Furthermore, this incredibly bloated fine also represents about 40 per cent of the N8.91tn 2019 federal budget! Consequently, any compulsion to immediately cough up an oppressive sum of $9.6bn (over N3tn) would invariably reduce the country’s foreign reserves base, which the CBN seemingly depends on to defend the naira exchange rate! The relative dollar scarcity instigated by such a huge exposure may just push the naira beyond N500=$1, and quickly drive higher inflation rates that would propel the number of Nigerians living below the poverty level to well above the reportedly present 100 million people.
Another major naira devaluation would clearly spike an already high inflation rate and challenge any real possibility of successfully abolishing recurring oppressive subsidy values, between N1tn and N2tn, from Nigeria’s annual fiscal burden. Predictably, any increase in fuel subsidy values, for any reason, will significantly also reduce the size of the capital budget and therefore constrain impactful expansion of social infrastructure and those facilities that create more jobs and also improve easier public access to quality education, transport, and healthcare facilities.
Conversely, the abolition of subsidy to conserve funds will more than double the present petrol price of N145/litre, and expectedly propel higher inflation rates that will challenge inclusive growth. Similarly, an irrepressible sliding naira exchange rate will also sustain rising fuel prices which will ultimately drive higher inflation and interest rates that will further deepen poverty.
Since the Buhari administration has shown little appetite to significantly reduce its annual operational expenses below 70 per cent, welfare programmes will, predictably, further diminish and may precipitate social discontent throughout the country, particularly, if fuel subsidy is also abolished, and instigate higher inflation rates, which in turn, will lower consumer demand and also make further devaluation inevitable.
Indeed, any forlorn hope that the $9.6bn award could be sourced from the CBN’s $40bn plus reserves would be clearly misplaced, as government recognises that it does not have control over the apex bank’s reserves, after the same government and its agencies have earlier collected naira equivalent of the CBN’s so-called reserves, as monthly allocations. Indeed, any resort to the CBN reserves to liquidate the award would be akin to having your cake and eating it!
Besides, any major deduction from the CBN reserves would further challenge the naira exchange rate as a sudden outflow of $9.6bn, for example, may rattle foreign portfolio investors to quickly withdraw billions of dollars from Nigeria’s banks and the capital market to compel weaker naira rates.
Nigerians and the nation’s economy would be adversely impacted if P&ID’s $9.6bn judgement award is promptly settled! However, on August 28, 2019, a government team comprising the Attorney-General of the Federation, Abubakar Malami; the Minister for Information and Culture, Lai Mohammed; the Minister of Finance, Zainab Ahmed; and the CBN Governor, Mr. Godwin Emefiele, individually shared their perspectives with the press on the clearly disturbing $9.6bn award.
Notably, the Solicitor-General, Mr. Dayo Apata (SAN), who was also at the press briefing, confirmed that he had been directed to appeal the UK Commercial Court ruling, that the P&ID “can seize Nigeria’s assets worth over $9bn as compensation for the breach of the 2010 agreement”. Apata also expressed optimism that Nigeria would succeed in its appeal to seek a stay of execution of the recent judgement.
However, Malami suggested that there was a need for “a comprehensive investigation to identify everyone who signed the contract agreement to supply a product that they did not produce!” Consequently, he 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.”
Finance minister Ahmed, on her part, also noted that the $9.6bn award is actually equivalent to N3.5tn, an amount, which, she claimed, would cover the Federal Government’s total personnel cost estimated at about 3.2tn in the 2019 budget. Invariably, the immediate settlement of the P&ID’s $9.6bn award would compel further debt accumulation to cover government’s spending on both recurrent and capital expenditure accounts. Arguably, however, with present concerns about the subsisting N24.4tn national debt burden, which already gulps about 40 per cent of government revenue, to service a fresh foreign loan of $9.6bn annually to pay the P&ID award may not be the right option!
Interestingly, Emefiele confirmed at the joint briefing, on the P&ID award, 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 the Economic and Financial Crimes Commission and the Intelligence Department of the Nigeria Police, who are currently investigating this matter.”
In his own contribution, the Minister for Information and Culture confirmed that President Buhari had already ordered a thorough investigation of the circumstances surrounding the P&ID agreement and also called for a full-scale criminal investigation of the case. Furthermore, Mohammed chorused Malami’s suspicion that the agreement process was carried out with some vested interest in the past administration, “who”, 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 ruling on enforcement in August 2019, Mohammed assured his audience that Nigeria was not about to lose any of its assets to the P&ID. Besides, he noted that “the enforcement of the award cannot even commence until the UK courts resume from annual recess in September to address Nigeria’s appeal.”
Notwithstanding, one John Ehiguese, who is the Nigerian Representative of the P&ID, has confirmed that their legal team is working diligently to identify and target enforcement of the tribunal’s award against Nigeria. There are speculations that the P&ID could target Nigeria’s reserves in foreign banks, as well as oil cargoes anywhere in the world. Fortunately, Ehiguese also suggested that the Irish firm had not ruled out the possibility of alternative resolution of the fine, but noted, however, 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.
The Attorney-General, for example, has not explained why they kept ignoring this Sword of Damocles on our financial stability, from as far back as 2015, after this odious liability was reduced to $850m by the intervention of President Goodluck Jonathan’s administration.
Furthermore, the CBN’s comment on the absence of capital importation is probably also self-serving, as the agreement did not preclude any offshore preliminary expenses incurred by the P&ID. Besides, it will also be foolhardy to target the CBN’s reserves for the payment of the $9.6bn award, since the quantum of its foreign reserves base, in the past, never stopped government bids for modest foreign loans of $3bn or less, on which we pay as high as seven per cent annual interest rates!
It is debatable if a $40m loan with 10 per cent interest can ever rise to $9.6bn, after, say, 10 years of compounded interest! Indeed, even with interest at 20 per cent, the total claim should really not exceed $300m, i.e. closer to the $250m recommended by Bayo Ojo (SAN), a member of the triumvirate arbitration panel.
The P&ID’s statement also declared that Malami’s pronouncement is a clear attempt to cover up his own incompetence and that of the Buhari’s administration. The firm has also warned that “Nigeria should hold the Attorney-General, Abubakar Malami, responsible for dilly dallying on the settlement, and concluded that Malami seems to have a case of amnesia.”