Even as the Nigerian economy is struggling to maintain stability after managing a recovery last year from one of the worst recessions in its history, Nigeria appears to be sitting on a tinderbox that could wipe off a sizeable chunk of its foreign reserves, derail the 2018 budget and plunge the economy back into recession.
Two arbitration awards totaling over $8.9bn (about N2.7 trillion at CBN’s N305.4 as of May 22) have been made against the country and it does appear efforts by the Muhammadu Buhari’s administration to dodge payments have failed, leaving it with no option than to honour the judgment obligations.
The fines emanated from the contractual actions of three previous administrations – the Olusegun Obasanjo, Umaru Yar’Adua and Goodluck Jonathan regimes.
On March 20, 2013, a three-man arbitration panel, constituted under the rules of the Arbitration Act 1996 (England and Wales) and the Nigerian Arbitration and Conciliation Act (CAP A18 LFN 2004), awarded $6.6 billion in favour of Process & Industrial Development Limited (P&ID), an engineering firm registered in the British Virgin Island (BVI).
That award has since attracted additional $2.3billion in accumulated interest at 7 per cent rate per annum over more than five years it remained unsettled. The amount due for enforcement today is about $8.9 billion.
The dispute between the engineering company and Nigeria went into arbitration after the firm accused the Ministry of Petroleum Resources of breaching a gas supply and processing agreement (GSPA) it signed in 2010 on behalf of the Nigerian government.
The second award of about $21.24 million (N6.5 billion) was in favour of ENRON Nigeria Power Holding (ENPH) Limited, which signed an agreement with the Lagos State government for the construction of power projects in the state
The federal government guaranteed the agreement and has now been held liable after Lagos was accused of breaching it.
The award in favour of ENRON, which has been affirmed by both high and appeal courts in the United States, has been awaiting settlement for more than a year and 26 days, since April 26, 2017.
The Attorney-General of the Federation and Minister of Justice, Abubakar Malami, did not answer calls to his telephone when PREMIUM TIMES called to seek his comment for this report. He also did not respond to text and WhatsApp messages sent to him.
But the Minister of Petroleum Resources, Ibe Kachikwu, told PREMIUM TIMES the federal government was aware of the outstanding obligations and was doing something about them. He did not provide details.
“We (federal government) are aware,” Mr Kachikwu said in a terse message in response to an enquiry. “The Attorney-General is handling them.”
Public commentators who spoke on Tuesday on the potential impact of the two awards on the country’s economy were alarmed that apart from its potential threat to the country’s assets abroad, the enforcement of these awards could clean out a significant portion of the country’s foreign reserves.
The Governor of the Central Bank of Nigeria, Godwin Emefiele, said on Tuesday at the end of the Monetary Policy Committee (MPC) meeting in Abuja that the current external reserves balance stood at about $47.79 billion as at May 18, 2018.
A senior official of the bank who commented on the issue on condition of anonymity said any unforeseen development at the moment that might have a direct consequence on the country’s foreign reserves would spell doom for the economy.
“I cannot imagine what would happen,” the official said. “All I can say is that the country would not be able to survive it. Remember, it did not take yesterday to build the level of reserves we have today. So, pulling out a staggering $11.3 billion in one fell swoop would be too much to bear.”
An investment analyst, Xavier Austin, said such awards could pose damaging consequences to the country’s economy at this time, particularly as the economy is still standing on wobbly legs barely a year after exiting recession.
The National Bureau of Statistics (NBS) said in its latest Nigerian Gross Domestic Product (GDP) Report that the economy recorded a -0.16 percent marginal decline in the first quarter of 2018 after attaining about 2.11 percent growth in the fourth quarter of 2017.
Apart from the immediate impact on the country’s economy, Mr Austin said enforcement of the awards against Nigeria could whittle down the country’s rating and chances of securing lending abroad.
The Director General, Debt Management Office (DMO), Patience Oniha, gave the country’s public debt profile as N21.7 trillion as at March 2018.