You cannot get this sidequest until you liberate all six of the Bandit Camps in the game. After you liberate the final one, Nil will appear outside of the final camp, so go and talk to him. He is saddened at the thought of not being able to kill any more bandits and asks you to meet him on a plateau south of Meridian. This plateau is just northwest of the Tallneck in the Spearshafts region, and is actually home to one of the Metal Flowers (Mark III - F). So, if you've already gotten the Metal Flower, you can use the campfire to fast travel there.
If you haven't gotten the Metal Flower, you need to get to the top, which you can do via the handholds on the eastern, western or southern sides of the large rock formation. At the top, speak with Nil and you find out that he wants to duel you. Decline and the quest will end right then and there, although you won't receive any rewards. On the plus side, though, he will still be alive to help out in the final battles.
Should you choose to accept his duel, which you have to do twice, get ready for a fight. While Nil isn't exactly a challenging opponent, he can still do a lot of damage. He usually begins the fight by slinging a blinding shot at you, then will follow up by running up to try and melee. If you can keep him in melee range, then the battle is pretty much over, as the attacks are very easy to dodge. If you manage to put distance, he will break out a bow and shoot, which he does quite fast, so keep him to melee range. After downing Nil, talk to him and you will have finished this sidequest.
|For winning the duel against Nil||5,000 XP|