Nigeria sentenced to pay $9 billion for aborted gas project

$9 billion. This is the enormous amount of damages that the Nigerian government could be forced to pay to the energy company Process & Industrial Developments Ltd. (P&ID) for failure to carry out a gas project.

In a decision handed down on Friday 16 August by a London court, the firm, which is partly owned by hedge funds (VR Capital Group and Lismore Capital Limited) and based in the British Virgin Islands, was granted the right to enforce an arbitration award allowing it to recover assets belonging to the Nigerian state for a cumulative amount of over $9 billion, or 20% of the country’s foreign reserves. At the heart of this colossal financial dispute was the abortion of a project to build a gas processing plant in the city of Calabar (south-east Nigeria), due to the failure of the Nigerian authorities to comply with certain commitments.

It all starts in 2010. The Nigerian government, then led by President Goodluck Jonathan, entered into certain partnerships with private companies to develop energy infrastructure, which was sorely lacking in the country. It is in this context that the Ministry of Petroleum Resources concluded an agreement with P&ID in January 2010. Under the terms of the agreement, Nigeria planned to transport natural gas from two offshore platforms to a refinery built by the gas group to remove hydrocarbons from the gas and supply Nigerian power plants with fuel. Unpaid for the project, the company kept the hydrocarbon by-products (propane, ethane and butane in particular) in return. An attractive deal on paper, but one that was never to see the light of day, as the Nigerian government unilaterally broke the clauses of the contract, in particular concerning the supply of the promised gas and the construction of certain logistics infrastructures. Faced with this blockage, P&ID then initiated arbitration proceedings in London, starting in 2012.

In concrete terms, the verdict handed down on 16 August paves the way for P&ID to file requests for the seizure of Nigerian assets abroad. It also follows a first arbitration in which the West African country had (already) been ordered to pay P&ID $6.6 billion in 2017 for the same dispute. In the absence of an agreement reached with the Nigerian authorities and taking into account the additional interest payments, the British court finally converted the arbitral award into a judicial decision, increasing the total amount required to $9.6 billion – the equivalent of Niger’s GDP. Quoted by Reuters, Andrew Stafford, of the law firm Kobre & Kim, representing P&ID, said his client was « determined to enforce his rights vigorously and intends to start the process of seizing Nigerian assets in order to satisfy this recognition as soon as possible ». The lawyers in charge of Nigerian interests argued that the award had no purpose because England was not the appropriate place for the case, and that even if it did, the amount requested was « manifestly excessive ».