After years of stop-and-go litigation, Nigeria could be on the hook for an underpayment of $11-billion if a trial starting this week in a London court does not go its way.
The Nigerian government will urge the UK High Court to stop hedge fund-backed firm Process and Industrial Development Ltd from collecting a major arbitration award related to a botched and alleged fraud in 2017 – Gas was given after the agreement. The sum is equivalent to about a third of Nigeria’s foreign exchange reserves, and the payment would deal a major blow to Africa’s largest economy, which is still recovering from a pandemic-induced recession. has been
The case centers on a 2010 contract between the Nigerian government and P&ID, a British Virgin Islands-registered firm controlled by three unknown Irish businessmen. The state agreed to provide free gas for 20 years that the P&ID would build in exchange for processed gas that would be used to generate electricity. The deal will allow the company to increase its residual products and power supply to the country.
According to P&ID, the firm never built the planned refinery because the Nigerian government failed to harness its natural gas. Nigeria claims that the deal was obtained through bribery of former government officials, and that the award should be annulled.
In 2012, P&ID initiated arbitration, claiming that efforts to resolve the issue privately had failed.
Five years later, a closed-door arbitration court in Britain ordered the West African country to pay the firm $6.6 billion in lost profits. P&ID has no other known assets.
Within a year of the arbitration award, hedge fund VR Capital Group Ltd. participated in the P&ID, which continued to pressure Nigeria to pay. In 2019, the stakes rose again when a UK judge issued an order enforcing the award.
The trial, in one of the biggest money laundering cases in UK history, will continue until March. Nigeria will elect a new president on February 25.
For its part, the Nigerian government has alleged that P&ID bribed former administration officials to secure the gas contract, and that the former “falsely defended” the matter when it went to court. colluded with government lawyers and officials. With a different political party now in power, Nigerian law enforcement agencies are investigating allegations of bribery related to the 2010 gas deal and subsequent arbitration.
Nigeria has alleged that bank records show that four government officials or their family members took bribes from P&ID before the deal was signed, and that one of them found “obvious flaws” in the company’s proposal. Admitted to ignoring. The country’s anti-corruption agency has also charged the lawyer representing the state during the arbitration for allegedly bribing government officials involved in the proceedings.
In preliminary hearings, P&ID denied all allegations and characterized the Nigerian government’s claims of fraud – made almost three years after the arbitration award – as an attempt to evade responsibility. “P&ID strongly denies that the awards in its favor should be set aside,” a spokesperson told Bloomberg.
In response to a request for comment, a VR Capital representative said, “P&ID won its arbitration award in 2017, two years before VR Capital acquired a stake in the company. P&ID will provide its full defense in next week’s lawsuit.” , which we believe will negate Nigeria’s baseless allegations.
“The Federal Republic of Nigeria is eagerly awaiting the opportunity to present its case before the High Court in London and is confident that justice will eventually be served,” a government spokesperson told Bloomberg.
The case comes this week in the wake of a London court ruling that allowed the Nigerian government to challenge the arbitration award.
UK High Court judge Ross Cranston said in a 2020 ruling that he believed a strong case could be made that “the gas processing contract involved bribery of insiders as part of a larger scheme to defraud Nigeria.” was obtained by doing.”
If Nigeria loses in London, the incoming president will have to make the critical decision of whether to re-enter settlement negotiations with the P&ID, or continue to claim fraud. The company has said it will seek permission to seize the state’s overseas assets, and the unresolved payment obligation could make it more expensive for Nigeria to raise money in international capital markets.
The lawsuit comes at an economically vulnerable moment for Africa’s largest oil producer. During the first 11 months of last year, Nigeria’s government spent 80% of its revenue on debt service as oil production fell and spending on fuel subsidies increased. The country was also downgraded by Fitch Ratings and Moody’s Investors Service, sending its credit rating deeper into junk territory.
Whatever the outcome of the case, it is unlikely to be final — the High Court’s decision could be further challenged in the UK Court of Appeal, and ultimately the Supreme Court.