If a trial commencing this week in a London court doesn’t go as planned, Nigeria may be liable for a crippling $11 billion payout after years of stop-and-go litigation.
The Nigerian government will ask the UK high court to prevent Process & Industrial Development Ltd., which is backed by hedge funds, from collecting a sizable arbitration judgement that was made in 2017 as a result of a botched and potentially fraudulent gas contract. That sum is over a third of Nigeria’s foreign exchange reserves, and paying it out would be devastating for the biggest economy in Africa, which is still emerging from a disease outbreak recession.
The issue revolves around a 2010 agreement between the Nigerian government and P&ID, a company established in the British Virgin Islands and run by three little-known Irish business people. In exchange for processed gas that would be used to generate power, the state agreed to give free gas to a plant P&ID would develop for 20 years. The agreement would enable the company to resell its unsold goods and the nation to increase its supply of electricity.
P&ID claims that since Nigerian government refused to use its natural gas, the company never completed the proposed refinery. Nigeria asserts that the prize should be revoked since it was obtained through paying bribes to previous government officials.
P&ID filed for arbitration in 2012, stating that private negotiations had failed.
5 years later, a closed-door court of arbitration in the UK ordered the West African nation to pay the company $6.6 billion to make up for lost revenues. With interest, the amount has subsequently risen to more than $11 billion. There are no additional known assets for P&ID.
After the arbitration decision, P&ID continued to put pressure on Nigeria to make the payment after the hedge fund VR Capital Group Ltd. purchased a stake in the company. A UK judge’s order enforcing the award raised the stakes once more in 2019.
The trial, which is one of the most expensive in British history, is expected to last until March. On February 25, Nigeria will elect a new president.
Nigeria’s government, on the other hand, claims that P&ID conspired with past government lawyers and officials to create a fake defense when the case ended up in court and that P&ID bribed prior administration officials to obtain the gas contract. Nigerian law enforcement agencies are looking into claims of bribery concerning the 2010 gas contract and the ensuing arbitration now that a different political party is in power.
Before the deal was signed, four government officials, according to Nigeria, allegedly accepted bribes from P&ID, and one of them has confessed to ignoring clear faults in the company’s proposal, according to bank records. The attorney who represented the state in the arbitration has also been accused of paying public officials who took part in the proceedings by the nation’s anti-corruption agency.
In earlier sessions, P&ID categorically disputed all charges and described the Nigerian government’s allegations of fraud, which were submitted nearly three years after the arbitration decision, as an effort to avoid responsibility. According to a spokeswoman for P&ID, P&ID vehemently rejects that the awards in its favor should be set aside.
The Federal Republic of Nigeria eagerly awaits the opportunity to state its case before the High Court in London and is certain that justice will ultimately be served, a government spokeswoman told Bloomberg.
This week’s trial follows a London court’s decision to permit the Nigerian government to contest the arbitration verdict.
A strong argument may be made, according to UK high court judge Ross Cranston, that the gas processing contract was secured by bribery paid to insiders as part of a bigger plot to defraud Nigeria, he wrote in a judgement in 2020.
If Nigeria loses in London, the new president will need to decide whether to resume compensation negotiations with P&ID or to keep blaming P&ID for fraud. The corporation has stated that it will request permission to take the state’s overseas assets, and the responsibility from an outstanding payment might increase the cost of Nigeria’s capital raising on global capital markets.
The largest oil producer in Africa faces an economically precarious time because of the trial. Nigeria’s government spent 80% of its income during the first 11 months of last year on paying off debt as oil production fell and spending on gasoline subsidies increased. The nation’s credit ratings were also cut by Fitch Ratings and Moody’s Investors Service, further lowering them to junk status.
Regardless matter how the trial turns out, the decision of the high court may still be appealed to the UK Court of Appeal and ultimately the Supreme Court.
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