Nigeria stands to lose up to $9 billion worth of its foreign assets following an enforcement application to US and UK courts by Process and Industrial Development (P &ID), a British firm tied up in a legal dispute with the Federal Government.
In January 2010, P&ID and the Ministry of Petroleum Nigeria entered into a 20-year Gas Supply and Processing Agreement (GSPA). Under this agreement Nigeria would supply Wet Gas to P&ID, who would process it in a newly-built facility and return it in the form of Lean Gas. P&ID could then sell the by-products of the refinement process (natural gas liquids (NGLs) for their own profit but Nigeria failed to fulfil its part of the agreement; then P&ID treated this failure as a repudiation of the GSPA.
In July 2015, an ad hoc tribunal seated in London decided that Nigeria was liable to damages to P&ID. In a majority decision in January 2017, the tribunal awarded $6.6 billion in damages to P&ID. The dissenting opinion estimated the loss at $250 million over three years.
The Claimant’s position in court states that;
“The project would produce a net profit of $5-6 billion over a 20-year period”
“Income projections were based on several assumptions relating to the expected yield of NGLs and the price of NGL. The Claimant estimated capital expenditure at USD580 million and operational expenditure at cUSD60 million per year”.
“We used a discount rate of 2.65% based on US Treasury bonds to represent only the time value for money.”
Thereafter, the Ministry of Petroleum responded:
“P&ID should only be entitled to nominal damages as it had not fully performed its obligations under the GSPA at the date of the repudiation.”
“Production would be disrupted by militancy in the Niger Delta so therefore utilisation should be reduced to 40-50%.”
“Damages could only be awarded for a period of three years as the P&ID had a duty to mitigate its loss and it should have pursued other investment opportunities. We also adopted a discount rate of 7% to reflect the risk of investing in Nigeria.
The Tribunal then decided that:
“ Since there is no evidence that the claimant was unable or did not intend to perform its obligations under the GSPA, hence the argument on nominal charges are rejected”
“In addition, there are no actual evidence that militancy in the Niger Delta had any impact on gas production or transport around the site earmarked by P&ID, or that other NGL prices than the ones forecast by the Claimant should be used.”
In the absence of a meaningful challenge from the Respondent, the Tribunal agreed with the Claimant on key aspects of the measure and calculation of damages, including the 20-year period, the other underlying assumptions to project net income, and the discount rate. It awarded USD6.6 billion in damages together with pre and post-award interest of 7%. This interest rate reflects what PI&D would have had to pay to borrow the money or could have earned by investing in Nigeria.