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Experts proffer escape route for Nigeria on $9.6bn judgment debt

By Joseph Onyekwere (Lagos) and Kingsley Jeremiah (Abuja)
31 August 2019   |   4:33 am
Although the Federal Government is reportedly considering negotiating its way out of the $9.6 billion United Kingdom (UK) judgment debt, stakeholders in the oil and gas industry...

REUTERS/Dado Ruvic/Illustration

• Why FG Must Quickly File Stay Of Execution, By Lawyers
• ‘Agreement Should Be Scanned Diligently To Bring Out Protective Clauses’
• ‘Reversal Of Decision Possible If There’s Error In Ruling’

Although the Federal Government is reportedly considering negotiating its way out of the $9.6 billion United Kingdom (UK) judgment debt, stakeholders in the oil and gas industry, including legal experts, yesterday discussed a multidimensional approach that may enable the government reverse or manage the judgment, which may cost the nation about N3 trillion.

While some legal experts called on the government to immediately file a stay of execution of the judgment, other stakeholders believed that the judgment could be re-negotiated, reduced and settled in a way of investment that would be beneficial to Nigeria and ease the level of impact that might arise from the development.

The Ministry of Petroleum Resources and Process and Industrial Developments (P&ID) Limited had reportedly signed a 20-year Gas Supply Processing Agreement (GSPA) in 2010.

But Minister of Information and Culture, Alhaji Lai Mohammed, said that the deal suffered a setback, leading to arbitration, where P&ID claimed that it posted a loss for the 20-year term of the GSPA.

“In an interim award, the Arbitration Tribunal ruled that Nigeria has breached the contract. Though Nigeria successfully applied to have that award set aside by the Federal High Court in Lagos, the tribunal ignored this decision.

“Consequently, on January 31, 2017, the tribunal rendered its final award against the Ministry of Petroleum Resources in the sum of $6.597 billion.

“This was in addition to pre-award interest at the rate of seven per cent per annum, effective from March 20, 2013 and post-award interest at the same rate from the date of the award. This interest increased the size of the award to $9.6 billion,” Mohammed said.

A Senior Advocate of Nigeria (SAN), Chief Mike Ozekhome, said the order by a British court for the seizure of Nigeria’s foreign assets to satisfy a judgment debt would, if carried out, simply cripple Nigeria whose 2019 budget is N8.92 trillion.

“This sum is surely over N3.2 trillion. The current foreign reserve of Nigeria is about $47.62 billion. With $3.6 trillion, China has the highest foreign reserve in the world. This is distantly followed by Japan’s $1.323, Switzerland’s $804.323 billion and Saudi Arabia’s $487.259 billion.

Taiwan, Russia and India have $430.572 billion apiece, Hong Kong, South Korea, Brazil, Singapore, Thailand, Mexico and UK have $164.209 billion, while the United States of America comes a very distant 18th with $125.725 billion in foreign reserves,” he explained.

According to him, the best option open to the Federal Government to halt the looming disaster is to immediately appeal the judgment and ask the court for a stay of execution.

To allow execution of the judgment, he reiterated, would plunge Nigeria’s already battered and mismanaged economy into irreversible doldrums and recession of unimaginable proportions.

“Let the Federal Government hire experienced legal hands in the UK immediately to stem this impending disaster that will eclipse all of us, without exception,” he advised.

A professor of law with expertise in petroleum, energy and environmental law, Damilola Olawuyi, said one of the options available to government was to challenge the order for enforcement through an appeal process.

However, the move could be protracted and difficult to achieve, Olawuyi said, pointing to the complex issues involved. “Was there an error in the ruling, or was the award manifestly excessive? Unless these can be firmly established, it could be difficult to achieve a reversal of the decision.”

According to him, a more practicable option is for the government to explore settlement with P&ID, as this would be a significant development that highlights the need for greater responsibility and care in the negotiation and implementation of petroleum contracts in Nigeria.

With the growing uncertainty, which has created a dearth of investment into the nation’s oil and gas sector, the prevailing development heightened Nigeria’s approach towards managing relationships with investors, said Patrick Okigbo, founder and principal partner of Abuja-based advisory firm, Nextier.

He said while efforts were made on the former administration headed by Goodluck Jonathan, the development would have been surmounted if the current administration followed up.

Before President Muhammadu Buhari assumed office, Jonathan’s administration had reportedly agreed a settlement fee of $850 million, leaving the debt for the incoming administration to handle.

Okigbo suggests thus, “Government should renegotiate the judgment. If we must pay we must tie the payment to investment. If we renegotiated and for instance government is paying $1 billion, that should not be in cash but tied to asset worth the money. But for them to access the asset, they have to invest some money. For instance, the company could be given a marginal field that requires further investment.

“By so doing, the money won’t leave our system but triggers economic activities in the country. Should the company kick, it would give government a means to make another case on the intention of the firm in the country,” Okigbo said.

Describing it as disturbing, a Professor of Economics, Segun Ajibola, who is a former president of the Chartered Institute of Bankers of Nigeria, asked the Federal Government to scan the agreement diligently and bring out the protective clauses.

“The economy is still fragile and lacks the capacity to absorb such outrageous penal award. If such figures disappear from the foreign exchange reserves of the country, which have been badly hit by the vagaries of the global oil market, the economy and all the stakeholders would suffer for it,” he said.

Should the judgment remain unchanged, Ajibola expects the country’s terms of trade to worsen. He equally noted that the value of the local currency would suffer, while the nation’s sovereign risk would rise as investors would be deterred.

According to Ajibola, the reputational damage that could result from this is unimaginable. “This is perhaps a hard lesson for our public officers that any element of negligence and carelessness in the handling of transactions of this nature can easily mortgage the present and future of the country,” he said.

Former President of the Nigerian Association of Petroleum Explorationists (NAPE), Abiodun Adesanya, who raised concern over the level of accountability and openness in the oil sector, stated that the development would seriously affect inflow of investment into the country.

“We cannot afford to pay the money. Government must sit down to converse with the other party. We need to first initiate a legal process that will help us buy time while we explore legal and moral persuasion,” he said.