After years of stop-and-go litigation, Nigeria could face a crippling $11 billion payout if a trial beginning this week in a London court doesn’t go through.
The Nigerian government will ask the UK Supreme Court to order hedge fund-backed Process & Industrial Development Ltd. to prevent a massive arbitration award coming in 2017 after a failed – and allegedly fraudulent – gas deal. That amount is equivalent to nearly a third of Nigeria’s foreign exchange reserves, and its payout would deal a severe blow to Africa’s largest economy, which is still recovering from a pandemic-induced recession.
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The case revolves around a 2010 deal between the Nigerian government and P&ID, a British Virgin Islands-registered company controlled by three little-known Irish businessmen. The state agreed to provide free gas for 20 years to a plant that P&ID would build, in exchange for upgraded gas that would be used to generate electricity. The deal would allow the company to sell the leftover products and the country to improve its electricity supply.
According to P&ID, the company never built the proposed refinery because the Nigerian government failed to tap its natural gas. Nigeria claims the deal was made through bribes paid to former government officials and that the award should be quashed.
In 2012, P&ID initiated arbitration, claiming that attempts to resolve the issue privately had failed.
Five years later, a closed UK arbitration court ordered the West African country to pay the company $6.6 billion to make up for lost profits – an amount that has since grown to over $11 billion with interest. P&ID has no other known assets.
Within a year of the award, hedge fund VR Capital Group Ltd. to P&ID, who continued to pressure Nigeria to make the payment. In 2019, the stakes rose again when a UK judge issued an order enforcing the arbitral award.
The trial, which is one of the largest in UK history in terms of monetary amount, is expected to last until March. Nigeria will elect a new president on February 25.
For its part, the Nigerian government has alleged that P&ID bribed former government officials to secure the gas contract and colluded with former government lawyers and officials to set up a “sham defense” when the matter ended up in court. With another political party now in power, Nigerian law enforcement officials are investigating bribery allegations related to the 2010 gas deal and subsequent arbitration.
Nigeria alleges that bank records show that four government officials or their family members received bribes from P&ID before the contract was signed and that one of them admitted to overlooking “obvious flaws” in the company’s bid. The country’s anti-corruption agency has charged the attorney who represented the state during the arbitration with allegedly bribing officials involved in the proceedings.
In previous hearings, P&ID denied all allegations and called the Nigerian government’s allegations of fraud – nearly three years after the award – an attempt to evade liability. “P&ID strenuously denies that the awards should be overturned in its favor,” a spokesman told Bloomberg.
In response to a request for comment, a representative from VR Capital stated, “P&ID won its award in 2017, two years before VR Capital acquired an interest in the company. P&ID will offer its full defense at next week’s trial, which we are confident will refute Nigeria’s baseless allegations.”
A government spokesman told Bloomberg: “The Federal Republic of Nigeria is eagerly awaiting the opportunity to bring its case before the High Court in London and is confident that justice will finally be served.”
This week’s trial follows a London court’s decision to allow the Nigerian government to challenge the arbitration award.
Britain’s High Court judge Ross Cranston said in a 2020 ruling he believed there were strong arguments that “the gas processing contract was procured by bribing insiders as part of a larger scheme to defraud Nigeria”.
If Nigeria loses in London, the new President will have to make the crucial decision whether to resume settlement talks with P&ID or continue to allege fraud. The company has said it will seek a permit to confiscate the state’s foreign assets, and liability from an unresolved payment could make it more expensive for Nigeria to raise money on the international capital markets.
The trial comes at a difficult economic time for Africa’s largest oil producer. In the first 11 months of last year, the Nigerian government spent 80% of its income on debt servicing as oil production fell and fuel subsidy spending rose. The country was also downgraded by Fitch Ratings and Moody’s Investors Service, sending its credit ratings deeper into junk territory.
Whatever the outcome of the case, it is unlikely to be final – the High Court’s decision is subject to further appeal before the UK Court of Appeal and ultimately the Supreme Court.