Fed Govt Pays Foreign Firm $496m For Contract Violation

The Attorney-General of the Federation and Minister of Justice, Abubakar Malami has disclosed that the Federal Government has settled a long-standing $5.26bn contractual dispute with a foreign investor group in the steel sector for $496m.

A statement on Sunday by the Special Assistant, Media and Public Relations, Office of the AGF, Dr Umar Gwandu, said the mediation proceedings were under the Alternative Dispute Resolution framework of the International Chamber of Commerce led by Phillip Howell-Richardson.

According to the government, the settlement agreement came into effect on 19 August 2022.

“Nigeria succeeded in reducing the claim in mediation brought by the international firm of King and Spalding, legal representatives of the Global group, by 91 per cent.

“A claim for over $10bn was threatened in arbitration before the International Chamber of Commerce, International Court of Arbitration, Paris, in respect of five major contracts of 2004 – 2007 — covering steel, iron ore, and rail,” Gwandu said.

He revealed that the source of the disputes were five contracts entered into by the 1999 – 2007 administration of President Olusegun Obasanjo which gave complete dominance over the Nigerian steel space to one company group, the Global Steel group.

According to him, in 2008, the administration of Umaru Yar’ Adua proceeded to terminate the contracts contrary to legal advice offered by the Federal Ministry of Justice, which cited the termination cost in the form of damages.

Gwandu said that had the government of that day not terminated the Ajaokuta Share Purchase Agreement on April 1, 2008, and waited for just 55 days to terminate, it would have terminated lawfully, and the government would have collected more than from Global Steel.

He stated, “This was because the firm appeared unable to pay the first tranche for the Ajaokuta shares before the first anniversary of the agreement (25 May 2008). This failure would have given Nigeria a right to over $26m as liquidated damages under cl.12 of the Ajaokuta Share Purchase Agreement.

“Global Steel, in consequence, took the FGN to the International Chamber of Commerce, International Court of Arbitration, Paris, commencing arbitration in 2008. Although the Federal Government negotiated a settlement in May 2013, the previous administration failed to implement its settlement agreement.

“In May 2020, Global (Steel) threatened a resumption of the arbitration and announced an anticipated claim in damages of over $10-14bn against the Nigerian state in respect of the affected five contracts.”

The statement reads in part, “With this development, Malami said President Muhammadu Buhari has now rescued the steel industry from interminable and complex disputes as well as saving the taxpayer from humongous damages.

“The Minister also stated that one of the lessons to be learnt included that the future arrangements — sale or concessions – must be carried out in the national interest and in compliance with the law.”

“The Office of the Attorney General of the Federation and Minister of Justice grappled with the inherited problem by adopting a blueprint of seven principles for the cost-effective resolution of contractual disputes wherever they occur.

“They are the use of institutional mediation, choice of FGN counsel, the use of financial advisers with reputational capital, the importance of not discouraging foreign investment, fiscal responsibility, transparency, and the recognition that joined-up government produces superior outcomes.”