the case as one that is embarrassing to Nigeria’s reputation.
Ekpo, a Professor of Economics and Public Policy at the University of Uyo further noted that a negative ruling would negatively impact the economy due to the ensuing acute shortage of forex that would hit importers and exporters. This, he said, would significantly damage Nigeria’s Gross Domestic Product.
Ekpo said, “If we lose, that will really erode our forex reserves. Having enough confidence gives confidence to investors. Deals all depend on confidence. If they know that you don’t have enough forex, you’re in trouble. The forex makes sense if you have enough to cover 3-6 months of imports. So, if we lose the case and have to pay that much, then that would be a very big blow to the economy.”
Beyond the damage an adverse ruling could do to the economy, Ekpo equally believes that the protracted conflict between Nigeria and the self-acclaimed energy firm has placed many foreign investors on high alert. According to him, the accusations and counter-accusation of bribery by both parties would further dampen the confidence of investors with any plans of investing in the country.
Also speaking, the Deputy-President of the Lagos Chamber of Commerce and Industry, said that even though a ruling against Nigeria would be devastating to the economy, the weak foundation of the case by P&ID could be a strong factor that could swing the case in Nigeria’s favour.
Idahosa’s view isn’t far from the position the Federal Government has held concerning the deal. According to a report by African Business Magazine, over the past two years, Nigeria has gathered ample evidence suggesting that the international arbitration tribunal which awarded the $6.6bn damages was misled, says international arbitration lawyer Tsegaye Laurendeau, a partner at specialist disputes law firm Signature Litigation, which is not involved in the case.
The Nigerian government has alleged that the 20-year contract awarded to P&ID in 2010 to process gas for Nigeria’s domestic energy market might have been illegally procured through bribes. It said the project was compromised from the start, calling it “one of the world’s biggest scams” in a statement last year.
The government’s claim hinged on what it described as “bribery of epic and industrial scale” first for the gas deal and then to buy off lawyers representing the country to win the arbitration award in 2017.
Nigeria’s lawyer, Mark Howard during his closing argument at the latest hearing said “Nobody who sat through the factual evidence could have missed the stench of corruption.”
In its response, P&ID has denied all allegations of corruption and has instead claimed that Nigeria has been liberal in their mudslinging and parsimonious with the truth throughout this trial.
“We completely deny that there was any corruption,” P&ID’s lawyer, David Wolfson said in his closing argument. Nigeria came up with fabricated evidence to lay a “forensic trap” for the court to rule against the award, he added.
While both parties have continued to trade recriminations and accusations of corruption, it is more likely that Nigeria’s vulnerability to being fleeced of $11bn has largely been aided and abetted by the pervasive corruption in its public system.
For example, P&ID’s surviving founder Brendan Cahill has struggled to explain the motivation for sending $250,000 in cash from Ireland to an official in Nigeria.
For the Nigerian government, this experience has almost become music to the ears — The ongoing tussle to save an ailing economy from imminent collapse in court against a foreign counterpart echoes familiar tunes. Only last year, after years of controversy, a London High
Court ruled against Nigeria in a suit it filed demanding $1.7bn in reparations from a United States bank, JP Morgan Chase.
The case had its root in the controversial Malabu oil deal which embroiled the Nigerian government and its former oil minister, Dan Etete in a legal battle that dragged on for several years.
Following the resolution of the conflict in 2011 which saw Etete relinquish his stake in the oil field to energy firms — Shell and Eni, the Nigerian government faulted the US bank for being “grossly negligent” in its decision to transfer funds paid by the energy majors into an escrow account to a company controlled by the country’s former oil minister Dan Etete instead of into government coffers.
According to Nigeria’s counsel on the case, Roger Masefield, the transactions put JP Morgan in breach of its Quincecare duty, which obliges banks to disregard a customer’s instructions if adhering to those instructions could help facilitate fraud against that customer.
The bank held that it did not breach the Quincecare duty, and neither did it act with gross negligence as claimed by the Nigerian government.
Having lost out on its bid to secure $1.7bn in reparations, the Nigerian government ended up as sole loser in a corrupt deal that never should have happened, and one that cost the country billions in oil revenue.
A report by the anti-corruption group, Global Witness, released in November 2018, said that Shell and Eni’s deal for Nigeria’s OPL 245 oil block reduced Nigeria’s expected revenue by nearly $6bn.
According to Laurendeau, overturning or annulling an international arbitration award is “extremely difficult.”
However, Nigeria could upset the cards for the firm by playing the long game and subjecting any unfavourable judgments to further appeals.
Idahosa, who vehemently questioned the foundation of the claims by the company, further noted that the longer the case stretches, the more obvious it will become that P&ID as a firm, ab initio, lacked the capacity to execute a contract of that nature.
