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Foreign investors decry high charges in oil and gas free zones

Gas

By Ediri Ejoh

Foreign investors in Nigeria’s oil and gas sector have decried the high charges in Nigeria’s oil and gas free zones, saying the development would discourage efforts to attract investments and grow the country’s oil and gas reserves and production capacity.

President Muhammadu Buhari’s administration, through the efforts of Vice President Yemi Osinbajo has put measures in place to improve Nigeria’s operating environment.

Vice President Osinbajo’s efforts have helped to improve Nigeria’s ranking in the global Ease of Doing Business.

With these efforts, the World Bank reported that Nigeria now ranked 145th position out of 190 countries in the Ease of Doing Business index for 2018.

The report indicated that Nigeria had moved up by 24 points from 169th position on the 2017 ranking and also 170th position on the 2016 ranking to 145 in the World Bank’s 2018 report.

However, Vanguard learnt that illegal and exorbitant charges, as well as other investor-unfriendly polices of the management of some of the private free zones have eroded the gains of the last one year and may drag Nigeria back in the next ranking by the World Bank.

It was learnt that some investors who staked millions of dollars in some of the private free zones are on the verge of losing their investments after demonstrating faith in Nigeria’s operating environment.

Vanguard’s investigation revealed that the integration of the $3.3 billion Egina Floating Production Storage Offloading (FPSO) by Samsung Heavy Industries (SHI) of Korea at the LADOL free zone in Lagos is being threatened as a result of the high charges imposed on the Korean firm by the management of the zone.

LADOL was said to have imposed one per cent charge amounting to $33 million on the SHI, which was not in the contract documents when investors submitted bids for the Egina project.

“The FPSO is being constructed for the 200,000 barrels per day Egina oilfield being developed for the French oil major, Total. SHI and LADOL formed SHI-MCI Fze as a jointed venture to integrate the project with the Korean firm having 70 per cent stake, while the offshore logistics provider has 30 per cent stake. Apart from Total’s FPSO, Vanguard learnt that Shell has also built a warehouse at the LADOL base but no activity is going on in the warehouse due to the harsh operating environment in the zone,” one of the sources told Vanguard.

“The partnership between LADOL and SHI is falling apart because LADOL wants the Koreans to pay one per cent Free on Board (FOB) charge, which was not in the original agreement. The contract agreement captured the one per cent to be paid to the Nigerian Content Development and Monitoring Board (NCDMB) in accordance with the Nigerian Oil and Gas Industry Development Content Act (NOGICD) Act of 2010. The one per cent FOB is not covered by any law,” one of the sources said.

“The international oil companies (IOCs), and the Oil Producers Trade Section (OPTS) of the Lagos Chamber of Commerce and Industry (LCCI) are all worried about what is happening to Egina FPSO because of this one per cent demand. It is a common knowledge in the industry that $33 million is more than 10 per cent of SHI’s sales revenue from the subcontracted works in terms of local fabrication and integration works for the FPSO. It can cripple the contractor and force it out of Nigeria after investing more than $300 million to build the integration facility, the first of its kind in Africa. The thinking among the industry big players is that LADOL wants to force the Koreans out of Nigeria by creating a very hostile business environment,” the source added.

Meanwhile, a top management staff of LADOL, who preferred not to be named on print, faulted the allegations, saying, “All charges levied at the base are statutory and the enterprise is very much aware of them even before they take up their engagement. The one percent levy, pegged as imposed, are standards and from the Federal Government.

“We should be very careful of the foreign companies. Some of these Companies are operating in Nigeria and benefiting from the multi-billion dollars contracts and should not shy away from paying their levies.

“Foreign companies operating in Nigeria should not fail to adhere to statutory charges, as they think it was business as usual. Things are changing. Some of the IOCs seek special wavers which are not right for the industry. And when they are illegally taxed, it amounts to flouting the laws of the country, which LADOL will not be part of.”


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