Adewale Sanyaolu
The possibility of a further depletion of Nigeria’s foreign reserves by about 20 percent over a failed gas deal which was entered into on behalf of the Federal Government by the Ministry of Petroleum Resources with an Irish firm, Process and Industrial Development Limited (P&ID) in 2010 is now looking more real than imagined several months ago.
The firm, in a landmark judgment delivered by a British High Court two weeks ago, found Nigeria culpable, is now at liberty to confiscate the nation’s assets in any form to the tune of $9.6 billion.
Already, P&ID said, it has instructed its lawyers to identify Nigeria’s assets that could be seized in the process of enforcing the decision of an arbitration tribunal which was recently converted to a court judgment.
P&ID’s representative, Mr John Ehiguese, had said, “We cannot confirm specifics. However, the P&ID’s legal team is working diligently to identify and target assets that may be used for enforcement of the tribunal award.
“There have been many successful enforcement cases against sovereign states in the past.
“In the case against Argentina, creditors detained an Argentine naval vessel; in the case against Venezuela there was the seizure of state-owned oil cargo. There is a wide range of potential assets.”
However, the company did not rule out the possibility of alternative resolution of the fine, which has the potential of wiping out 20 per cent of the country’s foreign reserves. It however said the onus was on the government of President Muhammadu Buhari to show good faith and enter into reasonable negotiations.
It stated, “The real question is: Is the Nigerian Government willing to enter good-faith negotiations? The ball is now in the court of the Buhari Administration to demonstrate a mature, good-faith approach to a resolution; their legal arguments have been completely rejected.
The P&ID case is one of the numerous ones against Nigeria over failed contracts. Last year, the Nigerian National Petroleum Corporation (NNPC) in one of its newsletters, said it has been able to resolve about $8 billion in Production Sharing Contract (PSC) arbitration claims. This and many more have left tongues wagging over the inability of Nigeria to knot all lose ends when signing contracts, especially ones running into several millions of dollars, saying the effects of failed contracts are having far reaching implications on the economy.
It was for this reason and many more that a team of panelists gathered at the 2019 edition of the Association of Energy Correspondents of Nigeria(NAEC) annual conference which held in Lagos last week, to examine the topic ‘‘ Effect of Sanctity of Contract on Commercial Operations’’.
The panelists included, Chairman, Society of Petroleum Engineers (SPE), Nigeria Council and moderator of the session, Mr. Debo Fagbami, Group Managing Director, Aiteo Eastern E&P Limited, Mr. Victor Okoronkwo, Head, Legal Department, Department of Petroleum Resources, (DPR), Mr. Joseph Tolorunse, Manager, Corporate Planning, Nigerian Liquefied Natural Gas(NLNG) Limited, Mr. Yaki Ogon, and General Manager, Commercial, Oando Energy Resources, Mr. Akinbambo Ibidapo-Obe.
The experts submitted that, the trend where contractual terms were allowed to be breached in Nigeria was inimical to efforts to attract investors with the requisite financial and technical expertise into the Nigerian petroleum industry.
The GSPA Nigeria, P&ID deal
The GSPA deal the Federal Government entered into was to supply P&ID Limited 400 MMScuFD of wet gas for a period of 20 years and to be executed in two phases
The company was to process the wet gas into lean gas suitable for firing gas-powered electricity generation plants. While the company would make available 85 per cent of the lean gas proceeds from the process, it was to be compensated through the by-products such as butane which it would sell in the international market.
Nigeria was to benefit from the sale of the by-products with a 10 per cent share in the British firm.
In phase one of the project, the government was to make available 150MMScuFD during or before the last quarter of 2011. In phase two, the remaining 250MMScuFD must be supplied on or before the third quarter of 2012.
P&lD Limited was to build two or more plants for the processing of the wet gas into lean gas at no cost to the government since it would be compensated from the proceeds.
However, the government failed to build the pipeline to supply gas to the company. The company also failed to construct the plant for processing the plant.
On August 22, 2012, the British firm filed for arbitration. It wrote the Federal Government on March 20, 2013, accusing it of repudiating the contract it entered with the company.
The government alleged that the agreement was on various grounds invalid or subsequently frustrated, varied or discharged by force majeure.
A panel of arbitration ruled that Nigeria was liable for the failure of the contract and should pay the British firm a sum of $6.597bn as the profit that the company would have made in the 20 years tenure of the contract.
It also ruled that the company should be paid seven per cent interest until the award was settled.
Effect of contract breaches
The team of panelists, have however called for greater respect of contractual agreements between government, regulatory agencies, key government parastatals, and private sector investors if ongoing efforts to unlock the full potential of the sector for national growth is to be achieved.
The experts noted that the trend where contractual terms were allowed to be breached in Nigeria was inimical to efforts to attract investors with the requisite financial and technical expertise into the Nigerian petroleum industry.
They also said most contracts governing JV operations, gas sales agreements, marginal field developments usually leave the government with greater power while the private investor is left at the mercy of the government or its parastatals executing the contract.
The experts on the panel said the confidence of existing and prospective investors cannot grow without the sanctity of contracts even as they disclosed that some prospective investors consider Nigeria a high risk country given the frequent changes in government policies and hence move their investments to more friendly countries.
Fagbami, said breaches in contractual agreements have led to cases of litigations between contending parties with the attendant impact on project execution.