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After years of on-and-off litigation, Nigeria could face $11 billion in reparations if the trial, which began this week in a London court, does not go well.
The Nigerian government will urge the U.K. High Court to block hedge-fund-backed company Process & Industrial Development Ltd. from collecting a huge arbitration award handed down in 2017 over a failed gas deal that was allegedly fraudulent. The amount, equivalent to almost a third of Nigeria’s foreign exchange reserves, would be a huge blow to Africa’s largest economy, which is still recovering from a pandemic-induced recession.
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At the heart of the case is a 2010 deal between the Nigerian government and P&ID, a British Virgin Islands-registered company controlled by three little-known Irish businessmen. The state agreed to provide free natural gas for 20 years to the facility that P&ID will build in exchange for processed natural gas used to generate electricity. The deal will allow the company to sell surplus production and allow the country to increase power supplies.
According to P&ID, the company never built the planned refinery because the Nigerian government failed to extract its natural gas. Nigeria claims the deal was brokered by bribing former government officials, a ruling that should be overturned.
In 2012, P&ID initiated arbitration, claiming that attempts to resolve the issue privately had failed.
Five years later, a closed UK arbitration court ordered the West African country to pay the company $6.6bn for lost profits — an amount that has since grown to more than $11bn, plus interest. P&ID has no other known assets.
Within a year of the arbitration award, hedge fund VR Capital Group Ltd. took a stake in P&ID, continuing to pressure Nigeria to pay. The stakes rose again in 2019, when a British judge ordered the ruling to be enforced.
The trial, one of the largest in UK history in terms of the amounts involved, is expected to run until March. Nigeria will elect a new president on February 25.
dirty money
For its part, the Nigerian government accused P&ID of bribing former government officials to secure gas contracts and colluding with former government lawyers and officials in a “false defense” when the matter came to court. Now that different parties are in power, Nigerian law enforcement agencies are investigating allegations of bribery surrounding the 2010 gas contract and subsequent arbitration.
Nigeria said bank records showed that four government officials or their family members took bribes from P&ID before the contract was signed, with one admitting to ignoring “clear flaws” in the company’s proposal. The country’s anti-corruption agency also accused lawyers representing the state during the arbitration of allegedly bribing public officials involved in the proceedings.
At an earlier hearing, P&ID denied all allegations and characterized the Nigerian government’s fraud allegations, brought nearly three years after the arbitration award, as an attempt to avoid responsibility. “P&ID vehemently denies that awards in its favor should be revoked,” a spokesperson told Bloomberg.
In response to a request for comment, a VR Capital representative said, “P&ID won the arbitration award in 2017, two years before VR Capital acquired a stake in the company. P&ID will provide its full defense at trial next week, and we believe This will debunk Nigeria’s baseless allegations.”
A government spokesman told Bloomberg that “the Federal Republic of Nigeria eagerly awaits the opportunity to present its case at the High Court in London and trusts that justice will ultimately be served.”
This week’s trial follows a decision by a London court to allow the Nigerian government to challenge the arbitration award.
In a 2020 decision, High Court judge Ross Cranston said he believed there were good reasons to show that “gas processing contracts were obtained through bribery of insiders, a larger part of a scheme to defraud Nigeria.”
If Nigeria loses the case in London, the new president will have to make a critical decision whether to renegotiate the settlement with P&ID or continue with the fraud charges. The company has said it will seek authorization to seize the state’s overseas assets, while unresolved payment liabilities could make it more expensive for Nigeria to raise funds in international capital markets.
The trial comes at a fragile time for the economy of Africa’s largest oil producer. In the first 11 months of last year, the Nigerian government spent 80% of its revenue on debt repayments as oil production fell and spending on fuel subsidies increased. The country was also downgraded by Fitch Ratings and Moody’s Investors Service, pushing its credit rating deeper into junk status.
Whatever the outcome of the trial, it may not be final – the High Court’s decision could be challenged further in the UK Court of Appeal and eventually by the Supreme Court.
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