‘Amendment of Nigeria LNG Act will hinder investments in gas sector’
The House of Representatives recently passed into law “A bill for an Act to amend the Nigerian LNG (Fiscal incentive, Guarantees and Assurances) to make its statutory contribution to the Niger Delta Development Commission (NDDC) fund and for other matters connected therewith. In this interview with Roseline Okere, General Manager, External Relations Division of NLNG limited, Dr. Kudo Eresia-Eke, speaks on the impact of such amendment on economic development.
The House of Representatives recently passed a bill, which seeks to make the payment of three per cent of yearly budget of Nigeria Liquefied Natural Gas Limited into the coffers of Niger Delta Development Commission. What is wrong with the amendment of the Act?
Everything is wrong with the amendment of the Act, at various levels. The first level is that it took Nigeria 30 years to put the Act together. In 1989, an Act was put together, contracted and put into law and this was what gave investors confidence to invest in the country’s LNG sector. We took off in 1989 and started production in 1999. What is happening now is that some of those clauses enshrined in the Act, which motivated investors to invest, are now being removed unilaterally. So, basically, this shows that our country does not respect agreements and that it is a promise breaker.
This is unfortunate that after joining the country to establish a very successful venture, the country now unilaterally reneges on its agreements. In an era where there is so much competition for foreign direct investments, this doesn’t sound well. It makes the country look like a promise breaker, incapable of holding business agreements; incapable of respecting the rule of law; and incapable of building confidence of investors.
This latest development is capable of shattering the confidence of investors and naturally portrays Nigeria in a very bad light to the world.
How will the alteration to the Act affect investment in the country’s LNG sector?
In few years times, our expectation is that we should be building Train seven and that is going to cost investors about $25 billion. Any amendment will also mean an immediate potential loss of foreign investment of $25 billion in respect of Trains 7 and 8 investments ($15 billion by the gas producing and supplying companies, and $10 billion for construction of the project. The expected 18, 000 construction jobs for Trains 7 and 8 will also be lost if the Act is amended. This is at a time when the Niger-Delta, and the country at large, is in dire need of jobs, needless to mention the impact of such a huge number of jobs on the peace of the region and the economy of the country.
Further implication is that those who are interested in establishing other LNG projects in Nigeria, like Brass and OK LNG, obviously are going to take a look at what happened to those who trusted Nigeria and will not want to sign an agreement, which they may regret later.
So basically, by this stroke, we are going to kill huge projects that we have looked up to as a country and particularly for those who come from the Niger Delta. The Brass LNG is a dream project. The Niger Delta people are already enjoying the impact of Nigeria LNG and the take off of Brass LNG would have impacted positively on the communities in the Niger Delta.
In addition to that, gas flaring which is really devastating on the Niger Delta may still continue for a long time. Our hopes were that the Nigeria LNG, through additional investment, would be able to reduce gas flaring in the country. At the outset of the company, flaring in Nigeria was at 65 per cent, obviously one of the highest in the world, but because Nigeria LNG buys gas that ought to be flared, flaring has now reduced nationally to less than 20 per cent.
We believed and still believe that with Train seven, we would be able to have more capacity to take in some of those dangerous flares, and hopefully reduce flaring to less than 10 per cent.
We are also hoping that if the likes of Brass came on board to do same, Nigeria would be able to attain zero flaring. It is important not just because it is good for our image, but also the impact it has on the lives of the people of the Niger Delta.
Sometimes in some parts of the Niger Delta, you cannot tell the difference between night and day. I do not want to talk about the devastation on the ecology and the environment. So, any true lover of the Niger Delta that can bring those flares to zero would be welcomed.
The Train seven projects is a dream project to put in mind, but the project is now being put to jeopardy because even the current operations of Train six is shaking.
The reason being that the material we need to feed the trains, requires some further investments of about a billion dollar every year, for quite a number of years to be able to get enough gas to feed the trains to function to full capacity.
The other thing, which I have not mentioned, is the amount of efforts that we, as a company have been putting into the development of Niger Delta. NDDC is supposed to be an organization or commission whose reason for being in existence is the development of the Niger Delta. So loads of money is passed to the commission, but what do you get in return? I think is very clear to Nigerians what happens to the money that goes to NDDC.
But let me just refer you to what the Auditor General of the commission came up with. You can read it for yourself. So take a look at Nigeria LNG, our job is to produce LNG, but you can see our foot print in the Niger Delta.
Would you say the company has been doing enough in the areas of corporate social responsibility?
We have done roads; water, electricity and we pride ourselves in the supply of electricity to our host community, Bonny.
This reflects our devotion and dedication to the Niger Delta people. The company has spent billions of dollars on various projects in the host community. It is really sad that we are discussing this when we should be thinking about attracting more investors to the country.
Is there any law that is not amendable? Why is Nigeria LNG so much against the amendment of the Act?
The original NLNG Act had exempted the company from some obligations, targeted at enhancing investment and growth of not only the NLNG Limited but also the nation’s economy. For instance, notwithstanding the provisions of section 10 of the Industrial Development (Income Tax Relief) Act, the tax relief period of the Company shall commence on the production day of the Company and shall continue for a period of ten years. However, that the tax relief period shall terminate at the first anniversary date after the first five years when the cumulative average sales price of liquefied natural gas reaches $3/mmbtu as calculated in the First Schedule to this Act in accordance with which such calculation shall only be made annually at each anniversary date.
The reason why some of us are so passionate about this issue is the impact this singular Act would have on the Nigeria economy. This seemingly harmless Act would have negative impact on Nigeria, not only in our generation, but the generations to come. If you look at the current Act that has been passed by the House of Representative, they have inserted the three per cent into the law and this is not what was agreed.
There are two areas where the amendment was made, that is clause 7a, and what we had before was section 7, but now they have moved everything in section 7 to make it clause 7a to provide space for them to make 7b and that is basically the insertion of the three per cent. But before they could do this, they had to delete clause 1,2,3 and 6 of the guarantees and assurance and that is where the problem is, because these areas forbid them to include the three per cent and that is why they were erased.
This case has gone from the lower court to the higher court, to the Supreme Court, and each stood firm and said with this law, NDDC is not qualified for the three per cent. So, all the way the judgment was in our favour from the supreme court of the land, by our own courts in Nigeria, not foreign courts.
Having gone through to the final judgment of the court and it didn’t favor you, you now go to the legislative arm, and this is the most dangerous thing to do when you seek to win case in Nigeria. It is very clear that the amendment should not go on and if there is any reason to amend anything, the shareholders and government need to deliberate to know whether the amendment is necessary or not.
What is the quantum of investment this amendment will withhold in the nation’s oil and gas sector?
The amendment of this bill will withhold investment of $25 billion from Nigeria LNG alone. There are other LNG projects in Nigeria that are looking for investors and this may become a barrier to prospective investments in the sector.
But all I know is that it would have impact on the naira because it would affect the foreign exchange earnings in the country. Naira would keep devaluing, inflation would keep going high and the economy would keep going down.
Unemployment would keep increasing and joblessness would be everywhere. So, if it can happen to Nigeria LNG that is so visible to the whole world, how do you expect the world to see us as a country? You can see what United State President, Donald Trump is doing and compare it to what we are doing to our own. Countries like Qatar, Australia, Angola and Mozambique are discussing how to encourage investment while our country is discussing how to make investment environment unattractive to investors.
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