January 20, 2019

FG intervenes in dispute between Samsung Heavy Industries (Nigeria) and LADOL – But to what effect?

The dispute between Samsung and Global Resource Management Free Zone Company (GRMFZC), LADOL’s free-zone management service has continued unabated. The claim, which relates to GRMFZC’s refusal to renew SHI-MCI-FZE’s Operating Licence for the free-zone, appeared in the Lagos Federal High Court again last Thursday, January 17 – with no end in sight.

Even federal government’s intervention does not seem to have worked.

This is just one of several legal cases between Samsung Heavy Industries (Nigeria) and LADOL, the resolution of which will have far-reaching consequences for the Nigerian economy and oil and gas industry.

Without an Operating Licence, SHI-MCI-FZE is unable to operate in the free-zone as a subcontractor to SHI Nigeria on the Egina FPSO.

This project has been vital for the Nigerian economy – the FPSO has recently commenced capacity delivery, operating at 200,000-barrels a day.

Further, Samsung Heavy Industries has contributed over US$100-million of tax revenue so far, in addition to providing approximately US$300 million of investment into SHI-MCI-FZE, and thousands of Nigerians with education, training and employment.

This dispute is unique and if not addressed urgently could have major adverse implications in the quest to attract foreign investments into Nigeria.

Some documents seen by the writer revealed that there is so much at stake in the dispute that the federal government has concluded that it must intervene to issue directives towards facilitating a resolution of the impasse.

Intervention is indeed necessary to protect the jobs and livelihoods of over 1,000 Nigerians directly and indirectly employed by SHI-MCI-FZE, to protect the investments in the Nigerian Oil and Gas sector, which is the nation’s principle earner, and to send a message to Nigeria’s international partners that it remains an attractive place to invest and do business.

It was reliably gathered that various Ministries and Agencies of the Federal Government of Nigeria have waded into the dispute.

For instance, it is reported that the Nigeria Export Processing Zone Authority (the primary agency responsible for the administration of free zone areas in Nigeria) has investigated and issued directives on the dispute.

Likewise, in November 2018, further to an independent investigation commissioned by the Honourable Minister of Industry, Trade and Investment, a report was sent to the Honourable Minister.

The reported which was sighted by the writer concluded, amongst other things, that SHI-MCI free-zone operating licence was unjustifiably denied by LADOL and that the licence is renewable for a term of no less than one year once conditions of the licence are fulfilled.

The report concluded that:

1. GRMFZC/LADOL has no discretion over whether to renew the licence once conditions had been fulfilled;
2. GRMFZC/LADOL had no valid grounds under applicable regulation to refuse the renewal of SHI-MCI’s operating licence;
3. GRMFZC/LADOLshould renew SHI-MCI-FZE’s operating licence with immediate effect; and
4. GRMFZC/LADOL’s actions against SHI-MCI-FZE constitute an invasion of property rights with a significant negative implication towards attraction of foreign investment.

It was also gathered that the Honourable Minister instructed NEPZA, as the governing regulator for the LADOL free-zone and GRMFZC’s regulator, to direct that GRMFZC to immediately grant SHI-MCI-FZE its operating licence.

In accordance with the instruction of the Honourable Minister, it is understood that on January 2, 2019, NEPZA issued a directive to GRMFZC to issue the operating licence to SHI-MCI-FZC.

Almost one month after NEPZA issued the directive to GRMFZC, and after several repeated directions in writing seen by the writer, GRMFZC has still not issued the operating licence to SHI-MCI, apparently in clear disobedience of the order of the Honourable Minister and NEPZA.

The intentions of the Federal Government are crystal clear – to help the parties reach a win-win resolution to the dispute that avoids any deleterious effect on the Nigerian oil and gas industry and the employment of thousands of Nigerians.

How much can Federal Government hope to achieve if the responsible regulators such as NEPZA are unable to enforce directives upon private entities such as LADOL, which are delegates of the Government in respect of the administration of the Free Zone? This issue sets a dangerous precedent – if Nigerian business, through power or influence, can act with impunity and disregard the directives of regulators, this may have grave consequences for the rule of law.