UK Court Rules In Favour of Pand ID To Seize $9bn FGN Assets, Nigeria To Appeal Decision

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Friday, August 16 2019  06:29PM /  See Credits Below  / Header Image Credit: Video Hive

 

The Decision

UK court has, today, granted Process and Industrial Development Limited (P&ID) the go-ahead to seize Nigerian assets worth $9 billion. The P&ID got a judgement in its favour in London.


The Nigerian Govt Appeals Decision

1.   Please recall the dispute that led to Arbitration between Federal Government of Nigeria (FGN) and Process and Industrial Development Ltd which arose from a 20 year Gas Supply and Processing Agreement (GSPA) entered in 2010 between FGN (through the Ministry of Petroleum Resources) and P & ID in respect of an accelerated gas development project in Nigeria's OMLs 67 and 123. P&ID never began the construction of the project facility although it alleges it incurred about $40 Million in preliminary expenses.

2.   P & ID's claim in the arbitration proceedings was mainly for loss of profit for the entire twenty-year term of the GSPA, initially claiming the sum of US$1.9 Billion and later increasing its claim to US$5.9 Billion.

3. The Arbitral Tribunal on 31st January 2017 rendered its Final Award against the Ministry of Petroleum Resources in the sum of US$6.597 Billion together with pre-award interest at the rate of 7% per annum effective from 20th March 2013 and post award interest at the same rate till date of payment.

4.    In granting the huge arbitration award against Nigeria the tribunal decided the following:

i.   that the project would operate at 93% uptime during the twenty year of the GSPA despite the well-known risks of operating such a project in the Niger-Delta.

ii.    that the average price of Natural Gas Liquids (the main revenue earner for P&ID assuming the GSPA had been implemented), should be based on an average oil price in excess of $100 per barrel over the twenty-year life of the project;

iii.   to apply a discount rate to P&ID's supposed lost profits of 2.65 %, the same interest rate paid on United States treasury notes thereby adjudging P&ID, a start-up company that never commenced any physical work on the project but planned to operate in the midst of the Niger-Delta crisis, using a novel and unproven technology, a virtually "risk free" investment.

5.  Upon the Award, P & ID commenced recognition and enforcement proceedings of the arbitration award against FGN in March 2018 in both the United Kingdom ("UK") and the United States of America (the "United States").

6. The FGN is duly represented in the proceedings in the United States by the Law Firm of Curtis, Mallet-Prevost, Colt & Mosle LLP which also represented it in the UK proceedings of which judgement was given on 16th August, 2019 in favour of the P&ID to commence enforcement proceeding against the FGN assets in the UK.

7.    Recall further that this matter was inherited from the previous Administration by the present one. Upon inheriting this matter, this Government engaged the renowned US Law Firm of Curtis, Mallet-Prevost, Colt & Mosle LLP to defend the interest of the FGN. The Law Firm has taken step to defend the proceedings in the United Stated by urging the District Court to dismiss the P&ID application for enforcement of the award on the ground that Nigeria as a sovereign state has an absolute right to obtain an authoritative determination of its sovereign immunity. The FGN therefore demanded that the jurisdictional issue must be conclusively resolved before Nigeria may be required to litigate the merits of P&ID's petition.

8.  P&ID has variously challenged Nigeria's position urging the District Court to direct Nigeria to file both its jurisdiction and merit defenses as a consolidated defense so that the proceedings may be disposed of by the District Court summarily.

9.  The FGN has however pursued the validity of its jurisdictional defense as a preliminary matter which must be conclusively resolved prior to any consideration of the merit argument up to the Court of Appeal.

10. In a ruling on 9th October 2018, the District Court granted a stay of proceedings pending a determination of the appeal.

11.   P&ID has also subsequently filed motions to have Nigeria's appeal certified as frivolous and to have proceedings in the District Court continue pending determination of the appeal at the Court of Appeal.

12.  On 1st November 2018, the US District Court issued a decision in favour of FGN denying P & ID's further attempt to certify Nigeria's appeal as frivolous and denied P&ID's attempt to lift the stay of proceedings.

13.  On 15 February 2019, the Court of Appeal issued a decision in favour of FGN by dismissing P&ID's motion requesting the court to dismiss Nigeria's appeal for lack of jurisdiction or to summarily affirm the scheduling order of the District Court.

14.  The proceedings therefore are currently on-going in the United States and the FGN will ensure that its interest and that of the people of Nigeria are vigorously defended.

15. As regards the recent Judgment of the English Court of 16 August 2019, the Federal Government's Counsel have been instructed to pursue an appeal on the judgment of the English Court dated 16 August, 2019 and at the same time seek for a Stay of Execution of the said judgment.

16. In view of the above, please be informed that the Federal Government of Nigeria is making vigorous efforts to defend its interest in this matter and would not relent in exploring every viable option in doing so.

 

Background

 

Should Nigeria Settle With P&ID Over $9billion Arbitration Award?

Process and Industrial Development (P&ID) Limited disclosed through its leadership that the company is opened to amicable settlement of its dispute with the Federal Government of Nigeria, despite pending application for enforcement. P&ID stated it's willing to settle with Nigeria on a reasonable basis.

 

How We Got Here

P&ID signed a contract with the Ministry of Petroleum Resources in January 2010; an agency of the Federal government of Nigeria, under President Umaru Musa Yar'Adua's administration. The contract was motivated by the administration's initiative to develop the nation's energy infrastructure to tackle the power problems in Nigeria, through authorised partnerships with private companies. 

Brief Contract Details: Under the contract which was to last for a period of 20 years, P&ID had agreed to build facilities, necessary to refine Nigeria's Associated Natural Gas (wet gas) into Non-associated Natural Gas (lean gas), which would be used to power the electric grid in the country to generate electricity. The contract provided that in refining wet gas into lean gas, wet gas would be stripped of heavy hydrocarbons known as Natural Gas Liquids (NGLs), which makes wet gas unsuitable for electricity generation; and that, P&ID would not be paid. However, P&ID was permitted to retain the stripped NGLs as its compensation and income from the project. According to P&ID, it was also agreed that while it built the facilities, Nigeria would supply it with 400 million standard cubic feet of wet gas per day over a period of 20 years. 

Performance: P&ID explained that there was a failure of performance; that Nigeria failed to complete construction of necessary infrastructure, needed to transport the wet gas to their operation base in Calabar, Cross Rivers State (the Adanga gas pipeline). P&ID did not state whether it built the necessary processing facilities or not.

 

London Arbitration Tribunal

By reference to an arbitration clause in the contract, P&ID initiated arbitration proceedings against Nigeria in 2012 after attempts to reach a negotiated deal with the Nigerian Government failed. A tribunal was set up in London under the rules of the Arbitration and Conciliation Act, Cap A18, LFN, 2004. Nigerian defence: Representatives of Nigeria at the tribunal marshalled their defences; the strongest being that P&ID neither built any Gas Processing Facility (GPF), nor did it acquire ownership of the designated site for the project from the government of Cross Rivers State.

The panel dismissed the defence by saying that the government's obligation under the agreement was not conditional upon P&ID building the GPF; but did not  state after its finding whether P&ID's obligations were conditional upon the government of Nigeria performing its duties under the contract.

The Award: The three person panel tribunal, comprising of two foreigners and a Nigerian, gave three awards - 1st partial award on jurisdiction, 2nd partial award on liability, and the final award on damages, awarding P&ID 6.6 billion dollars with interests, which is currently over 9 billion dollars; all in favour of P&ID.

The tribunal found that indeed, P&ID did not build any GPF, but based its award on a feasibility study, assumptions and pre-contractual works done by P&ID. There was no argument to mitigate award of damages, no defence of force majeure and so damages were awarded based on the assumption that the failed contract went on for 20 years without any glitch, not even for operational downtime from maintenance - this did not even come in because there was no findings as to the profitability or otherwise of the whole project.


Why is it alarming? The interest on the Arbitral award grows daily at 7% of the awarded monetary damages. This is about $1.2 million daily accrual; almost 2.5 percent of Nigeria's annual gross domestic product. That is not all; P&ID has filed for leave to enforce, from courts in the United Kingdom and the United States.


Current situation

Nigeria has tried to nullify the award, saying it was not subject to international arbitration but British courts rejected the argument. P&ID is now asking the Commercial Court in London to convert the arbitration into a judgement, which would allow them to try to seize international assets.

 

Conclusion

There is a need for the Federal Government to reconsider renegotiating this deal. Since P&ID has expressed willingness to negotiate, this can be an opportunity for the Federal Government to show that Nigeria is a home for investors, whilst also avoiding severe fiscal haemorrhage that might accrue from interests on the accumulation of the Arbitral award. NICArb as an institute is positioned to support the Federal Government through the process of negotiation with a network of expert negotiators (and ADR practitioners). Going forward, there is an urgent need for the incoming Attorney-General to revisit Arbitration clauses (and venue) on earlier treaties signed, including the current AfCFTA. Nigeria needs to solidify its Arbitral position in the comity of nations.

 

Download Here -  Approved Judgement - P & ID


Credits

The background Contents Was written by Shola Oshodi-J0hn. She is the Registrars/CEO of Nigerian Institute of Chartered Arbitrators 

The Appeal on the Process & Industrial Development Limited V. FGN was made available by the Solicitor General of the Federation and Permanent Secretary, Federal Ministry of Justice, Abuja.

 

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