Federal Government and Failure to Respect Agreements – Dr.Muiz Banire SAN

The doctrine of sanctity of contracts is recognized by all jurisdictions of the world. Right from ancient times till today, all societies have had it as a norm that agreements must be respected and fulfilled. There is no society in which breach of agreements is tolerated and no scripture glorifies reckless breach of agreements. Hence, the Latin maxim of pacta sunt servanda, which means agreements are binding on the makers. Unfortunately, one constant misdeed by the country called ‘Nigeria’, particularly the Federal Government of Nigeria, is failure to respect agreements solemnly entered into and which practice has been extended to court judgments. Arbitration awards are not respected, which has led the country into so many instances of additional liabilities, and one wonders what manner of spirit dominates thinking in government circles. A constant reason the Academic Staff Union of Universities (ASUU) has always gone on strike is failure of government to respect agreements voluntarily entered into.

The failure of the Federal Government to honour the 2017 and 2020 Memorandum of Action (MoA) has lately been the reason federal universities in the country have been shut down on many occasions, with the failure of today increasing the losses of tomorrow and sinking the country deeper into the black hole of the irredeemability. The decision of a British court granting against Nigeria enforcement right to a British engineering firm, Process & Industrial Development Limited (P&ID), over an $8.9 billion (about N3.2 trillion) arbitral award of March 20, 2013, was due to alleged breach of contract. According to a Premium Times report of August 16, 2019, the initial award of $6.6 billion as damages was based on P&ID’s allegation of Nigeria breaching a 2010 gas contract agreement. The tribunal said the damages were calculated as the present value of 20-year income, minus certain capital and operating costs incurred from building and running the refining facility. It took a lot of resources, national agony and agitation to have the government rise up against this colossal award, which, understandably, is being challenged.

Rather than the country blaming its woes on those responsible for its challenges, the aggression has been against the counsel that has professionally discharged his duty. The Mambilla Power Project is another instance of Nigerian government’s insensitivity to sanctity of contracts. This is a project meant to solve the perennial power problem of Nigeria and the country voluntarily entered into the contract with a Chinese company, with attendant rights and obligations. Way back in 2019, it was learnt that the Chinese government had informed the Federal Government of its inability to continue to maintain fidelity to its own side of the obligation of providing funds for the power project until Nigeria settled a $5.8 billion legal dispute hanging around its neck.

The origin of this was that, in an earlier deal of 2003, Nigeria awarded a build-operate-transfer contract of the hydro-power plant project to Sunrise Power and Transmission Company (SPTC), a local content partner, but in 2006 the same government awarded the contract to Gezhouba Group Corporation of China (GGCC) and the China Geo-Engineering Group Corporation (CGGC) for a joint venture to execute the project. Later in November 2017, the government of Nigeria contracted another joint venture with Sinohydro Corporation of China, GGCC and CGGC to execute the same project. The implication is that the local content partner, SPTCL, had been excluded, which led SPTCL to bring an action against the Federal Government and its Chinese partners at the International Chamber of Commerce in Paris to enforce the contract. It is SPTCL’s contention that the company had incurred expenses running into millions of dollars with financial and legal consultants in order to procure about $6 billion for the project’s execution but the contract had been frustrated by the usual insensitive “improper administrative interruptions and interventions,” which is characteristic of Nigeria.

With the Chinese company out of the hydro-power project, it is clear that we have a long way to go to solve the perennial power plight on which the government of President Olusegun Obasanjo spent $16 billion only to procure constant supply of darkness. The challenge this poses to the economy cannot be calculated in financial losses alone, as human and generational wastes have been incurred from this problem. The backwardness of the country cannot be traced to anything else but the failure of its leaders to obey contracts.

The government has failed to obey its social contract with the people and this has become a way of life in Nigeria, as the masses mean nothing to the government. This attitude is not a 21st century practice with the Nigerian government. The 1984 cancellation of intra-city rail contract entered into by the visionary government of Lateef Jakande is a festering sore difficult to heal. The Ajaokuta Steel Company has become another white elephant and a source of heavy financial liabilities in the hands of the Nigerian government.

It was recently reported that the Nigerian government has agreed to pay $496 million to settle multibillion-dollar claims by Global Steel Holdings Limited, an Indian firm, over the control of Ajaokuta Steel Company. The claim by the company was for the sum of $5.258 billion as a result of the government’s revocation of an agreement reached in 2008 by which the control of the steel works and the National Iron Ore Mining Company was handed over to the company.

Another most recent ignominy is the failure of the government to honour agreements made with the power distribution companies (Discos) in Nigeria, following the government’s privatization exercise of the power sector. According to the executive director, research and advocacy, Association of Nigerian Electricity Distributors, Sunday Oduntan, who is also the spokesman for the power distribution companies, Nigeria “has a well-established history of unilaterally abrogating binding contracts for no discernible cause” and it was because of this that when the Federal Government was looking for investors all over the world to come into the Nigerian energy sector, it recorded total failure.

This was proven to be correct as we can see that, of all the 11 Discos in Nigeria, only one of them has foreign direct investment. Investors all over Europe, America, Asia and the Middle East refused to come for two reasons: “One was that the Nigerian government does not respect the sanctity of contracts; so, they could not risk their investments. The second was that Nigeria had not changed and that we were ‘very corrupt’. So, they were scared and did not want to bring their money into the country.”

Fortunately, some patriotic Nigerians decided to invest in the power sector and hence the emergence of the Discos, which led to a total cash investment of about $1.4bn. However, according to the agreement with the government, the Discos were to start on a clean slate of being debt-free as regards the humongous debts owed by the various ministries, departments and agencies of government as a result of failure to pay for power consumed with National Electricity Power Authority (NEPA), which was in existence and responsible for power supply to Nigerians.

There were other obligations that the Federal Government also undertook to perform, the failure of which will automatically cripple the sector and the Discos would definitely fail. There were agitations, accusations and counter-accusations for long on this and at the end of the day the government was suggesting the need to review the privatization contracts.

This definitely will compel the government to pay huge amounts in compensation to the Discos but, rather than going the honourable way, the government is hiding behind the banks that lent money to the Discos to pretend to be enforcing recovery of the outstanding loans for the banks. This is an issue in respect of which many of the banks and the Discos are in court but the government, displaying the mentality of might is right, on July 5, 2022, announced a unilateral take over of about five Discos and dissolution of their boards of directors while the government appointed new directors for them.

While others might not be fighting this unruly arrogance of the Federal Government, Vigeo Power Limited, the largest shareholder of Benin Electricity Distribution Company (now BEDC Electricity Plc), has taken the government to court in Abuja challenging this display of ancient crudity.

It obtained interim orders restraining the government agencies of Nigerian Electricity Regulatory Commission (NERC) and Corporate Affairs Commission (CAC) from altering the board composition of the BEDC. Rather than obeying the court orders, the Nigerian government has chosen the ignoble approach of forcefully taking over the company claiming initially that it had completed the takeover by its announcement of July 5, 2022 before the court orders of July 8, 2022 were issued. At another time it claimed that the orders had expired in order to justify its gestapo-like invasion of BEDC headquarters and forceful takeover of its business and operations.

These are disgraceful conducts for a government agency to display in modern times. Is it no longer the law as laid down by the Supreme Court in Ojukwu v. Governor of Lagos State that while an action is pending, even without any order of court restraining the parties, all involved must respect the sanctity of court proceedings? The investors have been thrown out into the cold while their hard-earned resources are cascading into the abyss of power depth. It is certain that Nigeria is not ready for development as, when a country is led by these kind of vision-less leaders, according to Sunday Oduntan, “the sort of international investors it attracts will be those looking to make a quick buck and flee, and not long-term partners capable of bringing about sustainable development.”

It was based on the internationally recognized disgraceful attitude of the Nigerian government to disrespect agreements that most local and foreign entities who are conscious of Nigerian government’s penchant to dishonour agreements and disobey court orders often seek forum for resolution of conflicts abroad. According to Cheta Nwanze, “The attitude is also demonstrated in the way the Nigerian government treats court orders as it only obeys orders it agrees with. As such, most international firms seeking to do business in Nigeria include clauses in their contracts placing the forum for the resolution of any disputes in foreign lands, such as the United Kingdom.

They are fully aware that the Nigerian government will at some point fail or refuse to carry out its contractual obligations, and as there is almost no chance that it will honour a decision of a Nigerian court ordering it to pay damages in the event of a breach, the best thing to do is take the option of refusing to obey out of the government’s hands.” Foreign seats of arbitration are robbing the country of foreign exchange in favour of saner climes where agreements are obeyed and court orders are not treated with impunity. Nigerians need leaders who obey court orders and respect agreements. No genuine foreign investor will come into a country where government policies change with the weather notwithstanding existing mutually contracted obligations. Even local investors are running away from Nigeria. A Nigerian billionaire recently announced the divestment of his business interests from Nigeria in favour of foreign climes.

The future of the country is definitely gloomy with this attitude of the Nigerian leaders. As we approach the general elections next year, this must be part of our interrogation and consideration. Only candidates with respect for the rule of law must be supported. This issue must be made a campaign issue by all the stakeholders.