A whopping $8.9 billion (N2.7tr) arbitration fine on Nigerian is threatening wipe off a sizeable chunk of its foreign reserves, derail the 2018 budget and plunge the economy back into recession if the Federal Government goes ahead to honour the obligation.
Two arbitration awards totaling over $8.9bn (about N2.7 trillion at CBN’s N305.4 as of May 22) have been made against the country and it does appears that efforts by the Muhammadu Buhari’s administration to dodge payments have failed, leaving it with no option than to honour the judgment obligations.
The fines emanated from the contractual actions of three previous administrations of Presidents Olusegun Obasanjo, Umaru Yar’Adua and Goodluck Jonathan regimes.
According to an online report a three-man arbitration panel, constituted under the rules of the Arbitration Act 1996 (England and Wales) and the Nigerian Arbitration and Conciliation Act (CAP A18 LFN 2004), had on March 20, 2013 awarded $6.6 billion in favour of Process & Industrial Development Limited (P&ID), an engineering firm registered in the British Virgin Island (BVI).
For failing to pay immediately that award was said to have attracted additional $2.3billion in accumulated interest at 7 per cent rate per annum over more than five years it remained unsettled. The amount due for enforcement today is about $8.9 billion.
The dispute between the engineering company and Nigeria went to arbitration after the firm accused the Ministry of Petroleum Resources of breaching a gas supply and processing agreement (GSPA) it signed in 2010 on behalf of the Federal Government.
The second award of about $21.24 million (N6.5 billion) was in favour of ENRON Nigeria Power Holding (ENPH) Limited, which signed an agreement with the Lagos State government for the construction of power projects in the state
The Federal Government guaranteed the agreement and has now been held liable after Lagos was accused of breaching it. The award in favour of ENRON, which has been affirmed by both high and appeal courts in the United States, has been awaiting settlement for more than a year and 26 days, since April 26, 2017.
Although the Attorney-General of the Federation and Minister of Justice, Abubakar Malami, could not comment on the matter when called by a reporter that investigated the story, his Petroleum Resources counterpart, Ibe Kachikwu, said the Federal Government was aware of the outstanding obligations and was doing something about them.
Nigeria’s 2018 federal budget is equivalent of about $29.9billion. If someone has an arbitral award of about $11.1billion to collect, what will remain for the entire country of almost 200 million people?
“It means they have taken more than one-third of the 2019 budget. The truth is that the Nigerian economy cannot afford to pay that to anybody and still survive. That’s why I say it is calamitous ,” Mr Onyekpere said.
On January 11, 2010, P&ID signed a gas supply and processing agreement with the Ministry of Petroleum Resources on behalf of the Nigerian government.
Under the terms of agreement, P&ID was to build and operate an Accelerated Gas Development project to be located at Adiabo in Odukpani Local Government Area of Cross River State.
The federal government was to source for natural gas from oil mining leases (OMLs) 123 and 67 operated by Addax Petroleum and supply to P&ID to refine into fuel suitable for power generation in the country.