The NLNG is not involved in oil exploration and production which harm the environment (highly polluting activities) causing all sorts of problems to the Niger Delta communities.
The primary objective of setting up the NLNG is profit and the elimination of wasteful gas flaring which pollutes the environment. There is also the unwritten benefit which is the positive impact on the Nigerian economy. The base project (trains 1 & 2) was placed as the single largest project in the continent of Africa.The project had failed to take off for the past 25 years. Because of the unfavourable Nigerian investment climate and also the urge to practicalise and quicken the realisation of these benefits, the Federal Government under Decree No.39 of 1990 as amended by Decree No.113 of 1993 granted generous incentives (concessions) in the areas of Company Tax concessions, import duties concessions during construction, concession on With-holding Tax and interest on shareholders’ loans including interest on any other third-party loans which are allowed to be fully charged to the profits of each year etc.
In 1995, the Rivers State government also granted the NLNG generous concessions ranging from consent fee, stamp duties and annual ground rent. These general concessions granted by the Federal Government were part of the input applied in presenting a strong and attractive project economics to the shareholders before FID was taken in 1995.
I think the honourable members have not been properly advised in accepting to go ahead with the amendment of the NLNG Act established under Decree No.39 of 1990 as amended by Decree No.113 of 1993. The main purpose for the amendment as I understand is to include NLNG in the 3% contribution to the budget of NDDC. The reasons why I feel that the honourable members should have a rethink are as follows:
The NLNG is not involved in oil exploration and production which harm the environment (highly polluting activities) causing all sorts of problems to the Niger Delta communities. The NLNG is involved in processing natural gas (feed gas) which is purchased from oil exploration and production companies. The feed gas is converted into LNG through fractionating, refrigerant recovery and liquefaction. This is simply a manufacturing process which is not different from the way manufacturing companies or fertilizer companies conduct their operations.
The 3% budget contribution to the NDDC is not a free lunch. It is meant to be applied in projects that will mitigate the adverse effects of oil and gas exploration and production caused by the NLNG J/V partners in the upstream. The NLNG as a company is part of the vehicle established by these J/V partners to mitigate the adverse effects of their operations in the upstream which mostly includes reduction in gas flaring, creation of jobs and stimulation of local economies. It is the practice all over the world. As a matter of equity and fairness, these J/V partners should not be made to contribute twice to the NDDC budget.
The 3% contribution to the NDDC budget is meant to be applied in mitigating the adverse effects of oil exploration and production. The adverse effects include health problems; unemployment due to loss of traditional occupations; poverty; crime; rundown neighbourhoods; clean water challenges etc. The projects required to address these challenges include social investments such as hospitals; health centres; educational facilities empowerment projects, clean water projects, replacement of unfit housing stocks, capacity building and investment in labour intensive industries such as LNG, refineries, petrochemicals; fertilizer projects etc. Upstream projects are more of technology based and do not create massive jobs in the oil region.
With due respect to the current NDDC management, I see the 3% currently contributed to fund the NDDC as a waste and not acceptable under the Zero Base Budgeting principles. The stakeholders will have a better value if the 3% is directly invested by the oil companies rather than delegating it to the NDDC. The NDDC Act instead should be amended and the 3% expunged and transferred to the oil companies to get them directly involved in addressing legitimate development issues that are associated within their operations. NDDC is not a justifiable replacement for addressing the above mentioned challenges.
Frankly the NLNG base/expansion projects had successful financial close because of the strong project economics that were presented to the shareholders. At that time due to the unfavourable investment climate in Nigeria, the FG under Decree No.39 of 1990 as amended by Decree No.113 of 1993 granted generous incentives some of which included company tax concessions, import duties concessions during construction, concession on withholding tax and interest on shareholders’ loans including interest on any other third party loans which are allowed to be fully charged to the profit of each year etc. These concessions were factored in determining the viability of the projects based on a period lasting for more than 22 years. Honouring contract is part of ease of doing business. The government currently is looking forward to attracting these labour intensive projects into the Niger Delta region which will impact on more lives and the economies of the Niger Delta States.
Any action that could cause a set-back in attracting such investments into the country should be discouraged. We cannot sacrifice more LNG projects, more Refinery projects, and more Petrochemical companies for the sake of funding NDDC with 3% contribution from the oil companies.
It is very easy to state that if the NLNG J/V partners are unwilling to accept the amendment to include the 3% contribution, other investors would rush to fill the gap. This is a critical matter and sentiment should be expunged from it. It is not as simplistic as that. Since the 2008 toxic asset bubble and the financial crises that engulfed the major economies, attracting genuine foreign investors has become an uphill task. In our peculiar environment, I still believe that a bird in hand is worth more than two or more in the bush. CBN naira devaluation policy to attract foreign investors failed woefully.
The base project at that time was the single largest ongoing project in the continent of Africa. The capital market for sourcing project funding was a no go area because Nigeria had no investment ratings by any of the rating agencies. Political and country risks were the highest at the time. Triple A Banks regarded funds from Nigeria as product of corruption and money laundering. Nigeria was also accused of Human Rights issues. The NLNG base project failed to take off for 25 years because of the Nigerian factor at that time. Upfront contribution to realise a partly profit motivated multi-billion dollar ($3.8 billion) project can be regarded as inefficient. But because of Nigeria’s peculiar situation then, there was no other alternative available. The J/V partners who willingly joined in contributing funds upfront must be commended and carried on board in any decision that affects the company (NLNG).
The base project (Trains 1 & 2) and the expansion project (train 3) were attractive and acceptable to NLNG investors based on the variables that were applied in determining the economics of the projects for over 22 year period. Some of the inputs included the fiscal concessions granted by the Federal Government, crude oil price, gas price, direct and indirect costs, etc. Amendment to the Act may require running a new economic model. Ease of doing business also includes honouring contracts. The economy is currently facing a sluggish recovery and more of these projects are needed to create jobs. NASS members need to tread very cautiously. The shareholders of the NLNG should properly be consulted and due process followed. I still maintain that the amendment be targeted at NDDC Act to expunge the 3% contribution from the NDDC Act and apply it in creating an SPE through which the oil and gas companies will be directly involved in developing the Niger Delta.
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