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NLNG Act amendment to cripple trains 7,8 $25bn investment

…Will scare investors, increases gas flaring, haunt nation’s image abroad

By Udeme Akpan, Ediri Ejoh & Prince Okafor

THE Nigerian Liquefied Natural Gas Limited, International Oil Companies, labour and other stakeholders have kicked against the recent amendment of the NLNG Act by the House of Representatives.

The General Manager, External Relations Division of NLNG limited, Dr. Kudo Eresia-Eke, indicated at a press conference in Lagos yesterday that, “The House of Representatives on May 9, 2017, passed a bill seeking to amend the Nigeria LNG Limited (NLNG) Act (Fiscal, Guarantees, Assurances, and Incentives) subjecting the company to 3per cent Niger Delta Development Commission (NDDC) levy. We understand that this bill will be progressed to the Senate. We think that this is a huge error to pass law as it is a direct collusion with the Federal Government’s drive to attract Foreign Direct Investment (FDI).”

Eresia-Eke disclosed that NLNG is proudly the country’s biggest and most successful indigenous company, run by 100 per cent Nigerian Management and over 95per cent Nigerian staff, yet competing effectively globally. He pointed out that it is the nation’s highest tax payer and the 4th largest supplier of LNG in the whole world.

Nation’s flagship corporation

LNG Vessel

According to him, NLNG is a pride to Nigeria and the nation’s flagship corporation whose model is being considered for replication in various sectors of the economy. He said that the company is being targeted by this amendment while fellow gas purchasers and processors in other businesses such as fertilizer, petrochemical, and electricity are left untouched, gives the world the impression that Nigeria would rather drag down than support its best.

NLNG Act: The original NLNG Act had exempted the company from some obligations, targeted at enhancing investment and growth of not only the NLNG Limited but also the nation’s economy. For instance, it stated that, “Notwithstanding the provisions of section 10 of the Industrial Development (Income  Tax Relief) Act, the tax relief period of the Company shall commence on the production day of the Company and shall continue for a period of ten years, so however that the tax relief period shall terminate at the first anniversary date after the first five years when the cumulative average sales price of liquefied natural gas reaches US 3 dollars/mmbtu as calculated in the First Schedule to this Act in accordance with which such calculation shall only be made annually at each anniversary date.”

How NLNG Act enhanced growth: Eresia-Eke explained that NLNG succeeded largely due to the provisions of the NLNG Act, which gave investors the confidence to invest in the country.

He noted that with an amendment, that confidence will be eroded and jeopardize critical ongoing investments for the continued survival of the company; critical among which is the $1 billion needed annually for the next three years to guarantee the current operation of six existing trains. Eresia-Eke indicated that after 35 years of unsuccessful effort, NLNG could only be incorporated upon the enactment of the NLNG Act which then enabled the establishment of the company.

Impact of amendment: He emphasised that amending the Act at this time will obviously breach the promises of Government to its co-investors as well as badly damage the reputation of the country, its credit rating, and ability to attract or even retain future investments.

“Any amendment will also mean an immediate potential loss of foreign investment of US$25 billion in respect of Trains7 and 8 investments (US$15 billion by the gas producing and supplying companies [Upstream], and US$10 billion for construction of the project). The expected 18, 000 construction jobs for Trains 7 and 8 will also be lost if the Act is amended. This is at a time when the Niger Delta, and the country at large, is in dire need of jobs. Needless to mention the impact of such a huge number of jobs on the peace of the Niger Delta region and the economy of the country.”

“NLNG purchases gas from upstream suppliers, who already pay 3% NDDC levy, which would have otherwise been flared. The company has almost single-handedly caused the reduction of gas flaring from about 65% in 1999 to about 20% currently. With the required investment, NLNG is capable of reducing that figure even further upon the completion of the Trains 7 and 8 Project.”

“Any Amendment will however ultimately result in a return to high flaring if NLNG ceases to exist with attendant negative impact on the Niger Delta environment. NLNG has a robust and sustainable development programme in the Niger Delta which will of course cease if the company dies. This company supports the provision of 24-hour power supply on Bonny Island, provision of water supply, construction of roads, schools, scholarships etc. costing nearly US$200 million so far.

Financial support

“Furthermore, NLNG recently committed to providing billions annually towards the development of Bonny Kingdom for the next 25 years to turn Bonny into a mini Dubai.  It also recently offered major financial support to the Federal Government towards the construction of the Bodo-Bonny Road – a vital road neglected for decades, expected to link the mainland through Ogoni, Andoni, etc. to Bonny. With these legislative constraints, breaking fundamental promises to investors, the company would definitely begin to pine away and the Niger Delta region would be a prime loser.  Clearly amendment of the NLNG Act is thus not in the overall interest of Nigeria,” he added.

Reactions: Expectedly, many stakeholders, including operators, labour and others have kicked against the amendment of the Act.

The Minister of State for Petroleum Resources, Dr. Emmanuel Ibe Kachikwu said that, “Only recently, the House of Representatives began moves to amend the NLNG Fiscal Incentives, Guarantees and Assurances Act, a key enabler responsible for the success of the company. NLNG is a successful Nigerian company, with an asset base of $11 billion as well as the fourth largest LNG plant in the world. It has generated $90 billion in revenues as at 2015, paid $5.7 billion in taxes as well as committed more than $200 million to corporate social responsibility projects especially in the areas of capacity building and infrastructure development. All these were achieved with a management staff entirely made up of Nigerians, with 95 per cent of the total workforce made up of Nigerians.”

“NLNG 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 has enabled us attract $15 billion in foreign investment, and grown LNG capacity from a 2 Train complex to a 6 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.”

The group managing director of the Nigerian National Petroleum Corporation, Dr. Maikanti Baru disclosed that 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 the country.

The Trade Union Congress stated that, “On the proposed amendment of the Nigerian Liquefied Natural Gas (NLNG) Act by the House of Representatives, we believe it is a misplaced priority and it is 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. The proposed amendment can directly affect some $25 billion worth of foreign investments as well as another 18,000 Nigerian jobs linked to NLNG’s Train seven and eight expansion programmes.”

“This will negate the job creation and job security policy being propagated by the current administration. The National Assembly’s proposed action will also not only affect recent gains made in the area of gas flaring which has reduced from 65per cent to less than 20per cent, but lead to the loss of up to $124 million annually payable as taxes and dividends to the Federal Government. NLNG is a made-in-Nigeria company competing globally and has been a huge success so far.”

However, the Petroleum and Gas Senior Staff Association of Nigeria, PENGASSAN observed that, “NLNG is a made-in-Nigeria company competing globally and has been a huge success so far. It is currently the 4th largest supplier of LNG in the world. NLNG is a pride to Nigeria and the country’s flagship company, with the model being considered for replication in various sectors of the economy.

Proposed amendment

“The proposed amendment of the NLNG Act 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. 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.”

The Chairman of Society of Petroleum Engineers (Nigeria Council), Saka Matemilola, disclosed in a telephone interview that, “The amendment to NLNG Act is tantamount to changing the rules midway into the game. It will only reinforce the perception by international investors that Nigeria is not an investor – friendly destination – a place where there is no sanctity of agreements.”

“Unfortunately, none of the statements hold true. NLNG is not a petroleum exploration, nor producing company. It is a midstream company, similar to refineries. If the NDDC act should apply to NLNG, perhaps the honourable legislators would also consider extending same to other mid-stream companies and there are quite a handful of such companies. Otherwise, their action could be interpreted as specifically targeting NLNG,” he added.

Wise counsel

The lawmakers have been urged to let the original NLNG Act be in the best interest of the nation.

The Head of Energy Research, Ecobank, Mr. Dolapo Oni stated that the legislators have mistaken in amending the Act. “I honestly think we’re making a big mistake with this amendment. NLNG remains the best way we have monetised our gas reserves and has at many times come to the rescue of the FG when out of cash.”

“This move to impose new costs and payments on the company’s cash flows will not only affect the bottom-line but future investment prospects. Amending the agreement after the investments have been made is akin to changing the goal post during the match. You send a bad signal to the international investing community.”

“The timing is also wrong – just as the shareholders are currently coordinating which gas projects – will be involved in trains seven and eight. If they wish to impose the new levies on the future trains, then the investors have a clear line of sight on what incomes will be not on existing investments,” he added.


Disclaimer

Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.