Nigeria and contracts

The Latin legal maxim, “pacta sunt servanda” meaning “agreements must be kept” is a foundational principle of commercial law. In its most common usage, with regard to private contracts, it simply means that the terms of a contract are considered to be law between the parties to that contract, and must, therefore, be adhered to in good faith. This principle has served to undergird the international financial system as it provides comfort and certainty to parties involved in contracts.

One of the cornerstones of economics and indeed politics, Nigeria has to realise, is respect for the sanctity of contracts, and Nigeria has two fairly recent examples where our attitudes to contracts, especially from the government side, has cost us or is in the process of costing us, dear.

This attitude is what gave us the P&ID debacle, from which allegations have now arisen that the contract was entered into with the full expectation that the Nigerian government would default at some point and the firm was only waiting for the opportunity to sue Nigeria in arbitration court and split the awarded damages with some local partners!

A few weeks ago, it emerged that the Chinese government had in September told the FG that it would not provide funds for the Mambilla Power project until Nigeria settles a $5.8 billion legal dispute. In 2006, the Gezhouba Group Corporation of China (CGGCC) and the China Geo-Engineering Group Corporation (CGGC) won the bid for a joint venture to execute the hydro-power project, potentially the single biggest power plant in Nigeria. But in a separate deal three years earlier, Nigeria had awarded a build, operate and transfer contract of the project to Sunrise Power and Transmission Company, a local content partner.

In November 2017, the ministry signed another engineering, procurement and construction contract with Sinohhydro Corporation of China, CGGCC and CGGC to form a joint venture for the execution of the project — excluding SPTCL. As a result, SPTCL sued the FG and its Chinese partners at the International Chamber of Commerce in Paris for breach of contract. Leno Adesanya, SPTCL’s CEO claimed the company had spent millions of dollars with financial and legal consultants to raise almost $6 billion for the project’s execution but the company has been bogged down “through improper administrative interruptions and interventions”. Looking at their options, the Chinese appear to have backed down from Mambilla, at least until this matter is resolved.

It is important to note that the day after this report came out, the following ministers – Power, Power (State) and Water Resources – visited the Chinese ambassador, Zhou Pingjian, who, somewhat undiplomatically, said that his government would not push the Exim Bank to expedite the funding of the Mambilla power plant despite the three ministers’ request and the fact that Mambilla represents one of President Muhammadu Buhari’s legacy projects.

Successive Nigerian governments have failed to grasp the concept that agreements cannot be tossed aside willy-nilly and continue to act as though contracts of previous administrations are not meant to be honoured. In fact, many new governments routinely cancel existing contracts to pander to their political base. It is an extremely destabilising practice and as this case has shown, can derail important projects. For instance, following the 1983 coup which brought then-General Muhammadu Buhari to power, the new administration unilaterally cancelled the intra-city rail contract entered into by the Lagos State government of Lateef Jakande on spurious grounds. The contracted firm sued and won a hefty settlement, and the ripple effects of this decision are still being felt today. Lagos is easily one of the most gridlocked cities in the world, and the state government is even now struggling to complete the very same intra-city rail project to ease pressure on its choked roads.

The attitude of the Nigerian government to contracts can also be seen in the manner it treats collective bargaining agreements entered into with labour unions in the country. The government routinely signs agreements, then refuses to carry out its agreed obligations. The unions are then left with the options of either accepting the intransigence of the government or going on strike. More often than not, they choose to strike, and the government comes back to the negotiating table to reach a new agreement, which it may or may not honour for a brief period before reneging again. It is a cycle of disruption which does not portray the country as a stable place in which to conduct business.

The attitude is also demonstrated in the way the Nigerian government’s 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.

The simple fact of the matter is that when a country has a well-established history of unilaterally abrogating binding contracts for no discernible cause, 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.

CHETA NWANZE