By Henry Boyo
THE notice of the reported $9.6bn world record award, by a UK based Arbitration Tribunal, against the Federal Government of Nigeria, on August 16, 2019, has expectedly jolted the sensibilities of both the government and Nigerians, in no small measure, as the award clearly represents over 20 per cent of the total external reserves held by the Central Bank of Nigeria.
Furthermore, this incredibly bloated fine, also represents almost 50 per cent of the N8.91trn 2019 Federal budget. Consequently, any compulsion to cough out this oppressive sum, in one fell swoop, would invariably reduce the foreign reserve base, which CBN, seemingly, depends on to defend the Naira exchange rate.
The dollar scarcity instigated by such a huge exposure may just push the Naira beyond N500=$1, and quickly drive higher inflation rates that would, invariably propel the number of Nigerians living below poverty level, to well above the, reported, present 100million people.
Furthermore, arguably, another major Naira devaluation would clearly spike inflation and challenge any real possibility of abolishing oppressive subsidy values from Nigeria’s Annual Fiscal burden, especially, if present subsidy values may already exceed N2trn and represent over 20 per cent of the 2019 budget. Predictably, however, any increase in fuel subsidy values, for any reason, will clearly constrain any impactful expansion in infrastructure Expenditure, which primarily funds the structures and facilities that create more jobs and also improve easier public access to quality education, transport, and healthcare facilities. Conversely, the abolition of subsidy with an increasing weaker Naira rates, will propel higher inflation rates that will make inclusive growth a challenge.
Nonetheless, since the present administration has shown little appetite to significantly reduce its annual operational expenses below 70 per cent, invariably, welfare programmes will, predictably, further diminish and precipitate social discontent throughout the country, particularly, if higher inflation rates, compel weaker Naira exchange rates, while fuel subsidy is also abolished. Furthermore, if CBN’s diminishing foreign reserves lead to the outflow of billions of dollars from Nigeria’s capital market and banking system by foreign portfolio investors, Naira devaluation will invariably become irrepressible. Consequently, any further reduction to Capital Expenditure will definitely worsen Nigeria’s already huge infrastructure deficit and further deepen poverty.
Thus, from the preceding, it is evident that the Nigerian economy and our people would be, adversely, seriously impacted, if P&ID’s $9.6bn award must be promptly settled. However, on August 28, 2019, in the first concerted official response to P&ID’s award, a Government Team comprising the Attorney-General, Abubakar Malami, the Minister for Information and Culture, Lai Mohammed; Finance Minister, Zainab Ahmed, and Central Bank Governor, Mr. Godwin Emefiele, respectively individually, shared their perspectives, on the $9.6bn award, with the Press.
Notably, the Solicitor-General, Mr. Dayo Apata, SAN, who was also at the press briefing, confirmed that he has been directed to appeal the UK Commercial Court ruling, that P&ID “can seize Nigeria’s assets worth over $9bn as compensation for the breach of the 2010 Agreement.” Apata expressed optimism that Nigeria will succeed in its appeal to “seek a stay of execution of the recent judgement.”
However, Nigeria’s Attorney-General, Malami, also suggested that there was a need for a comprehensive investigation, to identify and investigate everyone who signed the contract agreement to supply a product that they did not produce! Consequently, Malami insisted that “insinuations abound that the contract was originally designed to fail, fundamentally because, there ‘were’ inherent elements of hitches, that were (deliberately) designed into the agreement right from inception.”
The Finance Minister, Zainab Ahmed, on her part, also noted that the $9.6bn award is actually equivalent to N3.5trn, an amount, which she claimed would cover the Federal Government’s total personnel cost, estimated at about 3.2trn in the 2019 budget. Invariably, however, the payment of $9.6bn to P&ID, would compel further debt accumulation to cover Government spending on both recurrent and capital expenditure accounts.
Furthermore, Central Bank Governor, Godwin Emefiele, also confirmed at the joint press briefing that “we do not have any information in our records to show that this company brought in one cent into this country and we have accordingly written to EFCC and the Intelligence Department of the Nigerian Police, who are currently investigating this matter.”
Finally, Lai Mohammed, the Minister for Information and Culture, confirmed that President Buhari has already ordered a thorough investigation of the circumstances surrounding the P&ID agreement, and also demanded for a full scale criminal investigation of the case.
Mohammed, similarly chorused the Attorney-General’s suspicion that the agreement process was carried out with some vested interest in the past administration, which according to him “apparently colluded with their local and international conspirators to inflict great economic injury on Nigeria and its people.”
Nevertheless, despite the arbitration award and the latter enforcement judgement, the Information Minister assured his audience that Nigeria is not about to loose any of its assets to P&ID. Besides, Mohammed noted that “the enforcement of the award cannot even commence, until the UK Courts resume from annual recess to address Nigeria’s appeal.”
Notwithstanding, one John Ehiguese, who is the Nigerian Representative of P&ID, has confirmed that their Legal Team is working diligently to identify and target enforcement of the Tribunal’s award against Nigeria. Fortunately, however, Ehiguese, suggested that P&ID has not ruled out the possibility of alternative resolution of the fine, but, however, noted that the onus was upon Nigeria’s government to show good faith and enter into reasonable negotiation.
In essence, the P&ID debacle is a reflection of the lackadaisical and possibly selfish attitude of Nigerian leaders and public servants in the performance of their duties. The attorney-general, for example, has not explained why they kept ignoring this Sword of DAMAGES on our financial stability, from as far back as 2015, after this odious liability had been reduced to $850m by the Goodluck Jonathan administration.
Furthermore, CBN’s comment on the absence of capital importation is probably self-serving, as the agreement did not preclude, any offshore, preliminary expenses incurred by P&ID. Besides, it would also be foolhardy to target CBN’s reserves for the payment of the $9.6bn award, since the size of CBN’s foreign reserve base never stopped Nigeria’s search for modest foreign loans of $3bn or less, on which we inexplicably pay as high as seven per cent annual interest rates!
Nonetheless, it is debatable, if a $40m loan which carries a 10 per cent rate of interest, can ever become over $9.6bn after say 10 years of compounded interest. In other words, if the related interest rate is even as high as 20 per cent, the total claim should really not exceed $300m, which is not too far from the $250m recommended by Bayo Ojo (SAN), who was a member of the Triumvirate Arbitration Panel.