23 October 2018

Nigeria: NNPC, Others Silent Over United States Court's $6.59 Billion Gas Contract Fine

The Ministry of Petroleum Resources, the Department of Petroleum Resources (DPR), and the Nigerian National Petroleum Corporation (NNPC), are yet to take a position after a United States court gave a $6.59 billion default decision against the Federal Government. The sanction was for the parties thwarting a gas deal involving British firm, Process & Industrial Development Limited (P&ID).

The gas processing and production agreement reached between Nigeria's Petroleum Ministry and the P&ID was halted after the British company accused Nigeria of failing to keep its own end of the bargain.

Under the terms of the contractual agreement, P&ID was to construct an accelerated gas development project to be located in Cross Rivers State.

The Federal Government was to source for natural gas from oil mining leases (OMLs) 123, and 67, operated by Addax Petroleum and supply to P&ID to refine into fuel suitable for power generation in the country.

Initial volume was about 150 million standard cubic feet (mscf) of gas per day, and eventually ramped up to about 400mscf under a 20-year period.

While the government agencies connected with the deal maintain a deadly silence industry stakeholders have expressed varied opinions on the matter, which once again reinforces Nigeria's disregard for sanctity of contracts.

The Chairman, Petroleum Technology Association of Nigeria (PETAN), Bank-Anthony Okoroafor, said if the requisite regulatory framework was on ground, the issues around the deal could have been addressed.

He said: "All these issues would have been resolved if we had our Petroleum Industry Bill covering governance, fiscal administration and host community passed and signed into law. We will have all the gas fiscal terms properly addressed, and there would no more be ambiguities."

He argued that as long as Nigeria continues to operate the industry with the archaic Petroleum Act that does not address gas terms, these issues will continue to haunt the industry.

Okoroafor added: "Fiscal terms must not be left for different interpretations by different people. I do not have the full details of this transaction to be able to comment on who is right or wrong, but we should as a country learn to honour the sanctity of contracts."

P&ID had alleged that after signing the agreement, the government reneged on its obligation after it opened negotiation with the Cross River State Government for allocation of land for the project.

P&ID said the failure to construct the pipeline system to supply the gas frustrated the construction of the gas project, thereby depriving it the potential benefits expected from the 20 years' worth of gas supplies.

When The Guardian reached the spokesperson for the NNPC, Ndu Ughamadu, he did not reply to a mail and multiple phone calls made to him.

But P&ID had said attempts to settle out-of-court with the federal government failed, which was why in August 2012, it served the Nigerian Government a Request for Arbitration.

Government on its part, argued before the Tribunal that: "The failure of P&ID to acquire the site and build Gas Processing Facilities was a fundamental breach, and that no gas could be delivered until this has been done."

But the tribunal ruled that the Nigerian Government's obligations under Article 6B were not conditional upon P &ID having constructed the gas processing facilities.

In July 2015, the Tribunal found that Nigeria had repudiated its obligations under the GSPA, and that P&ID had been entitled to accept the repudiation and claim damages for breach.

On December 23, 2015, the government asked for the award to be set aside. That was after earlier committing that the arbitration's decision shall be final and binding upon parties.

Hence, on February 10, 2016, the application was dismissed, paving way for the hearing on July 22 to 24, 2016, to determine the damages.

In the Tribunal's opinion, the damage suffered by P&ID was the loss of net income the company would have received if government had kept its side of the contract.

Two members of the three-man Tribunal, Lord Hoffmann, and Anthony Evans, held that P&ID's expenditure and income should have been about $6.597 billion if the contract was respected by the Nigerian Government.

The spokesperson for the Ministry of Petroleum Resources, Alibi Idang, did not comment on the issue. He said the Ministry's head of legal affairs was also not available for comment.

The spokesperson for DPR, Paul Osu, also declined to comment. But a top source at the Department said the DPR was not consulted when the deal was struck, and therefore cannot take a position now, as the contract was reached by act of military fiat.

A Professor of Petroleum Economics and Policy Research, and Director, Energy Information Division of the Centre for Energy Studies, Prof. Omowumi Iledare, said it will not be right to say the Nigerian Government does not know what to do about the situation, noting that it may choose not to take action now for reasons best known to it.

Owing to the nature of the gas deal, he said the anticipated regulatory reform would ensure more transparency and accountability in the running of the industry.

According to the don, if the right institutional framework is not in place, all ad-hoc approaches in terms of policy-making, will not take the country anywhere, as they will not favourably impact the economy.

He added: "We need good institutional framework; unless we want to continue converting our national wealth to individuals."

Iledare maintained that anything that would require government to commit funds now might not work out, as the government currently had no idle money.

He therefore alluded to the fact that Nigeria was being constrained by lack of political will, and good institution framework that are the drivers of critical industry decisions, adding that: "we cannot run the industry leveraging on patronage and mere sentiments."

A former President, Nigerian Association of Petroleum Explorationists (NAPE), Dr. Mayowa Afe, said the issue of honouring contracts by governments (either past or present) has been issue, and is not limited to Nigeria.

He said such inconsistency is capable of making investors to lose confidence in the system, saying: "We need to be consistent in our policies so that investors can have confidence in us.

"Agreements and contracts should be respected; and this goes for every country. Nobody should be calling for the head of Nigeria because of a failed agreement. Governments, no doubt, have the right to review contracts. But for the sake of confidence, governments around the world, and Nigeria inclusive, should keep to contracts. And if there would be deviations to contracts, convincing reasons should be tendered."

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