Unending Controversy over NLNG Act Amendment

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The National Assembly has continued to receive knocks from oil industry stakeholders for the on-going attempt to amend the Nigerian LNG Fiscal incentive law, to compel the company to pay an NDDC levy. Ejiofor Alike reports

ASupreme Court ruling in 2011 exempted Nigeria LNG Limited from the payment of a levy amounting to three per cent of its total annual budget to the Niger Delta Development Commission, in accordance with the provisions of the NLNG Act of 2004. But following this ruling, there was pressure on the National Assembly to amend the NLNG Act to compel the company to pay the levy.

 

Amendment

The campaign to amend the NLNG Act came to a peak recently when the House of Representatives 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 Limited, to make its statutory contribution to the NDDC fund and for other matters connected therewith.” This was contrary to the position of the Nigerian National Petroleum Corporation and other stakeholders in Nigeria’s oil and gas sector.

The bill, which seeks to ensure that NLNG pays three per cent of its annual budget to the NDDC, will also remove the NLNG’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 contentious bill, sponsored by House Minority Leader, Leo Ogor, will also force NLNG’s subsidiary, Bonny Gas Transport Company, to pay tax in Nigeria, while the NLNG itself will equally pay three per cent of its gross freight on international inbound and outbound cargo to the Nigerian Maritime Administration and Safety Agency (NIMASA).

A new provision – Section 7(b) – added to the original NLNG Act says, “Notwithstanding Section 7, or any other provisions of this Act, the Nigerian Liquefied Natural Gas Limited shall pay three per cent of its total annual budget to the Niger Delta Development Commission Fund as required by Section 14, Subsection 1 and 2 (b) of the NDDC Establishment Act, 2000.”

Criticism 

A former Managing Director of NLNG, Mr. Babs Omotowa, had said the attempt to remove the assurances and guarantees in the NLNG Act, which incentivised the investors to commit $6 billion to build the plant, would backfire and scare investors from Nigeria. Omotowa 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.

Minister of State for Petroleum, Dr. Ibe Kachikwu, said NLNG’s ability to attract future investments to maintain and grow the plant was being put in jeopardy by attempts to renege on promises that Nigeria gave to foreign investors that had enabled the country attract $15 billion in foreign investment, and grow LNG capacity from a two- Train complex to a six- Train plant.

Group Managing Director of NNPC, Dr. Maikanti Baru, had reportedly said the review of the NLNG Act was causing a challenge for the federal government and the majors, adding that it is sending wrong signals to the international community about how business is done in the country.”

The Trade Union Congress (TUC) and the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) had also opposed the amendment, saying it is not in the interest of Nigeria.

 

Defence 

At the 2017 conference of the Association of Energy Correspondents of Nigeria (NAEC), held recently, stakeholders in Nigeria’s oil and gas sector urged the Senate to reject the amendment, saying it would threaten the proposed $25 billion investments in LNG Trains 7 and 8. They argued that it would also lead to loss of investor confidence in Nigeria and cause a reputational risk for the country.

However, a member of the House of Representatives from Kaduna State, who is also a member of the House Committee on Gas, Hon. Simon Yakubu Arabo, in his presentation, told the stakeholders that the assurances and guarantees in the Nigerian LNG Fiscal incentive, Guarantees and Assurances cap. N87 was not given in perpetuity as all laws in all parts of the world are subject to amendment. Arabo argued that the National Assembly had the powers to amend any law in Nigeria, including the Nigerian constitution.

He stated, “NLNG, with all its pretentions, is a gas producing company and the National Assembly has a duty to bring it in conformity to the constitution.

“Those that have been saying we should not tamper with the NLNG Act, which basically is saying this law is here forever, we cannot allow that. There is nothing like a law in perpetuity, it does not happen anywhere in the world. You cannot have an act and say no one can touch it; we are a sovereign nation and we are duty-bound to review agreements that appear to short-change our common patrimony.

“If we can amend the constitution of the country, what is so special about an act setting up an entity? They have had tax holidays for more than 16 years, what more are they looking for?”

But General Manager in charge of External Relations at NLNG, Dr. Kudo Eresia-Eke, said NLNG had been paying taxes for the past six years.

Many stakeholders at the meeting acknowledged the powers of the National Assembly to amend any law, but they stressed the need for the country to respect the sanctity of contracts.

“The first issue in this amendment is the timing. The Nigeria National Petroleum Corporation is currently negotiating Train 7 of the NLNG with various parties and when this started going round in the media, it put the NNPC on the defensive,” said Head of Energy Research at Eco Bank, Mr. Dolapo Oni. “A bigger picture is that Nigeria needs to monetise its gas and the NLNG has proven to be the best vehicle to do so. Trains 7 and 8 are meant to provide at least 18,000 jobs, so the question is: what is the trade-off we are getting from here if paying the three per cent annual budget to NDDC means that these investments won’t happen? Would paying (three per cent of NLNG’s budget to NDDC have created the same amount of jobs and investments?”

A former chief financial officer of NLNG, Mr. Victor Eromosele, argued, “Rather than squabbling over this pie, why not bake a bigger pie? What signal does this decision by legislators send to investors? It simply says Nigeria cannot keep its word. We are talking about ease of doing business and this amendment is certainly against the spirit.”

Executive Director, Socio-Economic Rights and Accountability Project, Tokunbo Mumuni, queried the impact of NDDC operations on the citizens. “Previous contributions to the NDDC, where are they and what has been the impact on the people? We should not just be concerned about companies paying levies, but judicious use of the funds collected from the companies is what is most prominent,” said Mumuni, who was represented by Timothy Afolabi.