VP’s Remarks At A Workshop On Capacity Building For Negotiators

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REMARKS BY HIS EXCELLENCY, PROF YEMI OSINBAJO, SAN, GCON, VICE PRESIDENT OF THE FEDERAL REPUBLIC OF NIGERIA AT THE WORKSHOP ON CAPACITY BUILDING FOR NEGOTIATORS ON THE 28^TH OF JUNE, 2021

PROTOCOLS

We must commend the Inter-Agency Committee on Stemming Illicit Financial Flows from Nigeria and the Independent Corrupt Practices and Other Related Offences Commission for organizing this very important Capacity Building Workshop for Negotiators of International Economic Agreements.

One of the most significant sources of economic loss for a country is the consequence of poorly negotiated agreements. But as is often the case, it is not just bad negotiations, but also poor maintenance and monitoring of the implementation of agreements, and when disputes arise, negligent or inept handling of dispute resolution provisions in the agreement or remedial options.

Let me illustrate this point by some well-known instances of agreements that brought about undesirable outcomes for the countries involved.  I will then highlight some potential causes arising in part from poor negotiations.

1. i)         Simandou Iron Ore Contract – Guinea

The iron ore in the Simandou mountain range located in Guinea has been estimated to be worth around $140bn over a twenty-year period.  In other words, it is the world’s largest deposit of iron which is used for steel, an indispensable material in the modern economy.

The Guinean Government granted a concession to a multinational company in 2008 and the company spent about $165m in startup costs with no money going to the Guinean treasury.  Less than two years later, the multinational corporation sold half of the concession given to it to another company at the cost of $2.5bn.

This deal was so badly skewed against Guinea that Mr. Mo Ibrahim the Sudanese telecommunications billionaire is reported to have asked “Are the Guineans who did those deal idiots, criminals or both?”

The contract was eventually revoked and a new Government in Guinea was able to sell the rights to portions of the Simandou deposits to a consortium for the sum of $14bn in 2019.  Early this year, the foreign businessman at the center of the deal was found guilty of corruption with regard to this case and sentenced to 5 years in jail.  This is a rare success but there is no evidence that the Guineans who did the deal with him have also been brought to book.

1. ii)        Bilateral Investment Treaty – Pakistan

There have been several cases related to bilateral investment treaties that have proved costly and difficult for developing countries, but I will mention just one relating to Pakistan.

In 1993, a Pakistani provincial government agency (in Balochistan) entered into a joint venture agreement with a multinational company to prospect for gold and copper.  The multinational later assigned its prospecting rights to another company with was acquired by a third party in 2006 for $167m.

Soon after, the original JV was challenged in Pakistani courts and in 2013,​ the Supreme Court of that country found that the terms of the original JV violated domestic laws and declared the agreement null and void.  Specifically​, ​ the Pakistan Supreme Court found that the provincial government agency did not have the right to make the agreement and that it awarded the JV contract without competition and transparency.  There was also evidence of corruption on the part of the chairman of the provincial government agency.

In spite of this judgment, the losing party simply went to the International Centre for the Settlement of Investment Disputes (World Bank backed and based in Washington D.C) and got a judgment for $4bn with back interest and legal fees raising to a total amount ​of​ $5.9bn which was 2% of Pakistan’s GDP at the time.  This was despite the fact that there was no actual project and the fact that all that had been expended to purchase the purported rights was only $167m (echoes of P&ID)​.​

As things stand, after some back and forth, orders for attachment have been given on Pakistani assets including Pakistan International Airlines so that ​the ​Government of that country has resorted to keeping its foreign accounts and assets to a minimum to avoid seizure.

iii)  We have also had our Strategic Alliance Contract​; where private companies – SEPTA Energy Nigeria Limited, Atlantic Energy Drilling Nigeria Limited, Atlantic Energy Brass Development Limited, and Agip Energy and Natural Resources (AENR) Limited​ were ​contracted to fund cash calls on NNPC’s equity portions of two sets of very prolific OMLs. The company was to raise the finance and be paid in cost oil and or cost gas. The companies entered into a contract with First Bank Nigeria​ ​but ​hardly performed any of their obligations under the contract while​ ​continuing to lift oil without remitting proceeds to the NPDC or Federation Account.

It is clear that poorly negotiated contracts or framework agreements can lead to serious financial losses for countries.  It is particularly salient that the same factors are usually at play in all of these situations.  Let me then outline some of the more notable factors.

Lack of Knowledge

One of the most common factors why negotiators from developing countries including Nigeria negotiate badly is a lack of knowledge of the specific subject area or of the issues at stake.  The example of Simandou is particularly pertinent in this regard.  It is very likely that the Guinean authorities at the time of giving the mining rights away very cheaply did not know the full extent of iron ore resources in Simandou.  This lack of knowledge is not only about the extent​ of natural resources or drawbacks of bilateral investment treaties​,​ but also applies to the treatment of intellectual property issues as well as financing and loan agreements.

Corruption

Corruption may also be a key factor.  It was present in the Simandou story as evidenced by the conviction of the foreign businessman at the centre of the deal.  It was also evident in the Pakistani case where the Court found evidence of corruption by a State Government official.  The whiff of corruption has also been found in famous cases here in Nigeria including OPL 245 and the P&ID matter and the Strategic ​A​lliance ​A​greements that led to significant losses to the Federation ​A​ccount.

Lack of Transparency and Due Process

In nearly all cases involving commercial contracts, there is a lack of transparency and due process involved.  This ranges from not advertising and opening up opportunities to other potential investors or not subjecting agreements to established legislative and treaty ratification processes.  Indeed, it is essential to clear draft agreements with relevant agencies of Government and with the body authorized to approve such contracts or agreements like the Federal Executive Council.  Non-observance of processes is particularly problematic because the lack of checks and balances deny Government the opportunity for review where mistakes might have been made or rules have been breached.

Use of Foreign Based Arbitrators

The insertion of clauses requiring foreign-based arbitration especially in BITs and trade agreements and potentially now in tax agreements is particularly problematic.  Quite often because of power configurations​,​ bigger countries and multinational corporations are better able to secure favourable outcomes from such processes.  This could even be as simple as the ability to pay for top-flight lawyers and accountants in addition to not paying the onerous travel costs those countries like Nigeria have to bear when engaged in foreign arbitration.  This disadvantage is quite clear from the Pakistani case and in quite a number of cases involving Nigeria.

Lack of Subject Matter Expertise

Quite distinct from the lack of knowledge of what is at stake is the lack of subject matter expertise.  It is not enough for someone to be a lawyer in order ​to ​obtain favourable outcomes in international agreements and contracts​, e​xpertise is always required in the particular subject area as well as the nuances of negotiations that can only be acquired by direct experience and constant exposure.

So, for example, trade agreements require sound knowledge and experience of trade issues, especially the nuances of multilateral and regional trade agreements. Take ​R​ules of ​O​rigin​, ​ many of the trade agreements between developing countries and the EU for example have been disappointing because of an insufficient appreciation of the constraints of Rules of Origin clauses. Rules of ​O​rigin define the conditions that a product must satisfy to be deemed as originating in the country from which preferential access to the EU is being sought.

For example, for export of garments from West Africa​,​ the ​R​ules of ​O​rigin stipulate that the garments or other clothing products must be made from domestically produced fabrics or fabric from​/to​ EU countries. Clothing produced from fabric imported from third countries such as China, will not satisfy the EU ​R​ules of ​O​rigin and will not receive preferential treatment.

Need for Negotiating Guidelines

One thing that is missing here at home are clear negotiating guidelines that spell out the steps and processes before undertaking negotiations on behalf of Nigeria in any subject area.  I expect that one of the concrete outcomes of this workshop would be the elaboration of draft negotiating guidelines to be submitted to government for consideration and adoption.

It is quite obvious that outcomes in international agreements and contracts are costly​, the billions of dollars involved in cases like Simandou and Balochistan are self-evident and particularly disturbing especially against the background of poverty in such affected countries.  Equally problematic are issues relating to ​the ​loss of sovereignty such as the arbitrators in the ICSID ignoring the decision of the Supreme Court of Pakistan.

The structure of this capacity building programme makes it very clear that there is a wide range of international economic agreements that underpin our interaction with the outside world and I am pleased that investment agreements, double taxation agreements, trade agreements, natural resource agreements and environmental agreements are the heart of the programme.

There is a commonality of issues across all these agreements such as the need to take into account the global distribution of power, the need to collaborate with countries of similar economic circumstances and the overlap across sectors.  Take, for instance, investment and competition agreements have become part and parcel of most regional integration treaties like those of ECOWAS and the AfCFTA.  This means that in addition to bilateral agreements​,​ we have to pay increasing attention to multilateral agreements as well.  This in my view​,​ also points to the importance of inter-ministerial negotiating teams rather than teams made up of officials from only one agency.

A topical issue in terms of negotiations is the preparation for the Climate Change Conference of Parties taking place in the UK towards the end of this year.  I expect that the approach that will be taken as we count down to that event will be to compose an inter-disciplinary team of experts and negotiators that can engage meaningfully in the talks.

This takes me right back to the issue of negotiating mandate.  I think that as part of the negotiating guidelines which should emanate from this workshop there is need to emphasize the point that negotiators should obtain a political mandate from government on the outcomes that we seek.  Drawing again on the example of COP 26, I would want our negotiators to be very much focused on the issues of a ‘just transition’ including ensuring that gas projects continue to be funded by international financial institutions.

All told, I very much welcome this capacity building programme and hope that it will be the start of a structured regular programme of training of negotiators in the initial areas of investment, trade, environment, natural resources and taxation agreements.  I expect further down the line that negotiators of other similar agreements​,​ financial, air services, shipping, fishing rights and such like will also be included in the programme.

Our objective must be to build a corps of crack negotiators and subject matter experts in international economic agreements and indeed to develop what should emerge as a national style of negotiations.

​Thank you.​