Grounded Diplomacy: How a Dispute with a Chinese Firm Threatens Nigeria’s Sovereign Assets

Nigeria is once again entangled in a high-stakes legal battle, this time involving the Chinese firm Zhongshan Fucheng Industrial Investment Co. Limited, which is pursuing the enforcement of a $70 million arbitration award against the Nigerian government. This development comes just ten months after a court overturned an $11 billion damages claim against Nigeria in the controversial Process & Industrial Developments (P&ID) case.

The conflict with Zhongshan stems from a failed contract dating back to 2007 between the Ogun State Government and the Chinese company regarding the development of a free trade zone. In 2010, Zhongshan’s parent company, Zhuhai Zhongfu Industrial Group Co. Ltd, acquired the rights to develop the zone. However, tensions escalated in 2016 when the Ogun State Government attempted to replace Zhongshan as the zone’s manager, leading to the company initiating an investment treaty arbitration under the China-Nigeria Bilateral Investment Treaty (BIT).

The arbitration panel ruled in favor of Zhongshan, awarding the company $70 million in compensation. The firm has since sought to enforce this award, securing an order from a French court to seize three Nigerian presidential jets currently under maintenance in France. This order has been upheld by a U.S. court, which dismissed Nigeria’s defense of sovereign immunity and allowed Zhongshan to pursue further assets, including two residential properties owned by the Nigerian government.

The Nigerian government, grappling with the fallout from this legal defeat, has expressed its discontent, accusing Zhongshan of attempting to take over Nigeria’s offshore assets through dubious means. The Presidency and the Attorney-General of the Federation, Lateef Fagbemi (SAN), have both emphasized that the federal government is not contractually obligated to Zhongshan, arguing that the dispute solely concerns the Ogun State Government. Nevertheless, efforts are underway to reverse the orders against the presidential jets, with Nigeria asserting that the aircraft are sovereign assets used exclusively for state purposes and thus immune from seizure.

Legal experts and analysts have criticized the handling of the dispute, noting that the situation reflects poorly on Nigeria’s commitment to honoring international agreements. Prominent lawyer Dayo Akinlaja (SAN) urged the government to seek a settlement, arguing that such an approach would be more beneficial than prolonging the legal battle. Similarly, Nkem Okoro Esq. called for a thorough investigation into the mishandling of the contract, emphasizing that Nigeria’s refusal to honor the arbitral award further tarnishes its international reputation.

The broader implications of this dispute are concerning for Nigeria’s foreign investment climate. The case bears similarities to the infamous P&ID arbitration, where Nigeria was initially ordered to pay $9.6 billion in damages for a failed gas project. The cumulative effect of these legal battles is likely to deter foreign investors, who may perceive Nigeria as a risky and unreliable partner.

Former Foreign Affairs Minister Ambassador Bolaji Akinyemi highlighted the legal nuances of the case, pointing out that under international law, Ogun State’s actions could be attributed to Nigeria, thereby exposing the country’s assets to enforcement actions. He criticized the Ogun State Government for its mismanagement of the contract and urged the federal government to engage the Chinese government diplomatically to resolve the matter.

On the other hand, Olisa Agbakoba (SAN), a former President of the Nigerian Bar Association (NBA), argued that Nigeria still has a strong defense, particularly regarding the attachment of sovereign assets. He suggested that the federal government has a reasonable chance of recovering the seized aircraft if it can demonstrate that they are used for diplomatic purposes.

In a surprising turn of events, Zhongshan has indicated its willingness to negotiate with the Nigerian government. In a statement, the company expressed confidence in its legal position but signaled its openness to a settlement. As a gesture of goodwill, Zhongshan has reportedly lifted the seizure of one of the detained presidential jets to allow President Bola Tinubu to attend a scheduled meeting with French President Emmanuel Macron.