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FG Reduces Dispute Claims For Ajaokuta Steel Contract From $5.28bn To S496m

The Attorney-General of the Federation and Minister of Justice, Abubakar Malami, SAN has said that the federal government recently settled a long-standing contractual dispute over the Ajaokuta Steel Industry.

The FG said it has resolved contract issues with a foreign investor group in the steel space, the international firm of King and Spalding, reducing it from $5.258bn to $496m.

This was disclosed by Dr. Umar Jibrilu Gwandu, Special Assistant on Media and Public Relations Office of the Attorney General of the federation and Minister of Justice, in a statement made available to newsmen on Sunday.

The settlement agreement was finallized at a mediation proceedings under the International Chamber of Commerce’s (ICC) Alternative Dispute Resolution (ADR) framework led by Mr Phillip Howell-Richardson, coming into effect on 19 August 2022.

According to Gwandu, a claim for over $10bn was threatened in arbitration before the court sitting in Paris, following five major contracts of 2004-2007 – covering steel, iron ore, and rail.

“It might be recalled that the seeds of the disputes can be traced to five contracts entered into by the 1999 -2007 administration that gave complete dominance over the Nigerian steel space to one company group, the Global Steel group.

“However, in 2008 a new administration proceeded to terminate these contracts contrary to legal advice supplied by the Federal Ministry of Justice, which cited the termination cost in the form of damages,” the statement added.

Gwandu stated that “had the government of that day not terminated the Ajaokuta Share Purchase Agreement on 1 April 2008 and waited for just 55 days to terminate, it would have terminated lawfully and the Government would have collected more than 26 million USD from Global Steel.”

The Attorney-General’s office said Nigeria reduced the claim by 91%.

The statement partly read, “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 threatened a resumption of the arbitration and announced an anticipated claim in damages of over $10-14 billion against the Nigerian State in respect of the affected 5 contracts.

“The administration of President Muhammadu Buhari, however, took decisive steps to resist this claim, rather than pass it on to a future administration with ballooning interest.

“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.

“The FGN engaged PwC Nigeria to do a comprehensive review to ensure taxpayers are protected. Also, Dr Tunde Ogowewo, a barrister (and senior academic at King’s College London), represented the FGN and advised the government throughout the process. The Attorney-General of the Federation and Minister of Justice, Abubakar Malami stated of Dr Ogowewo’s report:

“FGN Counsel’s Report on Case Reference 15539/VRO/AGF/ZF/TO/AZR/SPN)_ – of over 1,000 pages provided a guide on how to avoid such contractual disputes and, where they occur, how to reach cost-effective savings for the benefit of the Nigerian taxpayer.

“Malami, therefore, reiterated the commitment of President Muhammadu Buhari-led Federal Government of standing firm to continue to make assiduous efforts in protecting the public interest and ensuring that Nigeria is not denuded of its resources through whatever means.”

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