JudiciaryOpinion

NLNG vs NIMASA: Deconstructing the N126b feud

 

NThe lingering feud between the Nigerian Maritime Administration and Safety Agency (NIMASA) and Nigeria Liquefied Natural Gas (NLNG) Limited amplify the dreaded question of sanctity of agreements in the Nigerian business environment.

It is obvious that the festering legal contest activated by the gas processing company is solidly based on legal provisions allegedly violated by the maritime regulator in desperate pursuit of revenue for the government. And the subsequent legal fireworks arising from the contest host stories of impunity by a state agency expected to safeguard and honour agreements and treaties in which the integrity, credibility and reputation of the nation are staked.

The case became the subject of public commentary and analyses following the recent judgment in which Justice Garuba Lawal of the Court of Appeal in Lagos ordered parties in the case earlier won by NLNG at the High Court to revert to fresh hearing under a different High Court judge. His decision was based on submissions by NIMASA that its counterclaim in the matter was not taken into consideration by the Federal High Court in arriving at its judgment.

The protracted dispute between both parties arose as a result of perceived conflict in the enabling Acts of both organizations: the Nigeria LNG (Fiscal Incentives, Guarantees and Assurances) Act 1990 on one hand; and Nigerian Maritime Administration and Safety Agency Act 2007, Merchant Shipping Act and Coastal and Inland Shipping Act on the other hand.

The NLNG is one of the prime beneficiaries of the pioneer status policy of the federal government on gas monetization and flare reduction.

The NLNG Act is based on initial terms of contract between government and private shareholders of the company. NNPC holds overriding 49 percent financial interest in the company while Shell Gas BV owns 25.6 percent operating interest. Also, Total has 15 percent in the company while Eni International N.V.S.a.r.l holds the remaining 10.4 percent interest.

The terms include incentives, concessions, guarantees and assurances in letters to lenders for the NLNG Trains 4 and 5 expansion by Ministry of Finance, Ministry of Justice and office of the Attorney-General of the Federation, and the Central Bank of Nigeria (CBN).

The main thrust of the guarantees and assurances are to assure protection of foreign investments by the non-breach of the NLNG Act which, in recognition of its sanctity, has been protected by all administrations of the federal government right from inception.

The terms of the contract were modelled after similar packages of incentives flaunted by other competing countries such as Qatar, Oman, Malaysia, Angola, and others to attract investors in gas liquefaction and export.

Expectedly, the legal frameworks, commercial incentives and sanctity of contracts built into the NLNG Act formed the spring board for the company’s rapid growth from a single train gas processing company to an efficiently run six train company with one of the healthiest balance sheets among biggest commercial enterprises in Africa.

Section 2 of the NLNG Act provides the company tax waivers and other incentives for its investments in facilities to harness Nigeria’s gas resources for exports. But NIMASA contends that its establishment laws exempt only military vessels from its various revenue payments. Thus, whereas NIMASA insists that its levies were applicable to NLNG, the latter argues that fiscal incentives embedded in the NLNG Act exempt it from such levies and charges.

A cross section of legal experts whose opinions were sought on the matter declared that whereas they did not have all the facts of the matter but stressed that when two laws that confer rights contend, the first in time takes precedence and consequently overrides the later.

NIMASA toed the path of illegality when withdrew its case from court and resorted to use of brute force and violence in exacting payments from the gas company under protest.

The agency had filed a suit against NLNG in 2010 to claim the levies but, faced with weight if evidence, the maritime regulator filed an application to withdraw the suit after preliminary proceedings were taken and concluded, and the matter was ready for hearing. While other parties went home relieved, NIMASA resorted to self-help by sending its security contractors to block the Bonny Channel weeks, preventing passage of NLNG’s chartered vessels.

The security contractors to NIMASA, Global West Vessel Specialists Limited, had May 3, 2013 blockaded LNG Adamawa, an NLNG chartered vessel as part of brute force deployed by the maritime regulator in effort to exact the disputed levies from the gas company.

NIMASA had demanded payments in respect of shipping levies based on gross freight on exports and imports, but the NLNG Act exempts Nigeria LNG from payment of the Sea Protection Levy, the three percent freight levies on cargo exports shipped by NLNG, and the two percent Cabotage Levy.

Based on strident protest by NLNG and after a meeting where it was resolved for lasting solutions to be sought under the rule of law, NIMASA eventually lifted the blockade on May 5, 2013.

Surprisingly on June 23, 2013, NIMASA mounted another illegal blockade of the Bonny Channel in flagrant disregard of a subsisting court order barring it from further preventing NLNG vessels and vessels belonging to its buyers from accessing or leaving the NLNG terminal.

In view of its contract commitments to its commercial partners, financial losses, dents on its corporate reputation, political pressure from government and the risks of losing market positions, NLNG declared that it would start paying some of the imposed levies in instalment under protest.

After a three week illegal blockade, during which NLNG was compelled to start making the disputed payments under protest, NIMASA ended the illegal blockade.

The NLNG declared that it lost over $355 million or N127.8 billion in revenue as a result of the illegal blockade mounted by NIMASA in defiance of court orders.

In an inevitable but lawful response to the invasion by NIMASA, the NLNG filed a case at the Federal High Court, Lagos Division, in 2013, against the Attorney General of the Federation and Global West Vessel Specialists Nigeria Limited, seeking a judicial determination on, among other things, the legality or otherwise of certain levies sought to be imposed on NLNG by NIMASA, and the consequent blockade of NLNG vessels by NIMASA and Global West as a result of the dispute.

In October 2017, Justice M.B. Idris of Federal High Court in Lagos ruled against NIMASA, saying NLNG was not liable to make any payments to NIMASA. The court directed the maritime agency to refund any payment already made in respect of levies for the use of the Bonny Channel.

The court further held that NIMASA was wrong in blockading the Bonny Channel for the purpose of enforcing the payments against NLNG and went further to restrain NIMASA from taking or continuing any steps to block, restrain, seize, detain or restrict NLNG’s or its shareholders or subsidiary’s vessels or chartered vessels.

The judgment of the Federal High Court was however reversed on March 29, 2019 following an appeal filed by NIMASA. The Court of Appeal directed that the case between the two parties be remitted to the Federal High Court for a re-hearing.

Legal experts say the appeal court’s decision leaves the parties with options to either go back to the Federal High Court for a re-hearing or appeal the decision to the Supreme Court.

“Where the case is to be heard afresh as directed, the position of the parties would revert to what it was as at the time the case was filed, in which case no payments of the levies in dispute would be made by NLNG to NIMASA pending the re-hearing and determination of the suit.

“Where on the other hand the right of appeal to the Supreme Court is exercised, the status quo as of the date of the Court of Appeal judgment will be maintained, which is to the same effect,” a lawyer who spoke on the matter said.

Beyond the swinging position of the courts, the traditional and tragic marker of the Nigerian judicial system, investment analysts and country risk advisory consultants are in awe over the application of crude force in seeking interpretation of legal and fiscal incentives granted by a sovereign state to trap down huge investible funds and global expertise in domestic gas valorization.

They interpret the role of NIMASA in the case as raw brigandage which, according to them, places the character and mental integrity of managers of the system on the scale of quality. They also added that defiance to standing judicial restraint against the blockade alone is punishable, while the consequent revenue losses suffered by managers and shareholders of NLNG form valid basis to make separate financial claims.

In various publications, some analysts had confused the matters at issue, linking NIMASA’s demand for levies to expiration of the 10 year tax holiday granted the gas company by the NLNG Act. Some of the publications also made hazards at calculating taxes payable by NLNG under the fiscal incentives. Others called on President Muhammadu Buhari to invoke executive fiat in compelling NLNG to pay the NIMASA levies.

In checking the facts, our enquiries showed that NLNG’s tax holiday ended on 8th October, 2009; and the company says it has no tax issues with the Federal Inland Revenue Service (FIRS).

It would be recalled that the FIRS had in 2012 investigated the tenure of NLNG’s tax holiday and resolved that the 10 year tax relief period ended one year earlier on October 8, 2008. They based their assumptions on conditions specified in the NLNG Act for early termination of the tax relief period.

The position of FIRS was however challenged by NLNG with facts; and the tax agency admitted in a letter dated April 24 2012 that “we hereby accept your position that the Company’s pioneer period ended on the 8th of October 2009 and not on 8th October 2008 as earlier communicated to you.”

This NLNG stated in a fact sheet that FIRS followed strictly the computation mechanism contained in the First Schedule to the NLNG Act. It also declared that the levies demanded by NIMASA are different and separate from issues of tax holiday.

The company stated that “the NIMASA levies have nothing to do with the NLNG tax holiday. The 10 year tax holiday was a pioneer period incentive in the manner of similar relief to pioneer companies under the Industrial Development (Income Tax Relief) Act and pertains specifically to income-tax. That is why, since the end of the tax relief period, NLNG now pays Companies Income Tax (CIT) and Tertiary Education Tax (TET) which are the heads of corporate income taxes recognized under our laws.”

The gas liquefaction company also explained that “NIMASA levies are not heads of income tax. They fall within the fiscal incentives and exemptions contained in other provisions of the NLNG Act which are not time bound.”

It accused NIMASA of deliberately confusing the issues at contention by inserting levies within the remit of the tax relief period to deceive the public.

An official of FIRS in Lagos stated that the tax agency does not collaborate with NIMASA in tax collection, adding that the tax office has no current issues with the NLNG. He confirmed that NLNG remains the biggest corporate tax payer in the country and an unblemished model in corporate tax responsibility.

Our check on NLNG’s corporate tax performance plus cash and non-cash contributions to the economy showed that the company stands tall as the biggest tax payer in Africa. It has remitted cumulative $40.47 billion or N14. 6 trillion revenue to the government in the past 19 years.

NLNG has monetized over 6.37 trillion cubic feet of associated gas to Liquefied Natural Gas (LNG) and Natural Gas Liquids (NGLs), thus helping to reduce gas flaring by upstream companies from over 60% to less than 20%.

From the monetization of gas hitherto being flared, NLNG has generated over $100 billion revenue since inception; paid over $36 billion to shareholders as dividends, and 49% of the total dividends goes to the federal government through the Nigerian National Petroleum Corporation (NNPC).

Also of the $28 billion paid to Joint Ventures (JVs) feedgas suppliers, some 58.8 percent of that amount goes to the federal government through NNPC. In 2018, NLNG paid government about $864 million in incremental CIT alone.

Other payments declared by the company include employee income tax, state and local government taxes, as well as regulators’ levies and fees totalling over N60 billion.

Out of corporate goodwill, NLNG has also voluntarily committed to about N222 billion social responsibility projects in Nigeria, assisting plug gaps and solving needs in areas where government is yet to reach with overstretched hands. The huge social assistance budget places NLNG as clear leader in Corporate Social Responsibility in Nigeria.

The company has spent over N25 billion on community projects over the years; it injected over N2.0 billion in building world-class engineering laboratories in six Nigerian Universities through the University Support Programme; it is spending N120 billion on the construction of Bonny-Bodo Road in Rivers State.

The NLNG signed an MOU with the Bonny Island community to provide N3.0 billion each year for 25 years for the overall development of the Kingdom.

And why would a company that pays over N14.6 trillion in taxes, dividends and feedgas invoices; and volunteers up to N222 billion in corporate social responsibility budget avert any legitimate payment to the state?

Therefore, what is at stake transcends worth of the levies to legality of demand, risk of altering fiscal frameworks for investments and the clear danger of muddling up guarantees and assurances that incubate investor confidence and sanctity of external transactions.

It is understandable therefore that in a country where the government is neck deep in debt and agencies of the state are scrambling to meet revenue targets, a well-managed enterprise with strong balance sheet like NLNG will form the target of milk poachers. And NIMASA is not alone in the attempt.

Niger Delta Development Commission (NDDC) was more strategic in its moves to easily secure own establishment act amendment after pan-industry uproar suppressed earlier attempt to alter the NLNG Act.

The Senate had in 2017 dismantled basis for disputes over moves to amend the NLNG Establishment Act with a lateral amendment Niger Delta Development Commission (NDDC) Act, thus resting the dispute over moves by House of Representatives to alter the fiscal and legal frameworks that underpin deep pocket investments in NLNG.

The Senate’s intervention came after House of Representatives passed a bill for the amendment of the NLNG Act on May 9, 2017, generating significant global industry concerns over the long term fate of investments in the country.

At a conference hosted in Lagos, indigenous and foreign petroleum industry players in the country roundly condemned any breach of sanctity of contracts as a serious dent on the integrity of Nigeria as sovereign investment host.

Renowned industry stalwarts including former Minister of Power and former Mister of Science and Technology at separate times, Professor Barth Nnaji; Chairman of Lagos Petroleum Club, Dr, Godswill Ihetu; Executive Director of Socio-Economic Rights and Accountability Project (SERAP), Mr. Tokunbo Mumuni; Head of Energy Research at Ecobank, Mr Dolapo Oni; amongst others decried any breach of NLNG Act as discouraging to investments.

They deflated all arguments advanced by Hon. Simon Yakubu Arobo of the House of Representatives and warned that over-exposing Nigeria’s most efficiently run company to multiple financial demands would leave it crumbling from the sway of fiscal instability.

They also blamed signals arising from government’s constant breach of business agreements with foreign investors for the worsening investment flight, associated scarcity of foreign exchange and general economic downturn.

Prof. Barth Nnaji made it clear that agreements are legal instruments that form the basis for investment decisions. He pointed out that government must respect its contracts with business entities in order to attract the right set of foreign direct investments required to realize the country’s aspiration for rapid economic development.

Chairman of the Lagos Petroleum Club, Dr. Godswill Ihetu, stated that breaching the NLNG Act would further worsen the current state of foreign investment apathy in the Nigerian petroleum industry, scare off intending entrants, send dangerous signals to the international investment community and stall growth in the midstream petroleum sector.

Dr. Ihetu who is the pioneer Managing Director of NLNG pointed out that government had to provide assurances and guarantees needed for the investors to stake capital in generating value for the country.

In his contribution, Mr. Mumuni made it clear that SERAP is more interested in the role of the National Assembly to protect the rights of individual and corporate citizens. He tasked the legislators to conduct performance audits on government agencies funded from industry budgets to ensure that they deliver on their mandates.

Chairman of Mentor Energy, Mr. Victor Eromosele, who spoke extensively on the subject, concluded that any breach to NLNG Act was in direct conflict with workings of the upstream and midstream industry operations.

Apprehension was high over the fate of the guarantees and incentives granted in the NLNG Act which provided cradle shield for the company.

Just as the Senate resolved the NDDC issues over NLNG contributions, Justice M.B. Idris of Federal High Court in Lagos ruled against NIMASA over the suit on illegal levies on the gas company in the same year, saying the demand from the maritime regulator breached sanctity of the NLNG Act.

However, the intransigence of NIMASA in pursuing overturn of the judgment at the appellate court continues to stoke industry concerns and sustain global focus on how Nigerian state agencies brazenly afflict commercial investments in the country in flagrant disregard to law and order

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