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FDIs at stake as courts swing NLNG, NIMASA case

Federal government’s policy moves to attract more foreign direct investments (FDIs) into the country’s creeping gas valorisation programme suffered a major setback weekend when expectations of resolution on the legal feud between the Nigeria’s biggest gas investor, Nigerian Liquefied Natural Gas (NLNG) Limited, and maritime regulator, Nigeria Maritime Administration and Safety Agency (NIMASA), came to no avail.

Hon. Justice Garuba Lawal of the Court of Appeal in Lagos had weekend directed all parties in the case to return to the High Court for rehearing, thus prolonging the dispute which has continued to shake investors’ confidence in the Nigerian business environment.

The appellate court sent the parties back to the trial court on submissions by NIMASA that its counterclaim in the matter was not taken into consideration by the Federal High Court in arriving at its decision. But the directive was not a resolution to the substantive matter which borders on sanctity of guarantees and incentives that propelled investments in the nation’s, in fact Africa’s, pioneer gas liquefaction experiment.

The protracted dispute between both parties arose as a result of perceived conflict in the enabling Acts of both organizations, namely 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.

Section 2 of the NLNG Act provides the company tax waivers and other incentives for its investment in the project to harness Nigeria’s gas resources for exports. But NIMASA contends that its establishment laws exempt only military vessels from its various revenue payments.

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.

Whereas NIMASA insists that its levies were applicable to NLNG, the latter argues that fiscal incentives embedded in the NLNG Act exempted it from such levies and charges.

Consequently, NIMASA had filed a suit against NLNG in 2010 claiming entitlement to these levies, but after preliminary proceedings were taken and concluded, and the matter was ready for hearing, the maritime regulator filed an application to withdraw the suit.

While other parties went home relieved, NIMASA resorted to self-help by sending its security contractors, Global West, to block the Bonny Channel for 2 days, preventing passage of NLNG’s chartered vessels.

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 installment under protest.

In 2013, NLNG filed a case at the Federal High Court, Lagos Division, against the Attorney General of the Federation and Global West Vessel Specialists Nigeria Limited, contractor of NIMASA, 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 in the dispute over levies, 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 judgment inferred that NIMASA was liable to refund NLNG some $350 million or N126 billion in payments made under protest as the case lingered.

But the Director General of NIMASA, Dakuku Peterside, questioned the court ruling, and subsequently challenged the ruling at the Court of Appeal in October 2017. At the Appeal Court, the maritime regulator prayed for stay of execution on the judgment of the trial court and for a restrain on NLNG from withholding further payments pending the determination of the appeal.

Thus, the decision of the Court of Appeal weekend has set fresh legal race between the two parties, postponing a judicial decision that investors in the petroleum industry await to provide clearer outlook on the integrity of government’s fiscal incentives.

Both parties have reacted to the judgment with NIMASA celebrating another opportunity to exculpate from financial obligation of about $316 million (N126 billion) and recover temporarily from the precipice impending debt associated with the initial judgment of the trial court.

But the appellate court did not outrightly override the judgment of the trial court neither did it uphold the decision. The case would now be heard afresh by another Judge of the Federal High Court, clearing the field for a fresh race.

This explains the overreactions from NIMASA which appear to suggest that the agency misread the position of the appellate court on the grounds of interpretation. Mr. Peterside has also changed his tone, praising the judiciary as reliable and pledging to work with NLNG as a credible partner.

“NIMASA and NLNG are neither foes nor competitors. We are corporate cousins working together for the common good of our great country. Judgments like this only serve to strengthen our institutions and ensure greater bonding,” he said.

The NLNG which has stretched hands for refund of the N126 billion levies paid under protest stated that it commits to patience till final determination of the case.

Legal pundits who analyzed the Appeal Court ruling insist the court was offering both parties the opportunity for infallible win or loss, adding that the revert to the trial court confers advantage to both parties as the case becomes organic and proceeds to the Supreme Court.

Lead Partner at Lagem Firma and Partners, Hon. Barr. Okey Igwe, stated that throwing the case back to High Court means that the Appeal Court seeks sound logical premises to establish its own decisions on the matter. He pointed out that what returns to the appellate judge might alter or consolidate existing decisions of the trial court.

He said the Appeal Court would necessarily appraise the processes leading to the decision of the trial court, adding that the demand for rehearing might not have anything to do with the facts of the matter but much to do with the processes that might have weakened the basis to uphold existing decisions.

He said either of two things would happen: address the issues flagged by the Appeal Court or try the case de novo. In both cases, he said, parties in the dispute have equal opportunities to consolidate and solidify their arguments.

The throwback to trial court, according to the eminent lawyer, does not in any way confer discriminatory advantage but provides second chance for both parties to drill down their arguments.

Another legal expert and Founding Partner of Law Point Attorneys, Barr. Damian Ihegazie, who has been following the matter, said the case was inevitably on irreversible journey to the Supreme Court, making it necessary that all logical grounds for conclusion are flawless.

According to him, if all submissions are not sufficiently addressed, further judgments would still be susceptible to further appeals. He made it clear that the emerging intransigence of both parties has made it obligatory on the courts to seek clear and flawless processes to establish a solid precedent for similar arbitrations in the future.

He pointed out that the Appeal Court was, by seeking comprehensive process audit, protecting the credibility of its own decisions should the case proceed to the Supreme Court. He also stressed that all parties stand at advantage as, according to him, “no good case can fall before a court process.”

Besides legal opinions and process technicalities, the case is actually one of ‘two rights and one wrong’ in a circumstance that amplifies conflict of laws and absence of administrative arbitration platforms in the country.

Both parties stand on self interpretation of establishment laws which confer each with rights and privileges respectively. Efficient application of laws requires that judicial interpretation and order be secured before taking any definite action that infringes upon and inflicts losses on the activities of a contending party.

The initial move by NIMASA to approach the court was ideal, and conversely the agency’s recourse to withdraw from the court and deploy force was wrong and ill advised, especially when it is already in view of the parallel laws sustaining the confidence of NLNG to contend with payment demand.

It is therefore on the grounds of the fact that sufficient awareness of the two contending establishment laws had been created that it becomes difficult to interpret the role of NIMASA as lawful.

Besides, the two parties in the feud are technically owned by the federal government. Whereas NIMASA is the government’s maritime regulator in the Ministry of Transport, the federal government through the Nigerian National Petroleum Corporation (NNPC) holds overriding 49 percent equity stake in NLNG.

Thus, 49 percent off all levies demanded by NIMASA under the disputed claims would inevitably draw from government’s financial interests in the company.

Again, the Nigerian petroleum industry in which NLNG plays is regulated by the Department of Petroleum Resources (DPR), a technical agency under the Ministry of Petroleum Resources. One would expect that exchanges from a different ministry on issues of legal, fiscal and administrative incentives conferred on commercial investments in the petroleum industry under a law would first be resolved at inter-agency platforms with the DPR.

The docility of the petroleum industry regulator in the face of festering harassment of commercial player under its regulation by an agency from another ministry fails to provide investor confidence. Of course, the DPR is the custodian of all petroleum industry laws and records, and is eminently in full understanding of all facts at contention. It also leads promotion of commercial investments in the gas sector and has regularly flaunted government’s fiscal incentives at international investment shows.

The descent into judicial rigmarole at a time when speedy arbitration is requires to stave off fiscal disputes affecting prime commercial operations that support national revenue inflow is gross investment disincentive in the business environment.

It is in foreground of the above that industry analysts opine that early resolution of the case at the appellate court would have been critical and aptly strategic as shareholders of the Africa’s biggest tax payer and second biggest foreign exchange earner for Nigeria approach final investment decision (FID) on the seventh liquefaction train of the NLNG.

According to the Managing Director of the gas export company, investments in the Train-7 of the NLNG would boost the company’s gas liquefaction and export capacity by 35 percent or 8.0 million tons per annum (mtpa) from current 22 mtpa to 30 mtpa.

Consequently, he said, the company’s potential for financial and non financial economic contributions to the country would proportionately grow.

Pointing at opportunities of increased financial contribution to the country, Mr. Attah recounted that NLNG Limited has in the past 19 years of operations generated more than $100 billion in revenue, paid over $16 billion dividends to the federal government through NNPC, bought $13 billion worth of feed gas from producers in the country and paid $6.5 billion in taxes.

The company also holds the record of biggest corporate social responsibility spend profile in the industry: scholarships, schools, healthcare and infrastructure the latest of which is contribution of N60 billion towards construction of the first ever connecting road between Bonny Island host community with the rest of Nigeria.

It is also the only multinational oil and gas company in the country with 100 percent indigenous management team that drives the most efficient and transparent corporate processes in the extractive industry.

In pointing at NLNG’s non financial contributions towards growing Nigeria’s gross domestic product (GDP) and promoting export of locally manufactured goods to earn the country foreign exchange revenues, Mr. Attah declared that Nigeria LNG has for 20 years maintained operations strategies that harness, groom and develop local businesses, talents and potentials, since it commenced operations ago.

Group Executive Director and Chief Operating Officer in charge if Gas and Power at NNPC, Mr. Saidu Mohammed, severally lauded NLNG on its investments in commercialization of natural gas to the greater benefit of Nigerians.

He said the company’s investments in the country has sparked off ancillary investments in robust gathering systems that connect trunk lines from offshore to the hinterland, looking beyond export opportunities to domestic market, and open up a flexible system that allows the nation to swing gas either way, depending on need.

He said it was in recognition of the massive economic growth propulsion potential of the NLNG that government encouraged the investors with guarantees and similar fiscal incentives to kick of the gas liquefaction segment of the midstream petroleum industry.

Former Minister of Power, Prof. Barth Nnaji had declared that a conference where prime industry players called for sanctity of commercial agreements in the country explained that Fiscal Incentives, Guarantees and Assurances are globally respected bases for private investors to stake funds in a business environment.

He said Nigeria is currently in competition with all resource producing countries in the world for global investment capital in LNG, pointing at new liquefactions projects in Cameroon, Equatorial Guinea, Guinea Bissau, Angola and many other African countries.

He made it clear that the country must respect commercial agreements to trap down floating global investment capital needed to boost industrialization and create jobs.

There are therefore no better ways to uphold sanctity of agreements than establishing a platform to resolve conflicting legal provisions that generate dispute between key institutions and establishments that contribute to national development.

It is therefore in the foreground of the above that expedited hearing should be given to the NLNG’s suit as the case begins afresh at Federal High Court, Lagos.