Amendment of NLNG Act and the Aftermath

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Ejiofor Alike writes that the proposed amendment of the Nigeria LNG Act by the National Assembly could have a negative impact on liquefied natural gas marketing and the broader economy

Recent developments at the National Assembly have revealed a strong determination by the law makers to tinker with the Nigeria Liquefied Natural Gas (NLNG) Act, primarily to force the company to remit three per cent funding to the Niger Delta Development Commission (NDDC).

The Chairman of the Senate Committee on Niger Delta, Senator Peter Nwaoboshi had in February alleged that the amount due for payment to the Niger Delta Development Commission (NDDC) from the NLNG, which the company refused to pay since the last 16 years, was colossal and insisted that by the action, NLNG disobeyed the country’s laws.

“It is not whether that they contributed certain percentage. The point is that they had refused to obey the law since year 2000,” he said.

“We want to know those who are contributing to the agency. We have asked the Managing Director of the NLNG, Mr. Babs Omotowa, 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 They argued that the NDDC Act has not repealed the Gas Act.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,” Nwaoboshi had explained.

Barely one month after he made this pronouncement, the House of Representatives said it had declared support for the enforcement of the NLNG (fiscal incentives, guaranteed and assurances) Act, Cap. N87, Laws of the Federation of Nigeria, 2004, which recommends the remittance of three per cent annual revenue into the NDDC Fund.

In his lead debate on the NLNG Act of 2004, the Minority Leader, Honourable Leo Ogor, argued that with the untold environmental and health havoc wrecked on the people of the Niger Delta for decades “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 present 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,” he said.

“To partly or completely rejuvenate the environment, the NDDC establishment Act, specifically section 14 (2)(b), stipulates that 3 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 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 dis-service 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,” Ogor added.

While ruling, Speaker Yakubu Dogara referred the bill to the House Committee on Gas Resources, which has commenced a hearing on the matter for further legislative inputs

Supreme Court Judgment

But citing the provisions of its enabling Act, which was affirmed by the Supreme Court, the NLNG had insisted that it was exempted from paying the three per cent NDDC levy.

The company 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.
THISDAY gathered that following an initial suit filed by the NDDC, the Federal High Court sitting in Port Harcourt, on July 11, 2007 delivered judgment that NLNG was not liable to pay the NDDC levy.
NDDC then went to the Court of Appeal to challenge the High Court ruling and the Appellate court also affirmed 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.

By 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, 3% 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 3% 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 it judgment and thereafter at the rate of 10% per annum until liquidation of same.”

At the end of the trial, the learned trial Judge RO 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.

At the Court of Appeal, the learned senior counsel for the respondent/cross-appellant nominated two issues for the determination of the cross-appeal

“(i) Whether having regard to the issue joined by the parties and the law, the court below is justified in suo motu holding that paragraph 3 of Schedule 2 to the Nigeria LNG Act. Is unconstitutional (Ground 1 of Cross-Appeal).

“(ii) Whether having regard to the pleadings, the findings of the court and the unchallenged testimonies of DW2 (an expert witness), the court below was right in failing to determine whether the respondent has an annual budget before coming to the conclusion that it falls within the companies referred to in S. 14 (2) (b) of the NDDC Act, 2000 (Ground 2 and 3 of Cross-Appeal).”

The Appeal Court held that “in the instant case, from the materials on record, it is clear that the cross- respondent failed to establish that the cross-appellant has an “Annual budget” within the purview of the provision of section 14 (2) (b) of the NDDC Act”.

According to the judgment by the Court of Appeal, “the cross-respondent’s reliefs 2 and 3 of the statement of claim remain dismissed. In the final analysis, the main appeal is dismissed, the cross-appeal is allowed. There shall be no order as to costs.”

Dissatisfied with the judgment of the appellate court, the NDDC appealed further to the Supreme Court in October 2011 and the Supreme Court subsequently dismissed NDDC’s appeal, ruling that NLNG is legally exempted from paying the NDDC levy in accordance with the provisions of the NLNG Act.

Eroding investors’ confidence

Having exhausted all the legal options to collect the three per cent levy without success, the NDDC has apparently taken the battle to the National Assembly with the proposed amendment of the NLNG Act to ensure the remittance of the levy.
A source close to NLNG, who also witnessed last Thursday’s public hearing on the issue, told THISDAY that Hon. Ogor’s argument in March 2016 that, “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,” when the Supreme Court judgment had exempted the company from contributing was a strange attempt to use legislative instrument to upturn the apex court decision.

According to the source, it was also curious that Senator Nwaoboshi reportedly made similar comment, saying “It is not whether that they contributed certain percentage,” but that “the point is that they had refused to obey the law since year 2000,” when the records available showed that the apex court had dismissed a declaration sought by the NDDC that it was “entitled to receive from the defendants as part of its statutory funds, 3% of the total annual budget of the defendant for the years, 2000, 2001, 2002, 2003 and 2004 and in every year thereafter.”

Also Ogor’s assertion that “this (non-remittance) is great injustice and dis-service to the people of the Niger Delta region” was also viewed by the source as an apparent incitement of the people of the oil-rich region against the company.

NLNG’s Managing Director and Chief Executive Officer, Mr. Babs Omotowa told House of Representatives Committee on Gas Resources, during last Thursday’s public hearing on the matter that NLNG was one of the biggest promoters of Corporate Social Responsibility in the Niger Delta, supporting education, infrastructure development, and entrepreneurship.

“As evidence of our commitment to the development of the Niger Delta, NLNG has spent $177 million in the areas of infrastructure, education in the region. So, it is not an issue of reluctance to support Niger Delta, but one of ensuring we work within the confines of the law and honour agreements and promises to maintain the valued reputation of our country in international business,” Omotowa was quoted as saying.

Omotowa’s presentation at the public hearing that “the intervention of NLNG, more than any other single factor, has led to the progressive decline in Nigeria’s gas flaring profile over the years, from well over 65 per cent in the 1990s, to less than 20 per cent today” has also dismissed Hon. Ogor’s claim that the activities of NLNG and other oil and gas companies operating in the Niger Delta had polluted the area.

The NLNG boss also noted that aside from the fact that the company is earning revenue for the federal government and its other shareholders, it is cleaning up the Niger Delta environment in the process.

He argued that the current amendment effort is most unusual as it attempts to enforce the payment of a levy from which an entity is expressly exempted by a valid and subsisting legislation in which the federal government of Nigeria gave unequivocal undertakings and declarations that induced significant investments.

“As far as we are aware, this is the first time in the history of legislative practice in Nigeria that a proposal is being made to amend a law for the sole purpose of imposing a levy against a company for the benefit of an agency of government. We urge the Honourable Committee not to lend itself to the establishment of an unjust precedent. To do otherwise would be to encourage other agencies of government who fail to make their case in judicial proceedings in court, to resort to legislative engineering to achieve what they failed to obtain in court,” Omotowa added.

NLNG is owned by four shareholders – the federal government, represented by the NNPC (49 per cent), Shell Gas BV, SGBV, (25.6 per cent), Total LNG Nigeria Limited (15 per cent), and Eni International (N.A,) N. V. S. a. r. l (10.4 per cent).

The NLNG project was on the drawing board for over 30 years until actionable agreements that offered incentives were reached to instill the confidence of reputable British, French and Italian investors to accept to commit such huge investment in the project.

The country cannot afford to renege on such agreements used to woo the investors at this point to avoid eroding the confidence of foreign investors in Nigeria’s operating environment.

Rather than dissipate energy in amending NLNG Act, which is akin to shifting a goal post at the middle of a match, the National Assembly should work out more mouth-watering incentives for investors to encourage the signing of the Final Investment Decisions (FIDs) for Brass LNG and Train 7 of NLNG to boost federal government revenue.

Omotowa had argued that the “incentives which have been granted to NLNG are not peculiar to Nigeria”.

“They were granted to encourage investments in gas utilisation to reduce flaring which had become a major problem for the country. Examples of similar incentive initiatives abound in Angola (12 years), Oman, Malaysia, Qatar and Trinidad (up to 10 years). Other more generous incentive schemes also exist in Nigeria, in the Free Trade Zones,” he said.

NLNG has also become the country’s cash cow and according to Omotowa, the country has reaped over $33 billion from its initial investment of only $2.5 billion.

“The Act enabled the company to grow from its original 2-Trains to 6-Trains, creating an asset base of $19 billion, 49 per cent of which the federal government owns,” he added.

It has been argued that laws are not made for or against an individual or a company but for companies and people, for the benefit of all.

So, proposing the amendment of a law just to impose levy against a particular company in favour of just one agency of the government will send strong signals that Nigeria does not respect the sanctity of contracts and agreements.

Foreign investors were thrown into shock on May 3, 2013 when the Nigerian Maritime Administration and Safety Agency, (NIMASA) used the facilities of Global West Vessels Specialists Limited (GWVSL), to block access to the Bonny Channel, thereby hindering the vessels of NLNG from leaving or reaching the area.

NIMASA, which took the action to enforce the payment of certain levies, had insisted that the levies were in line with Section 43 of the Coastal and Inland Shipping Act (Cabotage Act), CAP C51, Laws of the Federation of Nigeria, 2004 due to personal gains.

The disputed levies allegedly accrued from three per cent of gross freight on all international inbound/outbound cargoes from NLNG ships or shipping companies operating in Nigeria including their agents, subsidiaries, contractors and sub-contractors for three years contrary.

According to NIMASA, the refusal of NLNG to pay was contrary Section 15 of the NIMASA Act, CAP N161, Laws of the Federation of Nigeria, 2007, Coastal/Inland Shipping Act (Cabotage Act), CAP C51, Laws of the Federation of Nigeria, 2004.

NIMASA had dragged NLNG to court but later withdrew the court action over concern that it might lose as NDDC and resorted to self help.

Though NIMASA gave an assurance that “for the avoidance of doubt, our action is carefully planned to avoid loss of lives or damage to property,” the blockade took tolls on both Nigeria and NLNG’s reputation and led to loss of $1 billion revenue.

At the April 2016 Lunch organised by the Petroleum Club in Lagos, Omotowa revealed that 70 per cent of the $1 billion lost by the NLNG was revenue due to the federal government.

According to him, NIMASA was claiming $160 million levy, while the NLNG Act – Sections 6 (8-10) and Sections 7 (7) provide exceptions to attract investments.

He alleged that NIMASA ignored court orders, thus causing reputational damage to both Nigeria and the NLNG.

According to him, NLNG is currently making monthly payments ‘under protest’ pending the resolution of the dispute by the court, stressing that $250 million has been paid to NIMASA till date.

While awaiting the decision of the court on the dispute between NLNG and NIMASA, the National Assembly or any agency of the federal government should not engage in acts that would portray Nigeria as unsafe for investments.

NLNG is no doubt, the most successful company in Nigeria in terms of generating revenue to the federal government.

However, instead of every agency of the government clamouring to grab from the company, government should provide incentives for investors to sign FIDs for other LNG projects to boost government’s revenue.

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.

Omotowa had also raised the alarm on Nigeria’s dwindling investment in LNG, saying that with no new investments, the country would possibly drop from her current position of 4th world’s largest exporter of LNG to 10th position by 2020.

The NLNG boss, who said his company had earned $90 billion revenue since 1999, also declared that NLNG elevated Nigeria to number four exporter of LNG in the world, after Qatar, Malaysia and Australia.

According to the 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.