Nigeria’s oil peers are crafting investment-friendly policies to cash in on the growth in Africa’s liquefied natural gas (LNG) industry but Africa’s biggest gas reserves holder is fritting away chances of dominating the market by angling to fix what is not broken – the Nigeria LNG Act.
Equatorial Guinea’s Fortuna LNG project is set to unlock 96.3 billion cubic meters of natural gas through new investments. In East and Southern Africa, countries like Tanzania and Mozambique have ramped capacity to about 250 trillion cubic feet, positioning themselves for LNG markets in China, Japan, and the Middle East.
A few weeks ago, energy giant, BP, announced almost US$1 billion in new investment, mostly in the form of a multi-year exploration and development carry, to acquire the 62% interest and operatorship of a new, 15 TCF gas discovery offshore Senegal.
Anticipating an explosive growth in LNG projects in Sub-Saharan Africa, the U.S. government’s inter-agency, Power Africa development initiative, issued its third handbook entitled “Understanding Natural Gas and LNG Options” in November last year, for the purpose of promoting a better understanding of LNG project development on the sub- continent.
The book stated that factors like sustained oversupply of LNG in the global market, relatively low LNG prices, increasing competition among FSRU suppliers, and increasing interest from LNG suppliers who are seeking to create new demand through developing new import markets collectively, have created a very favourable environment for African governments and state-owned utilities to negotiate and contract for LNG supply and FSRU chartering as the basis for LNG-to-power projects.
It said investors have to ward off threats from national governments who may seek to remove protections set forth in laws enacted, to catalyze development of LNG investments.
Nigeria is proving the fears true. On May 9, the country’s lower legislative house, the House of Representatives, passed a bill seeking to amend the NLNG Act subjecting the company to 3 percent Niger Delta Development Commission (NDDC) levy.
Analysts say the move is not well thought out. “This is because it will affect investors’ confidence, though legislatures change business contracts everywhere else, but it has to be in the national interest,” says Olu Akinola, a Lagos-based lawyer.
Nigeria is seeking new investments in the gas sector, having drawn up a national gas policy last year, and asking investors to commit to $25billion investments in Trains 7 and 8 of the NLNG.
“Any amendment will also mean an immediate potential loss of foreign investment of US$25 billion in respect of Trains7 and 8 investments,” says Kudo Eresia-Eke, general manager, external relations division of NLNG Limited.
Nigeria is seeking to unilaterally amend provisions of the NLNG act without recourse to investors who negotiated the terms that were included in the NLNG Act, the very basis on which it has earned billions in taxes.
According to Tony Attah, NLNG managing director, the company has paid $5.5 billion in taxes and $15 billion in dividends to the Federal Government, since his appointment in July last year.
Nigeria LNG, one of the most profitable and best run companies in the country is not subjected to payment of levies to Federal agencies. The company argues that since it is not involved in gas exploration but merely buys and sells gas produced by exploration companies who are subjected to NDDC levies, it should not be included.
“That the company is being targeted for amendment, while fellow gas purchasers and processors in other businesses such as fertilizer, petrochemicals, and electricity are left untouched, gives the world the impression that Nigeria would rather drag down, than support its best,” says Eresia-Eke.
BusinessDay enquiries indicate that engagements are on-going between the company representatives and the Nigerian Senate.
ISAAC ANYAOGU
