Lawyer seeks legislation to regulate states involvement in direct investments

The Managing Partner of Synergy Attorneys and Senior Advocate of Nigeria, Abiodun Owonikoko, has called for legislation to regulate the involvement of Nigerian states in foreign direct investment agreements with countries that have a Bilateral Investment Treaty with Nigeria, to prevent “onerous” clauses in these deals.

Owonikoko made the call during an interview with ARISE TV on Tuesday following the seizure of three jets belonging to the Federal Government over the dispute between the Ogun State Government and Zhongfu, a Chinese firm whose contract was revoked.

He also called on the Federal Government and the Economic and Financial Crimes Commission to thoroughly investigate transactions involving state governments to eliminate any possibility of corruption or fraud.

Owonikoko stated, “The Nigerian approach often lacks the foresight to learn from past mistakes. I had previously advocated for an audit of all foreign-related commercial transactions involving Nigerian sub-nationals, so we can identify potential areas of dispute and renegotiate unfavourable terms before they become enforceable judgments.

“And I remember, to be fair to the Attorney General, one of the committees he set up upon assumption of office was one where they were to review all our BITs, and then come up with a form of standard agreement… I believe that part of what should happen if they already have that standard agreement now is they should use that to input into our BITs and review because all the BITs normally have a position for constant review.

“You request from the other side that you want to review based on either changes in your own legislation or the economic realities, and then you can negotiate yourself out of the onerous clauses in those agreements.”

He added that there should be legislation in place to monitor state enterprises’ transactions with foreign investments.

“There is a need now, for more than just ordinary policy, there should be legislation that will regulate the involvement of state enterprises with foreign investments.

“I’m not talking about Mobil entering into a contract with Oando, I’m talking about a state entity in Nigeria entering into a foreign direct investment arrangement with a foreign country with which Nigeria has a BIT, which means that we have an obligation to protect that investment, and we should give them equal treatment.

“Any foreign investor in Nigeria that decides to take advantage of the BIT will be entitled to go after the federal government for any investment decision that prejudices its interest in Nigeria, so long as it’s covered under the BIT and the BIT Nigeria has with China covers fairly a broad spectrum of businesses.

“Most of them – and that’s why I’m worried by it – the fact that we have the proliferation of export processing zones, we have almost thirty-something… Some of them are in Kano, some of them are in Kogi, some of them are in Kaduna, and you wonder what we’re exporting.

“A lot of businesses that are coming into those zones are protected by the BIT, and most likely, in an era where companies are exiting because they are not comfortable with our business environment, those that will remain are those who are protected in those zones, and they are likely to initiate dispute resolution through arbitration so that they can go after federal government for all kinds of liabilities that may arise,” he stated.

He added, “It’s not only state versus state, but even liability arising between them and co-Nigerian investors can also be subject of those proceedings.”

Speaking on the legal dispute between the Ogun State Government and Zhongfu, he said, “Where a government, especially Nigeria in the 90s, 70s, up until 2000, was running a command economy, a lot of our businesses got entangled with government involvement. So, certain assets of the government were classified as commercial assets, even though owned by the government.

“The unfortunate thing is that the leading case on this matter actually generated out of a controversy between foreign investors and Nigeria in the 70s during the Armada Cement crisis…”

Owonikoko noted that when the government involves itself in commercial transactions, effectively choosing to engage in business, it cannot claim immunity from the consequences of breaching those contracts.

“Now, in a situation involving the Chinese, people have forgotten that Nigeria and China have a Bilateral Investment Treaty, which was signed in 2001 and came into force in 2010. Under that agreement, foreign investors from China who latch onto that treaty are entitled to some form of protection for their investment and so, if there is a dispute, there is the provision that they either go to a Nigerian court or resort to arbitration.

“In this particular instance, the Chinese company decided to go to arbitration. Usually, it’s the safer bet for foreign entities in a country where they want to protect their investments.

“So where we are now, the assets reportedly attached in France are Federal Government public presidential jets, used for running government business. But if it was a CBN private jet being used for commercial transactions, it probably would not be as protected as the presidential jet. So I see the issue involving those jets as not really a matter of enforcement of judgement, but a diplomatic issue,” he added.

On whether fraud was involved in the Ogun State agreement with China, as was claimed, which led to the breach of the contract, he stated, “From what we see here, really, it was a kind of political decision that led to this trouble. So, I’ve not yet seen evidence of corruption or fraud in what has happened, it’s purely politics, and you don’t try people for political mistakes. The only thing is if you dig deeper, what looks like ordinary political decisions may actually have some elements of fraud, in which case, when you leave office, immunity will not cover fraud.”