NLNG Act: The Facts of the Matter

Yemie Adeoye

“Facts are stubborn things, and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence”. – John Adams (1735-1826).

There have been a number of views expressed recently in the media and elsewhere by persons claiming to be proponents and supporters of the interests of the oil producing Niger Delta region. In the Nigerian environment, such developments where representatives of the numerous interest groups angle for room within which to situate their ideas for a multiplicity of reasons can be considered acceptable and normal. But what is recognised to be one of the rules of engagement within this growing tribe is that the players must abide by truth and must accept that the strength of their positions on issues may be challenged.

I am compelled to challenge attemptswhich have made lots of subjective claims which cannot stand the test of scrutiny on the issue of the Niger Delta Development Commission, an Agency which has been locked in a tussle with the Nigeria Liquefied Natural Gas company (NLNG) over its perceived right to collect a three percent levy from the company.

Let us begin by looking at various claims made in recent paid advertorial:
That “the Niger Delta communities which the NLNG project should develop substantially are brazenly disinherited, underdeveloped and marginalized and have remained at the negative receiving end of NLNG’s growth over the years”.
Firstly, it is a known fact that Niger Delta states receive additional 13% derivation from the Federation account to which NLNG accounted for over 10% of the revenues in 2014 and 2015. Aside from this, there are the Niger Delta Ministry and the NDDC to which several billions of dollars had accrued over the last few years. Unfortunately the consensus is that there is sadly very little to show for all these accrued funds to the region, and it is an irony that the proponent has not deemed it appropriate to demand accountability from past and present government officials of the States and Agency for the billions of petro dollars. I find it strange that they consider it appropriate instead, to play to the gallery on the issue.

Secondly, nothing can be farther from the truth, as Bonny Kingdom, the primary base of NLNG operations is unarguably the most advanced host community in the entire Niger-Delta region. Bonny Island in its entirety enjoys 24 hours uninterrupted power supply courtesy of the Nigeria LNG and its partners, a feat which no town in Nigeria, including our gilded federal capital city, can boast about. Bonny island is even referred to as “small London” in several quarters in Nigeria in apparent reference to the infrastructural endowments which have come to the island kingdom and which would be celebrated with delirium if a portion of it ever found its ways to other oil host communities like Eket in AkwaIbom state, Oloibiri and Ogoni in Rivers state, or Warri in Delta State just to mention a few.
The Nigeria LNG’s presence in Bonny kingdom may not be unconnected to the major reason the kingdom has never joined other Niger-delta communities in constant anti-economic activities and youth unrest as has been the case in several communities around the region, so the proponent’s submission in this regard can comfortably be deemed to belong in the realm of romanticism than fact as we know it.

I am not of the view that NLNG is a perfect organisation by any stretch of the imagination but as a result of research I have done into CSR models, especially in Nigeria’s oil and gas industry, I am able to throw some light on this matter. I will however take the liberty to mention a few strategic interventions that the NLNG has undertaken in its quest to be a corporate, social and responsible organisation not just to its host community, but also to the country at large. Interventions that are of course, public knowledge in their annual “Facts and Figures” and should be acknowledged by anyone who wishes to engage objectively in the subject matter.

The NLNG built, equipped and continues to sponsor the Vocational College on Bonny Island in the Niger Delta. It is noteworthy that the College was accredited by both the City and Guilds Institute of London as well as the Nigeria Board for Technical Education (NBTE) with the support of NLNG;

To top the provision of 24hrs electricity, piped water supply and paved roads in Bonny Island in the Niger Delta; NLNG also funded the construction and equipping of a $2million Engineering Laboratory in the University of Port Harcourt; the company generates about N6 billion annually in taxes to the Rivers State Government and another N140 million annually as rates to Bonny Local Government Council; There are also Construction of roads, schools, town halls and Health Centres in Rumuji, Ubeta and several other communities in the Niger Delta to be factored in; and the well acknowledged provision of Post Primary, Undergraduate and Post graduate scholarships to over 3,000 students from the Niger Delta undertaken by the NLNG.

Again, the Proponent observes that “the gestation period (pre and post operational holiday tenure) should have been fixed in that Act to read between 7 to 10 years and therefore supported the amendment of the NLNG Act to incorporate fixed tenure of the tax holiday.”

Nothing could be more confusing and baseless than this uninformed submission. One would expect that if the proponent took the trouble and expense of publishing his case in three national newspapers, he would have taken similar care to check his facts as an obviously interested stakeholder would.

To aid broader understanding, permit me to attempt a simplification of a matter which in my opinion, has suffered a great deal of deliberate contortion and misinterpretation recently. In reality, there are no ‘hundred-pound Gorrillas’ in the picture as some would have us believe. There are a few relatively simple aspects to the NLNG Act.

The first aspect is that it grants 10 years tax holiday from Company Income Tax. As has been well publicised, the company has been paying income tax effective upon expiration of the 10 year period. The proponent and their ilk may also wish to be reminded that none of NLNG’s shareholders received a single kobo as dividend during the first five years of this tax holiday, as all incomes were reinvested in the business enabling it to rapidly grow from two to six trains. Without this creative holiday, government would have only received one third of the dividends it has so far received, and gas flaring would still be around 50% today rather than 25%.

Then there is the aspect of exemption from Customs Duties during construction. But Post construction, NLNG has been paying applicable customs duties. The NLNG Act also legally grants the company exemption from any other new taxes or levies that may be imposed, if those taxes do not also apply to all other companies doing business in Nigeria. The last part of the law relates of course to assurances and guarantees, which is that the country, through that law commits to the investors that it will honour the Act and not change it without recourse to, and agreement by all the shareholders. In a nutshell, it was this agreement structure which enabled the shareholders to grant over $6 billion in investments and it is these same investments which enabled the company to generate over $33 billion that has so far been paid to the government; It is this by extension which has also enabled Nigeria to effectively reduce gas flaring from 65 per cent at the time to 25 per cent today.

Against this background, one wonders, is it even conceivable for any one in good conscience to tag this model as undesirable or a bad deal? I think not.
The reasons for tax holiday have also been similarly distorted and over-emphasised, and anyone as indeed everyone who wishes to contribute or join in this discussion should at least have a working level understanding of the drivers and motivation behind the tax holiday for Nigeria LNG. But for the purpose of those who are not adequately informed on the issues, I shall attempt to add a brief historical fact on the tax holiday issue.

Nigeria LNG Limited was established at a period when the LNG technology was still very new in Africa. Indeed, the establishment of NLNG made Nigeria the first country in Sub-Saharan Africa to possess such new technology and the second such country in all of Africa.

Considering the pioneering nature of such a company in Nigeria, as well as the huge investments required, running into several billions of dollars in foreign investments, NLNG was granted a 10-year tax holiday by the Government of the Federal Republic of Nigeria under the provisions of the Nigeria LNG (Fiscal Incentives, Guarantees and Assurances) Act, CAP. N87, Laws of the Federation of Nigeria, 2004 (“NLNG Act”).

It should however be noted that the concept of tax holidays are not uncommon in the global business community. Indeed Angola has notably offered as much as 12 years tax holidays to encourage investments in their LNG industry, while other countries like Oman, Malaysia, Qatar and Trinidad have offered up to 10 year tax holidays to attract LNG investments.

Outside the LNG or energy industry,I am aware that the United Arab Emirate government set out in 2004 to make Dubai Airport a duty free haven. Today that airport has become one of the busiest in the world with a workforce of more than 6,000 drawn from 47 different nationalities and a 2015 turnover of $2 billion.
Additionally, more generous tax incentive schemes currently exist in free trade zones in Nigeria where participants are granted absolute exemption from all forms of taxes and levies chargeable by any level of government, in perpetuity. Several well-known corporations in the country have and are currently investing in these zones (in logistics, infrastructure and refineries, to name a few of such ventures) on the basis of such perpetual and overarching tax incentives. The distinguished Nigerians who conceptualized this bill and worked tirelessly until it became an Act of the National Assembly must have taken a whole lot into consideration, especially as Nigeria was at the time busy flaring away its gas resources rather than harnessing it for economic returns . That was the key issue and it would not be strategic for the government at this time to carry out a review of existing laws that would jeopardize the initial agreement upon which the entire project was conceptualized.

Nigeria LNG has since inception generated over US$ 33 billion in the form of dividends, taxes and feedgas purchases for the country over the past 16 years, with an additional US$ 5 billion accruing through corporate spend on local goods and services during the same period. The company paid nearly $4 billion in Company Income Tax and Education Tax between 2014 and 2015.

Now with these massive yields in terms of income to the Federal Government’s coffers, this is not the kind of investment agreement that the Nigerian government should be losing sleep about, as there are several government investments that have either failed or refused to bring forth yields. An example of note is the sprawling and controversial Ajaokuta steel plant. Now these investments are establishments formulated by laws, ones which the federal government should worry about and not one generating substantial profits and taxes and holding up Nigeria’s place on the global LNG map

It was also the proponent’s observation that gas gathering into the NLNG plant criss-crosses several Niger Delta communities, dislodging their traditional occupational skills of fishing and farming as well as neighbourhood ecological sanctity and general wellbeing. It was therefore his contention that, in the light of contemporary development and ecological problems in Bonny, Soku, Obioafu, Obrikom and other gas supporting communities in Rivers and Niger Delta, the unspecified gestation period tax waiver should no longer be allowed by the National Assembly to remain perpetual.

It is not true that NLNG Plant criss-crosses several Niger-Delta communities as postulated by the proponent. For the purpose of clarity, the NLNG Gas Transmission System transverses about 110 communities which cuts across nine Local Government Areas and nine kingdoms all in Rivers State.

It is also on record that Petroleum and Pipelines Marketing Company (PPMC) pipelines originate from Atlas Cove in Lagos and runs through several states to the Northern part of the country via 5,120 kilometres of lines. Pray, how many of these communities in several states of the federation are being compensated simply because the federal government pipelines passes through their communities?
While remaining centrally focused on the facts of the case, I find it most curious that in laying out his position, he either failed or omitted to add that the NDDC filed a motion before the Federal High Court in July 2007, and pursued same through the entire spectrum of the Nigerian judicial system all the way to the Supreme Court where the case was dismissed in October 2011.

Well, as stated above, facts are not just stubborn but also sacred. The company income tax waiver/ holiday for NLNG was for ten years and not in perpetuity as wrongly stated. It is clear therefore that the proponent’s position was based on faulty information and cannot be viewed with the seriousness it otherwise would have been.

After covering the energy industry for well over a decadeone is aware that the Nigeria LNG spends to date about N516 million on 172 beneficiaries of Post Primary Scholarship scheme, N600 million on about 3,000 beneficiaries under the undergraduate scholarship scheme, while N380 million has so far been spent on post graduate scholarships for 38 young prospects from the region, many of whom are likely to hold a different view from the Professor.
Also, aside from the notable Intervention in several health programmes in the Niger Delta being undertaken by the company, It was recently announced that the NLNG has offered to provide 50% of the value of constructing the Bodo-Bonny Road (N120 billion), a Federal Government project intended to connect several important Niger Delta communities including Ogoni, Andoni and of course Bonny. There is also a 25 year Master Plan for Bonny Kingdom and funding of N3billion yearly for development of the kingdom through the Bonny Kingdom Development Foundation (BKDF), this is corporate social responsibility at its best and if every oil producing company were to replicate the NLNG model in their host communities there would be much fewer of the notorious fits of restiveness and economic sabotage at the scale we have it today, as there would be very few idle hands to carry out these nefarious acts.

From the transparent financial information in the Company’s Facts and Figures, it is clear that over 70% of profits from NLNG (dividend, taxes, gas purchases, etc) currently goes to the Federation account which is being shared by all States. It would therefore seem that a significantly proportion of what is being proposed to be paid in this levy is already being earned by the country. It is therefore surprising why anyone would want to put the country at risk of investments drought and BIT fines, for monies that already accrues in the main to the Country.

It is even more astounishing that the expansion project of the company which would attract over $25billion foreign investment by the company and its gas suppliers will be put at risk with such an amendment and lead to loss of the opportunity for 30,000 construction jobs majority of who will be from the Niger Delta, as well as lead to the potential loss of opportunity to reduce gas flaring to single digits, all of which would have been of huge benefits to the Niger Delta.

In conclusion, one thing which the trends of recent debate about Nigeria or parts thereof has brought strongly to the fore, is the urgent need to suspend all the ongoing quibbling over how to share and apportion today’s wealth, in favour of serious efforts to ensure that we plan, nurture and grow Nigeria’s income and value generating potential to the optimum.
– Adeoye is the producer of Energie Platform