The NLNG mistake

This one is for Sonia Maduabuchi. She wants to know what the effect of the proposed amendment of the NLNG Act will be…

With six trains currently operational, LNG is capable of producing 22 metric million tonnes of liquefied natural gas per year. Amid a delay in reaching a final investment decision on the proposed Trains 7 and 8, the passage of the amendment of the NLNG Act by the House of Representatives is likely to dim the prospects of the projects. Already, the Olokola LNG and Brass LNG projects have been delayed with the Olokola project facing a possible cancellation, with the exit of international oil companies Shell, Chevron and ConocoPhillips from those partnerships citing unfavourable economic conditions.

Furthermore, in the Second Schedule pursuant to Section 9 of the current law, Clause 2 provides that the venture shall be subject to the fiscal regime contained in the provisions of the Act and it will not be amended in any way, except with the prior written agreement of the federal government, the company and each of the company’s shareholders. In addition, Clause 6 provides that the federal government shall take such executive, legislative and other actions as may be necessary so as to effectively grant, fulfil and perfect the guarantees, assurances and undertakings contained in the law with a further proviso that “in order to afford the degree of security required to enable the company’s investments to be made, the [federal government] further agrees to ensure that the guarantees, assurances and undertakings shall not be suspended, modified or revoked during the life of the venture except with the mutual agreement of the government and the shareholders of the company. The company, industry experts and stakeholders have argued that the new amendments amount to the government breaking the law and going back on its promises, a scenario which will hold little comfort for investors which the same government is wooing with even more generous incentives in the new Oil & Gas Free Trade Zone Act which include among other things, a waiver of all federal, state and local taxes and levies, including the NDDC levy.

NLNG has earned a reputation as a beacon of corporate responsibility and is widely regarded as the best model of a Nigerian run oil company, unlike the more opaque NNPC. Analysts are generally baffled as to the rationale behind the National Assembly seeking to reorder possibly the most efficient government-owned organisation in the land, for the nearsighted reason that they cannot have a direct say in the management of its affairs — which we must point out is a good thing. The National Assembly’s latest moves is sure to exacerbate the country’s unflattering reputation as a business destination. There are even divisions within the government about the possible direction of the NLNG. Information minister, Lai Mohammed said in September 2016 that, “One thing investors like most is predictability. When we keep changing the goal posts, we are not going to attract investors.”