The battle over the amendment of the Act establishing the Nigeria Liquefied Natural Gas Limited (NLNG) is till raging despite the criticisms by oil workers and other stakeholoders that the amendment will project Nigeria as a country that does not honour agreements. They also argue that it will have negative effects on government’s revenue, writes Assistant Editor EMEKA UGWUANYI.
Since the Senate Committee Chairman on Niger Delta, Senator Peter Nwaoboshi’s disclosure to the hallowed chamber of the National Assembly that the Nigeria Liquefied Natural Gas Limited (NLNG) was not paying the statutory three per cent levy to the Niger Delta Development Commission (NDDC), there has been disquiet in the gas company, the petroleum industry and the economy.
Last February, Senator Nwaoboshi alleged that NLNG had refused to pay its NDDC levy since it began commercial operation 16 years ago, and by that action, the company has disobeyed the law of the country. “It is not whether that they contributed certain percentage. The point is that they had refused to obey the law since 2000,” he said.
Although the NLNG management explained that the Act that established the firm exempted it from payment of NDDC and other levies, the lawmaker insisted that the legislature will revisit the Act. He said: “We have asked the Managing Director of the NLNG, Mr. Babs Omotowa (now former), and he said that they have not been contributing money to the NDDC.
“They showed us a Supreme Court judgment, which described NLNG as a gas processing company and that there is a Gas Act that came before that of NDDC Act. They argued that the NDDC Act has not repealed the Gas Act. The NLNG claimed that the Gas Act has given them tax holiday. We are lawmakers and we are going to revisit the two Acts. We will go into the root of the matter. We don’t just make laws for the purpose of making it.”
Not long after Nwaoboshi’s statement, the House of Representatives backed his proposal to amend the NLNG (fiscal incentives, guaranteed and assurances) Act, Cap N87 of 2004. If the amendment scales through the National Assembly, it would strip the NLNG of its immunity from paying the NDDC levy.
Supporting the amendment of the NLNG Act in the House of Representatives, the Minority Leader, Honourable Leo Ogor, pointed out the indescribable environmental and health havoc oil exploration and production had wrecked on the people of the Niger Delta for decades.
He said: “The only way we can solve this problem is to bring relevant amendments to the Act because our people have suffered so much and I said that it is very important that we appreciate the enormity of the danger in the region for us to act quickly and as a people, hold the NLNG responsible for unnecessary gas flaring, using this amendment.
“The amendment to this Act is aimed at redressing the great injustice that the NLNG has meted to the people of the Niger Delta region for almost 27 years now. To partly or completely rejuvenate the environment, the NDDC Act, specifically in Section 14 (2)(b), stipulates that three per cent of the total annual budget of any oil producing company operating onshore and offshore in the Niger Delta area, including gas processing companies like the NLNG, shall pay the said percentage into the funds of the Niger Delta Development Commission.
“To my knowledge, the NLNG Limited has not contributed a kobo to the NDDC fund as required by the NDDC Act, 2000 for about 27 years of its operation in the region, despite the huge earnings it has made. This is great injustice and disservice to the people of the Niger Delta region.
“The NLNG has continued to hide under the pretext that the Nigeria LNG (Fiscal incentives, Guarantees and Assurances) Act exempted it from such contributions or payments, we now know that it is right and just for it to make such payment, especially when they have enjoyed these incentives for more than 27 years.
“It is important that we come to the rescue of the people of the region. It is on the basis of this injustice that I seek the amendment to the Fiscal Incentives Guarantees and Assurances Act.”
The immediate past Managing Director of the Nigeria Liquefied Natural Gas Limited (NLNG) and now the Vice President, Safety and Environment (S&E), Shell Upstream International Leadership Team, Babs Omotowa, said the Nigeria LNG is only a gas processing and marketing company. It doesn’t explore for gas, it only buys gas, liquefy it and look for buyers, therefore, it doesn’t flare gas and devastate the environment, rather it utilises and monetises gas, and diligently discharges its corporate social responsibility to its Bonny host community.
Besides, the Act establishing the NLNG Limited exempted it from payment of NDDC levy. Even when the gas company was taken to court, the Supreme and Appeal Courts passed judgment in its favour. The provisions of the Act exempting the NLNG from paying the three per cent NDDC levy were affirmed by the Supreme Court. NLNG said it was granted exemption from payment of this levy by the NLNG Act of 2004, a position which has the backing of a Supreme Court ruling delivered in 2011.
In an initial suit filed by the NDDC, the Federal High Court sitting in Port Harcourt, on July 11, 2007, delivered judgment that the NLNG was not liable to pay the NDDC levy. The NDDC then went to the Court of Appeal to challenge the High Court ruling and the Appellate court also upheld the decision of the lower court. The Court of Appeal, Port Harcourt Judicial Division had on December 2, 2010 in the Suit No. CA/PH/520/2007, upheld the judgment of the Federal High Court (Port Harcourt Division) delivered by Hon, Justice RO Nwodo, on July 11, 2007.
With a statement of claim dated and filed on September 3, 2005, the appellant/cross-respondent as plaintiff before the lower court sought for the following reliefs against the defendant/cross-appellant: A declaration that defendant is a gas processing company operating in the Delta area of Nigeria within the meaning and intendment of S. 14 (b) of the Niger Delta Development Commission (Establishment, etc) Act, 2000.
A declaration that the plaintiff is entitled to receive from the defendant as part of its statutory funds, three per cent of the total annual budget of the defendant for the years, 2000, 2001, 2002, 2003 and 2004 and in every year thereafter.
An Order directing the defendant to pay over to the plaintiff forthwith the accrued sums amounting to three of its respective annual budgets for the years 2000, 2001, 2002, 2003 and 2004 and every year thereafter in compliance with S. 14 (b) of the Niger Delta Development Commission (Establishment, etc) Act 2000 and as part of its contribution to the statutory funds of the plaintiff together with the interests on the said accrued sums at the prevailing Central Bank of Nigeria rate from the respective dates of accrual up till the date of judgment and thereafter at the rate of 10 per cent per annum until liquidation of same. Justice R. O. Nwodo J. held that the plaintiff case succeeds in part and entered Judgment for the appellant in terms of Relief 1, but dismissed the appellant’s reliefs 2 and 3.
Also at the Court of Appeal, the NLNG won. Dissatisfied with the judgment of the appellate court, the NDDC further appealed to the Supreme Court in October 2011 and the Supreme Court subsequently dismissed the NDDC’s appeal, ruling that the NLNG is legally exempted from paying the NDDC levy in accordance with the provisions of the NLNG Act.
If the courts decided that NLNG is exempted from payment of the NDDC levy, the legislature should not have amended the NLNG Act only to compel it to pay NDDC levy
To Omotowa, the establishment of NLNG has helped to reduce gas flaring in Nigeria by over 50 per cent. Also in the past, oil companies were not interested in developing gas fields or utilising associated gas. The oil firms would rather prefer flaring associated gas and pay statutory fines than building gas utilising facilities, but today oil firms explore for gas. Therefore, conducive business environment attracts local and foreign investments, which help in accelerating economic development of any country as government funding alone would not be adequate. He noted that such conducive business environment has helped in establishment of the NLNG. When conducive environment is in place, the private sector plays a key role in the development of any country, hence the executive and legislature must do everything to ensure the country continues to be able to attract investments.
Benefits to Nigeria, host community
According to Omotowa, the NLNG Act was key in enabling NLNG, a project that had been in the drawer for over 35years to be delivered; and has helped to reduce flaring by over 50 per cent, as well as delivered over $33billion to Nigeria from an investment of $2.5billion. The transparency that the current government has brought about with it the TSA, is also commendable as this has allowed, for example, the dividend paid by Nigeria LNG to become visible to all and sundry as was the case with the popular “bailout fund” where NLNG’s $2.1b payment to the Federation Account was shared to the states. The effort of the Government to trace where exactly the over $15billion we have paid as dividend to Nigeria between 2004 and 2015 is one that must not be allowed to fizzle out.
Data show that the Nigeria LNG has spent to date about N516 million on 172 beneficiaries of post- primary scholarship scheme, N600 million on about 3,000 beneficiaries under the undergraduate scholarship scheme, while N380 million has so far been spent on post graduate scholarships for 38 young prospects from the region.
The gas company has offered to provide 50 per cent of the value of constructing the Bodo-Bonny Road estimated at N120 billion, which is a Federal Government project intended to connect Bonny on land to several i Niger Delta communities including Ogoni and Andoni. NLNG has developed a 25-year marshal plan. “We have mapped out the terms such as residential areas with high rise, areas that will be for tourism, agriculture, industries development. Bonny has been mapped out for that, so to achieve this dream, we contribute N3 billion to a foundation in Bonny every year. To be able to make this dream become a reality, a memorandum of understanding (MoU) was signed with the community and we are working with the community to achieve that. Our dream is that in about 25 years time everyone will look at Bonny and use a model for how community development can be actualized,” Omotowa said.
Also NLNG has a power plant that generates about 340megawatts (Mw), which powers the LNG Trains and supplies 24/7 electricity to the host community – the over 250,000 people in Bonny.
Members of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), stated that the NLNG from an initial investment of US$6 billion, now has an asset base of over $11billion, generated over 490 billion in revenues, grown from one to a six-Train operation, with a nameplate capacity of 22 million tonnes per annum. The company is planning Trains 7&8 that will bring the nameplate capacity to 30million tones per year. The Union said the NLNG operates the largest LNG fleet in Africa, providing jobs and expertise for Nigerians in maritime industry. The oil workers noted that the gas company has contributed over US$15 billion as dividends, over $5.5billion in taxes, N51 billion in levies and fees to the Federal Government.
Consequence of amendment
Omotowa further noted that conducive environment and respecting the sanctity of agreement made the NLNG to grow. Therefore, violation of such agreement will not only drive away investments, reduce revenues to the government, and take away jobs and skills development, but may plunge the government into lengthy legal battle. An example is where the NLNG’s ability to attract future investments to maintain and grow the plant is being put in jeopardy by attempts to renege on promises Nigeria gave to foreign investors that have enabled us attract $15billion in foreign investment, and grown LNG capacity from a 2 Train complex to a 6 Train plant.
“In the construction phase alone, we employed up to 18,000 people. Future investment would even enable us and our gas suppliers employ over 30,000 people, especially in this period of high unemployment. Whilst we have received support from the Executive on the need to keep the sanctity of the NLNG Act, the periodic attempts by the Legislature to amend the clear promises made to investors will cost the country quite a lot.
“Apart from the immediate relocation of investments in excess of $25billion to other countries, Nigeria will also be opened to fines running into billions of dollars in the International Court. For example, Venezuela and Ecuador were fined over $1.8billion each for reneging on similar agreements. Financial incentives of the nature contained in the NLNG Act are not uncommon in the global LNG industry. Countries, such as Qatar, Oman, Malaysia and Angola, have similar incentives in place. Indeed, even within Nigeria, more generous incentives are contained in legislation such as the Oil & Gas Free Trade Zone Act, as enterprises in those zones, with a view to attracting foreign investment and stimulating exports, do not pay any taxes whatsoever to the Federal, State, Local Governments or the NDDC levy,”Omotowa explained.
The NLNG Act, he said, was key in enabling a project that had been in the drawer for over 35years to be delivered; and has helped to reduce flaring by over 50 per cent, as well as delivered over $33billion to Nigeria from an investment of $2.5billion, adding that this is not a time to jeopardize Nigeria’s best interest by showing Nigeria as not a people to be trusted, and thus create a climate of unconducive business environment. “In fact, instead of taking such action to jeopardise the take-off of the Train 7 & 8 plants, Nigeria should rather fast-track the taking of final investment decision (FID) on these additional trains, especially now that commodity prices are low which invariably may lower the cost of engineering, procurement and construction (EPC) as the major input – steel and iron ore prices, are at their lowest ebb,” Omotowa added.
Also with more countries in the sub-saharan Africa producing oil and gas, Nigeria is no longer the final destination to investors, hence the government should not initiate laws that will threaten the sanctity of existing contracts or force potential investors to take their money elsewhere. Nigeria previously accounted for 10 per cent of the global LNG supply, but this has since dropped to about eight per cent on account of other countries’ progress in the LNG business and the lack of new investment to consolidate Nigeria’s position in the global LNG market. “Nigeria’s dwindling investment in LNG, and no new investments, the country would possibly drop from her current position of 4th world’s largest exporter of LNG after Qatar, Malaysia and Australia to 10th position by 2020,” he said.
According to data on the global exports of LNG in 2014, Nigeria was ahead of Indonesia, Trinidad, Algeria, Russia, Oman, Yemen, Brunei, UAE, Peru, Equatorial Guinea, Norway, Papua New Guinea, US, Egypt and Angola. But with no new investments to support Nigeria’s position in the global LNG market, it is feared that the country’s position would possibly drop to 10th by 2020
For members of PENGASSAN, the amendment of the NLNG will have a grave effect on the economy and jobs. In a communiqué signed by the President of the Association, Comrade Francis Olabode Johnson and Secretary, Comrade Lumumba Okugbawa, PENGASSAN said: “Implications of the proposed amendment is that it will damage the image of the country. NLNG succeeded largely due to the provisions of the NLNG Act, which gave investors the confidence to invest in the country, but with the proposed amendment that confidence will be eroded and will jeopardise critical ongoing and future investments in Nigeria. This will damage the reputation of the country, the country’s credit rating, and ability to retain the current investments, and attract future ones. It will also harm needed foreign investments. After 35 years of unsuccessful efforts, the NLNG could only be incorporated upon the enactment of the NLNG Act, which enabled the establishment of the company and attracted the needed investment.
“Also any amendment, particularly at this time of recession, will also mean an immediate potential loss of foreign investment of US$25billion in respect of NLNG’s Train 7&8 investment. The expected 18,000 jobs for Trains 7&8 will be lost with the amendment, and will also lead to increased gas flaring. NLNG purchases gas which would have otherwise been flared and has almost single-handedly led to the reduction of gas flaring from about 65 per cent in 1999 to about 20 per cent in 2016,” the communiqué said.
It continued: “With the required investment, the company is capable of reducing that figure even further with the completion of Trains 7&8 project. Any amendment will, however, ultimately result in a return to high flaring and negative impact on the Niger Delta environment. There will be possible loss of income to the Federal Government up to $124million yearly, which is paid as dividends and related taxes. Recall that NLNG’s 2014 & 2015 taxes yielded crucial bailout funds to the government recently.”
To PENGASSAN, in line with Federal Government’s determination to positively project Nigeria and attract foreign investments, actions such as the proposed amendments can easily erode the significant progress so far made, and must be discouraged by every patriotic Nigerian. “We, therefore, strongly advocate that the sanctity of the NLNG Act and its provisions, be preserved in the greater overall interest of the country. Indeed, we believe that based on the NLNG’s success story, similar guarantees and incentives should urgently be extended to enable the take-off of other projects, beginning with the stalled Brass and Olokola LNG projects. This will go a long way towards addressing the crushing problem of mass security challenges it has given rise to,” the oil workers said.
The Union demanded that the legislators make laws that will improve existing businesses in the country and attract new investments, and not laws, which will stifle business, employment and or erode investor confidence. The interest of the Nigerians must remain paramount.
A non-governmental organisation, the Committee for the Defence of National Interests (CODNI), also warned against alleged secret moves by the National Assembly to amend the Act establishing the NLNG. The group’s National Coordinator, Mr. Zach Ezoh stated that the federal lawmakers had perfected plans to hurriedly amend the NLNG Act possibly to pave the way for the sale of the Federal Government’s shares in the NLNG. “We wish to alert the public to this invidious plot and to call on patriotic members of the National Assembly to rise to the occasion and prevent this looming economic catastrophe as it will further compound the country’s woes,” CODNI said.
The group warned the lawmakers not to tamper with the NLNG Act, describing such as a miscalculation, which would effectively kill the goose that lays the golden egg for the country’s economy. “We wish to appeal to the conscience of our lawmakers not to allow this economic tragedy to befall our dear nation. It is said that you do not change a winning strategy. The NLNG, as it presently is, has proved to be a roaring success. There is, therefore, no cogent reason to tamper with the Act establishing this national cash cow,” it said.
This period is not a time to jeopardise Nigeria’s best interest by showing Nigeria as not a people to be trusted, and thus create a climate of unconducive business environment.