Unlocking $300bn FDIs from Samsung, LADOL’s Truce

Maritime

With the final settlement of the three-year dispute between Samsung Heavy Industries Nigeria (SHI) Limited and the Lagos Deep Offshore Logistics Base (LADOL) Group, which had cost the Nigerian economy substantial investments, Ejiofor Alike reports how the truce can unlock over $300 billion in Foreign Direct Investments to the country

The joint venture between the global shipbuilding giant, Samsung Heavy Industries Nigeria (SHIN) Limited and Lagos Deep Offshore Logistics Base (LADOL) was established when SHIN was awarded the $3.3billion contract for the Egina Floating Production Storage Offloading (FPSO) vessel. The contract had required the construction of a fabrication and integration yard to carry out the in-country aspect of the FPSO for the 200,000 barrels per day deepwater field, which contributed 10 per cent of Nigeria’s daily crude oil production.

Before the Egina project, most maritime construction for African oil and gas projects took place outside Africa. Nigeria did also not have the capacity to fabricate and integrate an FPSO locally.

But due to SHIN’s investment in the SHI-MCI yard, the shipbuilding giant established Nigeria as a fabrication and integration hub on the African continent.

Though the Egina FPSO project was successfully executed, no other major project was carried out at the yard due to the friction between the two partners, which started in 2018. The commercial dispute had led to a total breakdown of communications and engagements between the two parties resulting in court proceedings in Nigeria and the United Kingdom.

With the hostility in its operating environment, the shipbuilding giant was not able to bring in more investments and technology, leading to considerable loss of investments by Nigeria.

For Nigeria’s economy to compete globally, foreign companies need incentives to invest in the country to create employment opportunities and boost the growth of Nigeria’s Gross Domestic Product (GDP).

While Nigeria was losing investments due to the dispute between SHIN and its Nigerian partner, another Korean company, Samsung Electronics had unveiled plans to invest $17 billion in a new advanced chip manufacturing facility in Taylor, Texas, United States.

The electronics giant, which also operates in Nigeria, is one of the world’s largest makers of electronic devices and the tiny semiconductors that power them.

The company had unveiled a plan to build a $17 billion semiconductor factory outside of Austin, amid a global shortage of chips used in phones, cars and other electronic devices.

Samsung said it would start building the Texas plant in 2022 and would begin operations in the second half of 2024.

Vice-Chairman of Samsung, Mr Kinam Kim, had stated that the company chose the site based on several factors, including the government’s incentives and the “readiness and stability” of local infrastructure.

Infrastructure is particularly important for chip operations, which need a stable supply of power.

The Governor of Texas, Mr Greg Abbott had touted Texas’s low taxes and talent pool as major draws for tech companies, describing Samsung’s decision to invest in the state as “a testament to the economic environment that we have built.”

Poor electricity supply, inadequate infrastructure, excessive taxation, insecurity, excessive bureaucratic bottlenecks, and political interference with businesses are some of the factors that inhibit the inflow of FDIs to Nigeria.

The dispute between SHIN and LADOL denied huge Nigerian FDIs from foreign companies that felt their investments would not be safe in the country, following SHIN’s experience.

However, with the intervention of the Nigerian and Korean governments, as well as the various agencies of the federal government, SHIN and LADOL recently reached a definitive settlement and reaffirm their lasting partnership as shareholders in SHI-MCI.

This landmark agreement, which demonstrated SHIN’s ongoing commitment to its subsidiary, SHI-MCI and Nigeria, also demonstrated LADOL’s commitment to consolidating and continuing the development of LADOL Free Zone to ensure that Nigeria becomes an African hub for industrialisation.

SHIN and LADOL had signed the final settlement agreement, which would be registered as an official judgment in the High Court in London. It would also be registered in the respective courts in Nigeria, having been approved by the Nigerian Ports Authority (NPA) and the Nigerian Exports Processing Zones Authority (NEPZA).

The settlement agreement reaffirmed that the July 1, 2014 Shareholders’ Agreement between SHIN, SHI-MCI, and MCI FZE Yard Development Limited (MCI), would remain valid.

The two partners also agreed that SHIN would continue to retain 70 per cent equity in SHI-MCI while LADOL’s MCI would retain a 30 per cent stake, as provided by the Shareholders’ Agreement.

The settlement agreement also provides for a new sublease agreement which has been executed between SHI-MCI and Global Resources Management Limited (GRML), with the NPA as the head-lessor to GRML. Importantly, the new sublease agreement is long-term and is one day less than the term of the head lease between the NPA and GRML.

By the terms of the settlement, NEPZA, as part of its statutory duties and role as administrator of all NEPZA free zone areas in Nigeria, would continue to be responsible for the issuance and renewal of SHI-MCI’s Operating Licence.

NEPZA had previously issued an Operating Licence to SHI-MCI in the form of a National Operating Licence dated October 4, 2021, which is valid for three years.

Present at the settlement ceremony in Abuja were stakeholders in Nigeria’s economic zones, including Managing Director of NEPZA, Professor Adesoji Adesugba; acting Managing Director of NPA, Mr Mohammed Bello Koko; Chairman of LADOL, Chief Ladi Jadesimi; outgoing Managing Director of SHIN, Mr Jejin Jeon; and Chairman of Nigerian Economic Zones Association (NEZA), Chief Oluwatoyin Elegbede.

Speaking at the event, Adesugba said the dispute had shut out investments worth over $7 billion and 3,000 jobs, adding that the peaceful resolution would also provide direct employment opportunities to over 10,000 Nigerians.

He said: “We are very happy that we have been able to actualise Mr President’s directive that we must as a matter of national urgency ensure that this dispute is arrested.

“We are celebrating that investments worth this quantum is being unlocked into the Nigerian economy and we hope that we will continue to monitor what is happening between Samsung and LADOL to ensure that they live up to the spirit of what they have signed today.

“We expect that we shall start seeing visible results within the next couple of months, not up to a year; we will start seeing employments and different projects coming into the country.

“We were in Seoul, and they promised us that if we can resolve this, Nigeria is going to have more companies coming from South Korea to invest in the Nigerian economy. We are very optimistic that this is going to be a win-win situation for both the investors and Nigeria.”

He commended President Muhammadu Buhari for his insistence on unlocking investments in the country as well as the Minister of Industry, Trade and Investment, Mr Niyi Adebayo, for his role and leadership to ensure the success of the intervention.

Speaking at the occasion also, Koko said the conflict, which had previously defied multiple attempts towards a resolution, had led to the loss of jobs and revenue to the government.

He stated: “In the past three years, no activities have been taking place there (economic zones). There’s been a loss of economic values and a loss of jobs. So, we are happy that has been resolved today. Both parties have agreed to work together and going forward, if there are any disputes, NPA will be involved in it.

“We want to thank President Muhammadu Buhari who had taken the action that has led to the resolution of this dispute. Today is a happy day and is good for the nation and this would ensure that confidence of investors improves in terms of foreign direct investment in Nigeria.”

Speaking in Lagos during the signing of the final settlement agreement, the Managing Director of SHIN, Mr Jeon, disclosed that the many years of legal proceedings had hindered SHIN’s ability to operate in Nigeria and threatened its contribution to the Nigerian economy.

He confirmed that the settlement has become a definitive statement in favour of SHI-MCI’s right to operate in the LADOL Free Zone.

“In recognising that Samsung Heavy Industries (Nigeria) lawfully holds 70 per cent of the shares in SHI-MCI, the settlement acknowledges our extraordinary contribution to the LADOL Free Zone and its role in the economic development of Nigeria,” Jeon said.

Jeon noted that before the Egina project, most maritime construction for African oil and gas projects took place outside of Africa, stressing that Nigeria could not fabricate and integrate an FPSO locally.

“Thanks to our investment in the SHI-MCI yard, we have established Nigeria as a fabrication and integration hub on the African continent. Over six years, SHIN has trained 600 Nigerians from disadvantaged backgrounds in a comprehensive welding qualification programme, in one of the most advanced welding academies in Nigeria. “This has contributed to 560,000 man-hours of training in total. In addition, SHIN has directly employed 2,500 Nigerians with a further 5,000 employed by our suppliers, working in highly specialised skills and roles.

“This has moved the dial in practical terms – with the local contribution rising from one per cent to over 25 per cent.”

According to Jeon, SHIN’s focus remains to execute the plan to make Nigeria the hub for fabrication and integration works supporting the oil and gas industry and infrastructure development and ensuring SHI-MCI’s participation in future fabrication and integration projects.

“SHIN is deeply committed to ongoing and future projects in Nigeria and as part of SHI-MCI, we plan to invest in future projects in the coming year and remain focused on creating and delivering mega deep offshore projects for Nigeria,” he added.

Commenting on the settlement agreement, the Chairman of LADOL, Jadesimi, said: “This settlement brings to an end the dispute between the LADOL and SHI Groups, which has been lingering for a little while and it became critical that it be sorted out. Now it has been completely resolved. The key thing is that we have been able to come back together peacefully cementing a far stronger joint venture going forward.”