From the recent disputes with international oil companies over production sharing contracts and a regulatory collusion involving the local unit of MTN Group, to the long-standing spat with local company, Continental Transfert Technique Ltd, there are a pile of legal landmines facing the next Nigerian President elect.
The battle for who leads Africa’s largest economy by 2019 started Sunday November 19, with over 70 presidential aspirants kick-starting their campaigns in what many say will be a two-horse race between incumbent President Muhammadu Buhari who seeks a second term under the All Progressives Congress (APC) and former vice president, Atiku Abubakar, who is the candidate of the People’s Democratic Party (PDP).
Other candidates that will be vying for Nigeria’s top job ahead of the elections in February 2019, are Oby Ezekwesili, a former minister of education, Kingsley Moghalu, former deputy governor of the Central bank and Fela Durotoye, a motivational speaker turned politician.
While the candidates have put forward manifestoes where they disclose plans to resuscitate an economy yet to recover from a recession in 2016, the legal disputes confronting the country has gotten less attention even though it threatens to eat up a sizeable chunk of the government’s already dwindling revenues and throw a spanner in the works of ambitious plans to invest more in infrastructure and human capital.
The country faces as much as $9.8 billion (N2.99 trillion) in legal claims brought against it by local and foreign companies. The cases were disclosed in the bond prospectus for the $2.8 billion Eurobond sold November.
A lawsuit by one Process and Industrial Development (P&ID) Limited brought against the Ministry of Petroleum Resources of Nigeria is the biggest of the legal disputes and could cost the government $9.19 billion.
READ ALSO: Need for national policy on arbitration in Nigeria
Arbitration proceedings were commenced against the Ministry of Petroleum Resources by P&ID in relation to a definite agreement dated 11 January 2010 between the Ministry and P&ID for Accelerated Gas Development in OMLs 123 and 67 for a period of twenty years.
In February 2017, the arbitration tribunal awarded $6.59 billion against the Ministry of Petroleum Resources, plus interest which is $2.6 billion as of 12 November 2018.
In March 2018, P&ID commenced proceedings in England to have the arbitral award recognised and enforced. The Federal Government is contesting those proceedings. In May 2018, P&ID filed an application with the US District Court of New York, for the recognition and enforcement of the arbitral award. The Federal Government is contesting those proceedings. Both matters are ongoing.
State oil company the NNPC is currently in dispute with its 1993 Production Sharing Contract contractor parties over the interpretation and application of certain provisions of the Production Sharing Contracts (PSC), which have stalled investments in the sector.
The disputes are currently the subject of four separate arbitral proceedings which the contractor parties (Nigeria Agip Exploration Limited (NAE), Shell Nigeria Exploration and Production Company (SNEPCo), Esso Exploration and Production Nigeria Limited (Esso) and Statoil (Nigeria) Limited (Statoil), have instituted against the NNPC.
The arbitral panel would decide the timing of amortisation of capital costs; allocation of tax; treatment of investment tax credit; and treatment of signature bonuses, loan interest and non-operator sole costs as deductible items for tax purposes.
BusinessDay gathered that the four arbitral tribunals have issued awards of at least $3.2 billion, plus interest and costs but the NNPC appealed to the Federal High Court, Abuja challenging the arbitration proceedings on the basis that the exclusive jurisdiction to determine tax disputes lies with the Federal High Court of Nigeria pursuant to Section 251 of the Constitution.
Consequently, the arbitral award in the Esso case was set aside by the Federal High Court on 22 May 2012, while the court is yet to determine the cases involving NAE, SNEPCo and Statoil. Esso appealed the judgment of the Federal High Court and on 22 July 2016, the Court of Appeal partly decided in favour of NNPC and affirmed the decision of the Federal High Court that such tax disputes are not subject to arbitration.
Seeing they could not get their way in Nigeria, Esso and SNEPCo applied to the United States District Court for the Southern District Court of New York for the recognition of arbitral awards against NNPC that were issued in October 2011 and May 2013, respectively.
NNPC through its counsel moved for dismissal of the Esso case claiming enforcement of an award of $1.8 billion plus interest and costs. The case involving claims led by SNEPCo was stayed in April 2017 pending a decision by the Federal High Court in Nigeria concerning an application to set-aside the underlying arbitral award.
While this was going on, the Nigerian Federal Inland Revenue Service FIRS sued everybody at the Federal High Court – NNPC and each of NAE, SNEPCo, Esso and Statoil, challenging the propriety of the arbitrations in view of Section 251 of the Constitution and claiming that the Federal High Court has exclusive jurisdiction in matters relating to Nigerian tax.
The Federal High Court ruled in favour of the FIRS and the judgments were appealed. The Court of Appeal upheld the decision of the Federal High Court and affirmed that tax disputes are not arbitrable, as the Federal High Court has exclusive jurisdiction to deal with and hear tax matters.
“These lawsuits results because government promise too much to attract investments and when they come, they realise they have given away too much but rather than renegotiate, governments comes at it with a cavalier attitude which is why investors are leaving,” said Ayodele Oni, an energy lawyer and partner at Bloomfield law firm. He added, “These oil companies are winning the law cases.”
Another legal dispute involves Continental Transfert Technique Ltd over an agreement with the Government to manufacture the Combined Expatriate Residence Permit and Aliens Card (CERPAC) for the Ministry of the Interior, as far back as May 1999.
Pursuant to the agreement, Continental was to provide equipment, technical support and training and the Ministry of the Interior (previously the Ministry of Internal Affairs) was to provide office accommodation for the Combined Expatriate Residence Permit and Aliens Card facilities.
The fees earned from the Combined Expatriate Residence Permit and Aliens Card cards were to be split 60 per cent to Nigeria, 30 per cent to Continental and 10 per cent for operating expenses but the arrangement broke down.
In November 2007, Continental commenced arbitration proceedings alleging misrepresentations by the Government in the agreement, in particular with respect to Combined Expatriate Residence Permit and Aliens Card sales projections.
Continental sought damages in the amount of approximately $604 million. The Government denied the allegations and counterclaimed for Continental’s failure to deliver equipment and perform services. The amount of the Government’s counterclaim was approximately $34 million. The arbitration proceedings were held at the International Dispute Resolution Centre in London. In August 2008, the arbitration panel awarded damages of approximately $252 million in favour of Continental.
Continental has initiated proceedings in the U.S. District Court of the District of Columbia to seek recognition and enforcement of the arbitration award, and on 26 March 2013 the U.S. District Court of the District of Columbia issued a judgment that grants Continental an award in the amount of $276.1 million, including post-judgment interest at a rate of 3.4 per cent. per annum.
On 25 April 2013, the Government filed an appeal against the judgment which is still pending. However, in an out of court settlement chaired by the former Attorney-General of the Federation, the FGN agreed to pay Continental ₦18 billion in three instalments within six months of the execution of the settlement agreement as well as extend the CERPAC contract for a term of three years as full and final payment.
The sum of N7 billion has been proposed to be paid up-front, with subsequent payments of N6 billion and N5 billion, but the judgment debt is still outstanding and legal proceedings are ongoing.
The now defunct Nigerian Telecommunications Limited (NITEL) is also linked in a dispute with Interstellar Communication Limited that could cost the Federal government as much as $286 million in damages.
An appeal by the government was dismissed at the Supreme Court on 5 December 2017, and the apex Court has since endorsed the order absolute obtained by Interstella Communications Limited and has directed the parties to comply with the order.
The Attorney General recommended that the President directs the Governor of the Central Bank of Nigeria to source the sum of $249.85 million as full and final settlement of the judgment to avoid the further accumulation of interest.
Alternatively, the Attorney-General has also recommended to commission a further committee with the participation of the Office of the Chief of Staff to be party to any further renegotiation of the matter. A response is being awaited from the State House of Assembly.
There is also a dispute with Korea National Oil Corporation (KNOC) in which the government was dragged to a federal high court after revoking two oil licenses (321 and 323) given to KNOC over claims that the latter failed to fully pay for the licenses which was said to have been awarded in 2005 for $485 million.
The Federal government claimed KNOC only paid $100 million but the Korea National Oil brought an action in the Federal High Court, Abuja, for the reinstatement of the licenses.
In August 2009, the court issued a judgment in favour of Korea National Oil, declaring that the purported revocation of Oil Prospecting Licence 321 and Oil Prospecting License 323 by the Government was invalid and granting an order restraining the Government, its agencies and servants from exercising any authority over the oil blocks.
The Government appealed the decision, contending that Korea National Oil had failed to pay the applicable signature bonuses and execute agreed downstream projects which were conditions precedent for the award of the oil prospecting licenses and that consequently the revocation of the oil prospecting licenses was valid. The Court of Appeal decided against Korea National Oil and set aside the judgment of the Federal High Court. Korea National Oil then appealed to the Supreme Court, with certain matters also subject to cross appeal.
On 24 February 2017, the Supreme Court upheld the decision of the Court of Appeal. In July 2018, Korea National Oil requested a meeting with the Attorney General of the Federation and the Ministry of Justice to renegotiate the refund of their investment from the NNPC, the DPR and the Ministry of Petroleum Resources. The matter is still pending.
The Federal government is also on the hook over a dispute with Enron Nigeria Power Holding Ltd.
Since an international arbitration tribunal constituted by the International Court of Arbitration of the International Chamber of Commerce issued an award in favour of Enron against Nigeria in the amount of $11.2 million plus interest, six years ago in 2012, the claims are now worth $21.7 million.
On 30 January 2018, the Texas Federal Court issued, at the request of Enron, a Writ of Garnishment to J.P. Morgan Chase ordering it to hold the sum of $21.7 million held for the benefit of the Federal Republic of Nigeria (including the CBN).
As a result, J.P. Morgan chase is prohibited from making any payment or delivering any property to the Federal Republic of Nigeria (or the CBN).
Another alleged breach of contract entered into by the Ministry of Defence with one LR Avionics, for the supply of six SU-27 Fighter Aircrafts for the Nigerian Air Force, could also cost Nigeria approximately $2.4 million.
In its final award, the Arbitration Tribunal awarded LR Avionics a sum of $5 million as general damages, $3 million as cost of legal representation and N9,420,000 as arbitrators’ fees.
Following the failure of the Federal Republic of Nigeria to pay the arbitration award sum, LR Avionics obtained an order for recognition and enforcement of the award in 2014 from the Commercial Court in London, in the sum of $5 million (which has now risen to about $6 million as a result of the accumulated interest on the award).
The order includes a final charging order, allowing LR Avionics to sell property belonging to the Federal Republic of Nigeria at 56/57 Fleet Street in London. Following an application from the Government, the Commercial Court in London set aside the final charging order. This was appealed by LR Avionics and the Government subsequently approved the settlement of $5 million of which the sum of $2.6 million (N800 million) has been paid.
Recent disputes with MTN and banks complete a list of legal disputes Nigeria’s next leader must brace up for.
The Central Bank of Nigeria accused MTN, Nigeria’s biggest mobile operator, of illegally moving U.S.$8.1 billion of funds abroad through the purchase of U.S. dollars via unapproved certificates, which resulted in the depletion of Nigeria’s foreign reserves. MTN has since denied such claims and the CBN and MTN are in discussion regarding fines imposed on MTN.
On 4 September 2018, the Nigerian authorities ordered MTN to pay $2 billion in back taxes, which MTN challenges and claims that all due tax amounts have been paid in full.
MTN is currently in talks with Nigeria’s Attorney General to agree on MTN’s tax payments due for the past decade even as MTN has sought a court order barring the CBN from implementing any penalty over infractions it has publicly denied.
LOLADE AKINMURELE & ISAAC ANYAOGU
