Dire Implications of Contentious NLNG Bill

The recent passage of the amendment to the NLNG Act by the House of Representatives, despite opposition by its shareholders, including the Nigerian National Petroleum Corporation, has the potential to erode the confidence of investors in the country’s operating environment. Ejiofor Alike reports

The House of Representatives, recently stirred a hornets’ nest when, contrary to the position of Nigeria’s oil and gas stakeholders, it passed a bill for an “Act to amend the Nigerian LNG (Fiscal incentive, Guarantees and Assurances) cap. N87, laws of the Federal Republic of Nigeria 2004 to empower NLNG Ltd, to make it statutory contribution to the NDDC fund and for other matters connected therewith.”

Apart from seeking to ensure that NLNG pays 3per cent of its annual budget to the Niger Delta Development Commission (NDDC), the bill also seeks to end the company’s status as dollar-denominated, which was part of the incentives to protect the company and its shareholders against the Naira’s flip-flop.

The National Assembly also plans to use the contentious bill to make NLNG’s subsidiary, Bonny Gas Transport Company pay tax in Nigeria.

If the bill becomes law, the NLNG will also pay 3per cent of gross freight on international inbound and outbound cargo to the Nigerian Maritime Administration and Safety Agency (NIMASA).

The widely-condemned bill, sponsored by House Minority Leader, Leo Ogor, will also mandate the NLNG to pay 2per cent of contracts performed by companies engaged in cabotage and 1per cent of any upstream contract to the government

THISDAY, however, gathered that the most controversial of the bill is a new provision – Section 7(b) – added to the original NLNG Act, which now provides that “Notwithstanding Section 7, or any other provisions of this Act, the Nigerian Liquefied Natural Gas Limited shall pay 3per cent of its total annual budget to the NDDC Fund as required by Section 14, Subsection 1 and 2 (b) of the NDDC Establishment Act, 2000”.
The bill, which has scaled through third reading at the lower chamber of the National Assembly, would be forwarded to the Senate for concurrence.

Kachikwu, NNPC, Labour, Others Kick
Wide condemnation had trailed the efforts of the lower chamber to amend the NLNG Act, during the debate of the bill.
A former Managing Director of NLNG, Mr. Babs Omotowa had told THISDAY that it was the assurances and guarantees in the NLNG Act that incentivised the investors to commit $6 billion to build the plant.

He said it took more than 30 years for NLNG to come to fruition as the investors had doubts about whether Nigeria was a suitable place to put so much money.
Asked whether the incentives would be in perpetuity, Omotowa said the Act was very clear that the incentives granted would be for the life of the project.

“And this is normal and there is nothing unusual about this. In Nigeria, we have the free trade zones (FTZs) either in Lekki or in Onne and in those areas as well, the applicable incentives are in perpetuity. They don’t even pay Company Income Tax; they don’t pay any tax at all and those things are also in perpetuity.

So, perpetual incentives and guarantees are not unusual, especially for export-based projects, because you want the companies to be able to compete externally. So, if you over tax them in your country then they will never ever be able to compete and if they can’t compete, then you can never earn any revenue or foreign exchange for the country. So, the reality is that there are even other more generous incentives in Nigeria than NLNG Act and if you look at other LNG countries of the world – if you go to Angola; if you go to Oman; if you go to Malaysia and even Trinidad –they and others all have incentives and many of them are even more generous than we have,” he explained.

Minister of State for Petroleum, Dr. Ibe Kachikwu said the assurances and guarantees in the NLNG Act were a key enabler responsible for the success of the company, which has asset base of $11 billion and is the fourth largest LNG plant in the world.

“NLNG’s ability to attract future investments to maintain and grow the plant is being put in jeopardy by attempts to renege on promises that Nigeria gave to foreign investors that had enabled us attract $15 billion in foreign investment, and grown LNG capacity from a two- Train complex to a six- Train plant. 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,” Kachikwu had explained

To the Group Managing Director of NNPC, Dr. Maikanti Baru: “The review of the NLNG Act by the National Assembly is causing a challenge for the federal government and the IOCs and it is sending wrong signals to the international community about how business is done in Nigeria.”
The Trade Union Congress (TUC) had also condemned the proposed amendment, saying it is a misplaced priority and not acceptable.

“Such amendment will impact negatively on the image of Nigeria, as the international community would perceive Nigeria as a country which does not honour its promises as well as one which does not take its call for foreign investments seriously,” TUC said.

On its part, the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) said the proposed amendment “is not in the interest of Nigeria and it is absolutely necessary that the Act is not amended as the imminent losses will far outweigh any doubtful gains; this is completely against what the country requires at this time and should not be allowed.”

According to the senior oil workers, “It is essential that Nigeria as a country must be able to generate adequate confidence within the international investor community to sustain critical ongoing and future investment beginning with the stalled Brass and OK LNG projects.”
In whose interest is the amendment?

Following the Supreme Court ruling of 2011, which exempted the NLNG from payment of 3per cent NDDC levy in accordance with the provisions of the NLNG Act of 2004, pressure was mounted on the present House of Representatives to amend the NLNG Act to force the company to pay the levy.

Having exhausted all the legal options to collect the 3per cent levy without success, the NDDC apparently took the battle to the National Assembly with the proposed amendment of the NLNG Act to ensure the remittance of the levy.
The NLNG and its shareholders had described the proposed amendment as shifting the goal posts at the middle of a match.

But the House Minority Leader, Honourable Leo Ogor, in his lead debate proposing the amendment, said the only way to curb gas flaring, which had wrecked untold environmental and health havocs in the Niger Delta for decades, “was 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.”

Before House Speaker, Hon. Yakubu Dogara referred the bill to the House Committee on Gas Resources for a public hearing, Ogor had argued that: “To partly or completely rejuvenate the environment, the NDDC establishment Act, specifically 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 NLNG, shall pay the said percentage into the funds of the NDDC”.

“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”.
So, from the position of Ogor, it is obvious that while Nigeria is exposed to the potential loss of billions of dollars of new investments and employment opportunities, NDDC will reap from this contentious amendment.

Nigeria as a promise breaker
Reacting to the successful passage of the bill by the House of Representatives, the NLNG had stated that the direct consequence would be to project Nigeria as a sovereign-state promise breaker and an unsuitable destination for investments.

NLNG’s General Manager, External Relations of the company, Dr. Kudo Eresia-Eke, said the main thrust of the guarantees and assurances was to assure the foreign investors that their investments would be protected by the non-amendment of the NLNG Act.

“This is the reason why the NLNG Act has remained intact and protected by all administrations from inception, in recognition of the sanctity thereof,” he said.
Also in his reaction, the Managing Director of Nigeria LNG, Tony Attah, said the proposed amendment would hamper the present administration’s ease of doing business agenda and in the current administration’s determination to attract direct foreign investment to Nigeria.
Attah argued that investments are unlikely to flow into an environment where contracts and agreements are flagrantly violated as is imminent in this instance.

Apparently responding to the claims by Ogor that NLNG’s operations impact the environment, Attah recalled that NDDC Act has its origin in the need to address the adverse effects of upstream oil and gas exploration and production activity –specifically oil spills and gas flaring—as well as the development needs of the Niger Delta region.

Attah restated that NLNG does not prospect for or extract gas from the ground but only buys feed stock from its gas suppliers, which it proceeds to clean and cool for sale.
“NLNG helps to convert and monetise gas for the benefit of the environment, shareholders and other stakeholders, including the government and Nigeria,” Attah explained.

From the debate at the House of Representatives and the contributions of all the stakeholders in the oil and gas industry, it is evident that unless the Senate rejects the NLNG bill, the country will suffer huge loss of investments and revenues, while the NDDC will earn more at the detriment of the Nigerian economy.