As the National Assembly sets sight on amending the NLNG Act
Gone are the days that governments call the bluffs of investors and command the controlling heights of the economy. Times have changed and governments are appreciating the critical role of private capital and investments in nation building. What is more, governments no longer have the kind of resources needed for investments in major sectors of the economy.
Unfortunately, private capital and investments have become scarce such that nations of the world have to compete to attract them. So fierce is the competition that nations now offer various concessions to investors just to attract them to their countries. They try to make their countries attractive and predictable for investors. In addition, laws are strengthened to reassure investors that their investments will not be threatened in the least.
Regrettably, it is always the case in Nigeria that once the investors come in and their investments begin to flourish, Nigerian regulatory agencies or even governments begin to heckle these businesses seeking to extort money or subject them to hitherto unknown, un-agreed, hurriedly enacted and ultimately unjust laws and regulations in the name of protecting national interests. This is giving us a bad name, making the country unpredictable and thus, unattractive for investments. Yet the song on the lips of every government – and they are known to travel to the ends of the earth soliciting for it – is that of seeking for foreign investments. How tragic!
Currently, the Nigerian National Assembly has been hard at work to surreptitiously amend the Nigerian Liquefied Natural Gas (NLNG) Act primarily to force the company to remit 3 percent of its annual budget as funding to the Niger Delta Development Commission (NDDC). This is expressly againstthe contract willingly entered into by Nigeria and the other stakeholders of the NLNG covered by Bilateral Investment Treaties (“BITs”) with France, The Netherlands and the United Kingdom. It basically involves incentives, concessions, guarantees and assurances by the Nigerian government and reaffirmed in Letters of Assurance to lenders for the Nigeria LNG Trains 4 and 5 expansion to retain agreed fiscal and security regimes of the investmentand not to levy any tax inapplicable to companies nationwide. Nigeria also agreed not to amend the NLNG Act without the express agreement of the other stakeholders. Consequently, the agreement has been adhered to by all Nigerian governments since inception and that has accounted for the huge success of the NLNG.
The dispute over the payment of the 3 percent annual budget to the NDDC has been a long-standing one. The NDDC went to court in 2005 to challenge the legality of the exemption. From 2005 to 2011 the NDDC traversed the courts right to the top (Supreme Court) and in all instances, the courts affirmed the right of the NLNG not to pay the levy. But like in all cases Nigerian, politicians, in cohort with special interests, are attempting to thwart the judgements of the courts by rushing an amendment to the NLNG Act and endangering the continued survival of the NLNG and future investments in the process.
To be sure, the NLNG, which was incorporated after over 35 years of unsuccessful efforts by successive Nigerian governments to attract foreign investors in the LNG sector, has been an outstanding success. “From the initial investment of US$6.0 billion at its incorporation on May 17, 1989, the NLNG now has an asset base of over $11 billion, generated over $90 billion in revenues and has contributed over US$15 billion to the Nigerian government in dividends over the last 12 years.” The company has also paid over US$5.5billion in taxes comprising Companies Income Tax, Tertiary Education Tax, WHT, VAT and other payments to Government including PAYE, state and local government taxes, as well as regulators’ levies and fees totalling over N51 billion. Despites its international shareholder base, the NLNG is a wholly Nigerian company with 100% Nigerian management, 95 percent Nigerian workforce and is the fourth largest supplier of LNG in the world.
NLNG largely succeeded due to the provisions of the NLNG Act, which gave investors the confidence to invest in the country. Why the lawmakers want to unilaterally amend the Act to compel the NLNG to pay the levy remains unclear. Already, all upstream companies, including the parent companies of the NLNG pay this levy.
Perhaps, the legislators championing the amendment of the Act need to realise that any amendment to the act will inadvertently mean a potential loss of foreign investment of US$ 25 billion in respect of Train 7investment (US$ 15 billion by the upstream, and US$ 10 billion for construction). This is not to talk about the 18, 000 construction jobs that will be lost in the process.
The bigger picture that should be uppermost in the minds of the legislatures, beyond the mere pecuniary interests, is the larger role the NLNG plays in ensuring environmental health and sustainable development in the region. The NLNG purchases gas which would have otherwise been flared and has almost single-handedly led to 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 with the completion of the Train 7 Project. Halting investments and harming the continued existence of the NLNG, like the legislatures are planning to do, will exacerbate the problem of gas flaring with the attendant negative impact on the environment in the region.
Currently, the NLNG supports the provision of 24hr power supply on Bonny Island, provides water, construct roads, schools, and provides scholarships amounting to over $200 million. Furthermore, the NLNG recently committed to provide N3bn annually to the development of Bonny Kingdom, while offering to support the government with 50% of the cost of constructing the Bodo-Bonny road amounting to N60bn.
Certainly, the proposed amendment cannot be in the interest of Nigeria. It speaks volume about Nigeria’s attractiveness and predictability for investments. Any wonder Nigeria is currently ranked 169th out of 189 on the ease of doing business index? Despite the reality of businesses closing shops daily due to the harsh business environment and scarcity of forex, huge revenue losses due to declining price of oil and loss of tax revenues from departing firms, and despite Nigeria losing huge foreign investments as a result of the Nigeria’s unpredictability, Nigerian politicians have continued to think small and act in ways that further destroy Nigeria’s chances of attracting badly needed investments for national growth and development. This cannot be allowed to continue. The National Assembly must drop this anti-Nigerian legislation forthwith.
Christopher Akor