(Bloomberg) -- After years of stop-and-go litigation, Nigeria could be on the hook for a debilitating $11 billion payout if a trial which started on Monday in a London court doesn’t go its way.
The Nigerian government urged the UK high court to stop the hedge fund-backed firm Process & Industrial Development Ltd. from collecting a massive arbitration award that was handed down in 2017 following a failed — and allegedly fraudulent — gas deal. That amount equals almost a third of Nigeria’s forex reserves, and its payout would deal a huge blow to Africa’s largest economy, which is still recovering from a pandemic-induced recession.
“There are many documents that are as close to a smoking gun as one will ever see in a fraud case,” Mark Howard, lawyer for Nigeria, said in court on Monday. “There are in fact so many incriminating documents in this case that there is a risk of almost becoming desensitized.”
The case centers on a 2010 deal between the Nigerian government and P&ID, a British Virgin Islands-registered firm controlled by two little-known Irish businessmen. The state agreed to provide free gas for 20 years to a facility P&ID would build in exchange for processed gas that would be used for electricity generation. The deal would allow the company to sell the leftover products and the country to boost its power supply.
According to P&ID, the firm never built the planned refinery because the Nigerian government failed to tap its natural gas. Nigeria claims that the deal came about through bribes to former government officials, and that the award should be overturned.
In 2012, P&ID initiated arbitration, claiming that attempts to resolve the issue privately had failed.
Five years later, a closed-door arbitration court in the UK ordered the West African country to pay $6.6 billion to the firm to compensate for lost profits — an amount has since swelled to over $11 billion with interest. P&ID has no other known assets.
Within a year of the arbitration ruling, the hedge fund VR Capital Group Ltd. entered a $45 million deal for a 25% stake in P&ID, which continued pressuring Nigeria to make the payment. VR Capital later increased its stake to 51%, Nigeria said in the court filing.
The trial, among the biggest in UK history in terms of the amount of money involved, is scheduled to continue until March. Nigeria will elect a new president on Feb. 25.
‘Sham Defense’
For its part, Nigeria’s government has alleged that P&ID bribed previous administration officials to secure the gas contract, and colluded with former government lawyers and officials to mount a “sham defense” when the matter landed in court. With a different political party now in power, Nigerian law enforcement agencies are investigating allegations of bribery surrounding the 2010 gas contract and subsequent arbitration.
Large scale corruption by P&ID included bribes running into hundreds of thousands of dollars masked with codewords such as “dash” and “Dublin expenses,” a network of offshore companies and middlemen, Nigeria’s lawyers said in a document given to court before the Monday hearing. P&ID burnt and destroyed documents, bought witnesses’ silence and buried evidence “even during these English proceedings,” lawyers for Nigeria alleged in the filing.
P&ID denies all wrongdoing and characterizes the Nigerian government’s fraud allegations — made almost three years after the arbitration ruling — as an attempt to dodge liability. Nigeria adopted a “scorched earth” approach and imprisoned people considered close to P&ID “in shocking conditions” to extract false confessions, P&ID’s lawyers countered in their court filing.
“P&ID vigorously denies that the awards in its favor should be set aside,” a spokesperson said.
A representative of VR Capital said “P&ID won its arbitral award in 2017, two years prior to VR Capital’s acquisition of a stake in the company. P&ID will be providing its full defense at next week’s trial, which we are confident will debunk Nigeria’s unfounded allegations.”
A government spokesperson told Bloomberg, “the Federal Republic of Nigeria keenly awaits the opportunity to present its case before the High Court in London and is confident that justice will finally be served.”
The trial this week comes in the wake of a London court’s decision to allow the Nigerian government to dispute the arbitration ruling.
Strong Case
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 procured by bribes paid to insiders as part of a larger scheme to defraud Nigeria.”
If Nigeria loses in London, the incoming president will have to make the crucial decision of whether to re-enter settlement talks with P&ID, or continue claiming fraud. The company has said it will seek authorization to seize the state’s overseas assets, and liability from an unresolved payment could make it more expensive for Nigeria to raise money in international capital markets.
The trial comes at an economically vulnerable moment for Africa’s largest oil producer. During the first 11 months of last year, Nigeria’s government spent 80% of its income on servicing debt as oil production declined and spending rose on fuel subsidies. The country was also downgraded by Fitch Ratings and Moody’s Investors Service, sending its credit ratings deeper into junk territory.
Whatever the trial’s outcome, it likely won’t be final — the high court’s decision can be further challenged in the UK Court of Appeal, and ultimately, the Supreme Court.
(Updates throughout with details from hearing in court on Monday and filings by both sides)
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