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.
BACKGROUND
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 TRIBUNALBy 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 in-coming 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.
Shola Oshodi-John, FCArb
Registrar/CEO, NICArb
