(Bloomberg) — After years of litigation, Nigeria could be at risk of paying $11 billion if a trial starting this week in a London court does not go its way.
The Nigerian government will ask the UK high court to stop hedge fund-backed firm Process & Industrial Development Ltd. in collecting the largest arbitration award awarded in 2017 after the failed – and alleged fraud – gas deal. This amount is equivalent to almost a third of Nigeria’s forex reserves, and its payment will deal a huge blow to Africa’s largest economy, which is still recovering from a recession caused by the pandemic.
The case centers on a 2010 agreement between the Nigerian government and P&ID, a British Virgin Islands-registered company controlled by three unknown Irish businessmen. The government has agreed to provide free gas for 20 years to the P&ID plant to be built in exchange for processed gas that will be used to generate electricity. The agreement will allow the company to sell the remaining products with the country to increase its electricity.
According to P&ID, the firm did not build the planned refinery because the Nigerian government failed to tap the natural gas. Nigeria says the deal was made through the bribery of former government officials, and that the award should be annulled.
In 2012, P&ID initiated arbitration, claiming that efforts to resolve the matter privately had failed.
Five years later, a closed arbitration court in the UK ordered the West African country to pay the firm $6.6 billion to compensate it for lost profits – a sum that has since risen to more than $11 billion. IP&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 make payments. In 2019, the stakes rose again when a UK judge issued an order to enforce the award.
The trial, among the largest in UK history in terms of the amount involved, is scheduled to continue until March. Nigeria will elect a new president on February 25.
For its part, the Nigerian government alleges that P&ID bribed former administration officials to secure the gas contract, and colluded with former government attorneys and officials to mount a “fraudulent defense” when the matter went to court. With a different political party now in power, Nigeria’s law enforcement agencies are investigating allegations of bribery regarding the 2010 gas contract and subsequent arbitration.
Nigeria alleges that bank records show that four government officials or their family members received bribes from P&ID before the deal was signed, and one of them admitted to ignoring “obvious flaws” in the company’s proposal. The country’s anti-corruption agency has also sued the lawyer who represented the government during the mediation on allegations of bribing government officials involved in the process.
In previous cases, P&ID denied all allegations and described the Nigerian government’s claims of fraud – made nearly three years after the arbitration award – as an attempt to evade responsibility. “IP&ID strongly denies that discretionary awards should be set aside,” a spokesperson told Bloomberg.
In response to a request for comment, a representative of VR Capital said, “IP&ID won its arbitral award in 2017, two years before VR Capital acquired a stake in the company. IP&ID will provide its full defense at next week’s hearing, which we are confident will refute the baseless allegations of Nigeria.”
A government spokesman told Bloomberg, “The Republic of Nigeria is eagerly awaiting the opportunity to present its case at the High Court in London and is confident that justice will be served in the end.”
The case this week comes after a London court’s decision to allow the Nigerian government to challenge the arbitral award.
UK High Court judge Ross Cranston said in a 2020 ruling that he believed there was a strong case to be made that “the gas processing contract was obtained through bribes paid to insiders as part of a larger scheme to defraud Nigeria.”
If Nigeria loses in London, the next president will have to make an important decision to re-enter the settlement negotiations with the P&ID, or continue to claim fraud. The company said it would seek authorization to seize international assets, and the liability from an unresolved payment could make it more expensive for Nigeria to raise capital in major international markets.
The case comes at a time of economic crisis for Africa’s biggest oil producer. In the first 11 months of last year, the Nigerian government spent 80% of its revenue on debt servicing as oil production declined and spending increased on fuel subsidies. The country was also downgraded by Fitch Ratings and Moody’s Investors Service, sending its debt deep into the junkyard.
Whatever the outcome of the case, it won’t be final – the high court’s decision can be challenged in the UK Court of Appeal, and ultimately, the Supreme Court.
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