NLNG N18.4b award: When the Senate kills the environment
Sopuruchi Onwuka
The recent decision to impose N18.4 billion penal measure against the Nigerian Liquefied Natural Gas (NLNG) Limited over pipeline right of way dispute stokes existing concerns among petroleum industry investors about the threat of political interference in the operating environment.
It also exposes some of the lapses and omissions in the newly activated Petroleum Industry Act (PIA) 2021 which seeks to provide guarantee of strong regulatory shield for investments in the industry against whimsical political decisions and prejudices that impinge on the fate of parties in commercial and transactional disputes.
The Senate had last week directed the NLNG to pay N18.4 billion compensation to 73 communities of Obiafu, Soku and Bonny in Rivers state for acquiring their land and loss of use of the affected land to pipeline Rights of Way through the communities. The Senate further directed that the payment should be made within 60 days.
The resolutions followed a report by the Committee Chairman, Senator Patrick Akinyelure saying that the NLNG only showed evidence of payment to some individuals, families and communities.
He said the company paid N74, 642,773.00 for part of the 210 kilometres of land acquired for pipelines Rights of Way, adding that the amount was not significant when compared to the sum of N18.4 billion approximately currently demanded by 73 communities and over 200 families.
Senator Akinyelure reported submission by the NLNG that the payments were made long ago and that the company could not reasonably trace most of the payments documents. He also reported NLNG to have promised to look for further evidence to show that it paid stakeholders concerned if given another month.
“The committee considered their request unnecessary and unreasonably, having granted NLNG one month earlier instead of 7 days allowed by the Senate at plenary to conclude its report.”
The mediation by the Senate followed alleged land grabbing petition filed by Mr Enyinna Onuegbu on behalf of 73 communities of Obiafu, Soku to Bonny, in Rivers State alleging that the NLNG improperly acquired their land in 1996.
In the petition, Mr Onuegbu claimed that the pipeline ROW impacted over 73 communities and over 200 families.
The petitioners had accused the NLNG of making selective compensation in cash for buildings and structures, economic crops, farmland, shrines and graves destroyed along the ROW without either entering into any Memorandum of Understanding (MoU) or making any commitment on future obligations in the nature of Corporate Social Responsibility with the impacted communities.
In mediating the dispute between the company and communities, the Senate Committee awarded the financial claims in full and blamed the NLNG for not advancing evidence of proper acquisition of land for ROW in the time space provided by the mediators.
The ruling by the Senate has since sparked some buzz in the legal and public space, with many people pointing at the processes and considerations that guided determination of the matter. Others worry about the seeming failure by the Senate to recognize the sensitive nature of the matter.
Legal pundits who examined processes of the mediation noted that it would appear that the NLNG was not given the opportunity and the patience to adequately present its own side of the case. They asserted that the company deserved enough space to advance its arguments and present evidence of transactions that occurred some 32 years ago.
A senior lawyer with chambers in Ikeja Lagos told The Oracle Today that the Senate committee, as arbiters in the matter, is under obligation and commitment to sufficiently hear from all parties in the matter. The committee is also entitled to the privilege of taking reasonable time to search and admit all material evidences to enable fair and balanced consideration of facts before arriving at conclusion.
Our source pointed out that the ruling of the senate committee is rendered vulnerable by Senator Akinyelure’s admission that the company was denied the opportunity to search and produce the necessary document that would aid the legislators to arrive at unquestionable conclusion.
Another lawyer with inclination on petroleum industry laws noted that the major concern in the matter borders on the mode of mediation and bases for determining the N18.4 billion award for petitioners.
More worries, according to him, came from the haste in reaching conclusion on the matter even before the critical facts of the issue could be collated for consideration and verification as basis for eventual determination of the claims.
The hallowed Nigerian Senate is peopled by eminent men and women of unassailable capability and intelligence; and the relevant committees of the Senate are equipped with systems that can procure and deploy technical services in delivering on key national assignments of technical nature. Therefore it is not mistakable by any means that the Senate Committee on Public Petitions must have engaged eminent people with good sense of justice who might be supported by legal services providers in discharging their functions.
Given the strength and eminence of the institution, it becomes extremely difficult to publicly question the outcomes of processes engaged in arriving at the resolution of the Senate despite all the flaws pointed out by technocrats.
However, concerns exist on the far reaching implications of the decision, a situation that unavoidably draws attention to noticeable logical lapses that produced rulings and mandates that translate into significant financial penalties.
One significant question is whether there is any credible incentive for a company that operates multi-billion dollar businesses to cut corners in acquiring land for development of a critical infrastructure for conduct of its operations. Are there logical processes that should necessarily lead to development of right of way? Are the processes subject to oversight and approval processes? Are there regulators that govern activities in the industry?
In an industry that is highly regulated, and in an incorporated joint venture operated by multinational companies; it would become a huge surprise if basic issues such as pipeline right of way which features in both project feasibility studies and environmental impact assessment could have possibly been mishandled.
Hints in the petition already suggest that there were engagements on right of way and acquisition of lands. What should be crucial is whether such arrangements that provided leeway for project execution met provisions of the law at the time.
It is in the context of meeting requirements that the role of regulators that approve processes and projects pop into view. It would have been impossible for a pipeline project, no matter how small in scope, to have escaped regulatory approval in terms of properly procured right of ways. And it would have been bad business practice if critical facilities like secured pipeline routes are not well procured. In fact, getting it right is critical to the business operator who requires a legal right to his conduit routes.
Thus, properly acquired right of way is a crucial instrument which a pipeline operator requires to sustain his business. He does not need persuasion to do get it right. And for the NLNG joint venture that boasts of multinational behemoths like Shell, Total and Eni that parade best business scorecards; obtaining a proper pipeline ROW cannot be an omission.
Second point which appears to be more disturbing is the Senate committee’s seeming haste in arriving at conclusion of investigation even when NLNG pleaded for time to assemble its transaction document.
“The committee considered their request unnecessary and unreasonably, having granted NLNG one month earlier instead of 7 days allowed by the Senate at plenary to conclude its report,” according to Senators Akinyelure.
Sources reveal that the representatives of the company were refused adequate time to search for documents regarding the ROW transactions that were conducted some 32 years ago. Evidently, some of the people currently running the company might not have joined the firm by then. Thus the request for more time to search for old transaction documents is not illogical. And it can be safely argued that discarding the request on the grounds of deadlines amounts to allowing the process defeat the goal; which is essentially what the Senate has done.
It is in the context of the foregoing that it is difficult to interpret the position of the Senate committee on the matter as fair and balanced. The posture of the committee in arbitrating the dispute appears tainted by sympathetic advocacy for community rights which incidentally are not in dispute. The dispute is to determine whether such rights have been violated, and any amount of waiting to allow facts fall into place should be better for fair resolution.
Importantly, the position and role of the Senate as representative of the people make the legislature almost an interested party in a dispute of this nature; and this points to the flaw in accepting to being an arbiter in a matter in which it lacks the necessary neutrality. Therefore the error of the Senate committee is accepting to decide a matter that borders on industry regulation. The logical step would have been to refer petitions of this nature to regulators that have the necessary backgrounds, knowledge and mastery of systems and processes, and custody of archives that hold independent account of activities in the industry. This would have solved the integrity issues that challenge the Senate’s determination of the matter.
With a fine of N18.4 billion from an resolution that is tinged with political sentiments, it is almost obvious that the matter is far from resolved for a commercial enterprise that struggles in an uncertain market. It has become traditional that such rulings from the National Assembly normally seek annulment at the courts.
Perhaps the most worrisome signal emerging from the Senate’s ruling is the menacing gloom of political interference despite persisting efforts by both public and private stakeholders to provide guarantee of independence for the domestic petroleum industry which is currently suffering mass pullout of investments by key shareholders of NLNG.
The interference of the national legislature in otherwise a purely operational dispute points at existing and worsening exposure of commercial investments to multiple regulation and political influence. And this is despite the boasts that the PIA has provided stronger and more efficient institutions that afford the industry administrative and regulatory autonomy.
More worrisome are the subsisting fears that capital flight might continue in the country if the political environment remains hostile and meddlesome. It is an unwritten code that whereas governments work to create congenial environment investments, commercial players that stake huge investments in the space do everything possible to evade direct altercation with operators of the political system.
Therefore a win-win resolution of the right of way dispute instead of creating a winner would have been the best outcome expected from the Senate. Achieving a meeting point would have solidified the cordial relationship existing between the company and its community stakeholders by creating an environment that guarantees full realization of economic objectives of establishing the company.
The NLNG is a gas valorization outshoot of oil and gas exploration and production joint venture among partners including Shell, Total and Eni on the one hand, and the Nigerian National Petroleum Company (NNPC) Limited. Now, the Senate’s ruling on ROW now casts serious concerns of sustainability over the country’s most successful enterprise in the petroleum sector at a time a wave of divestments and investment recovery is ravaging the industry.
Already the three multinational investors providing capital, technology and expertise in driving the Africa’s biggest liquefied gas exporter are in the process of full investment recovery from their onshore exploration and production assets. They have also stopped search for oil and gas in the less vulnerable deepwater terrain and are currently concentrating on field development and commodity extraction. The indicators suggest their final phase of oil production operations in the country.
Other multinational majors in the industry including ExxonMobil and Chevron are also driving different degrees of divestments. And the overall mass exit scenario by deep pocket international investors post a worrying signal about the Nigerian operating climate, an image that is stalling capital importation into the industry.
Projection in the industry is that despite the efforts of the government to retain the investors in operating environment, divestment and capital flight will remain a steady trend in the country if the operating environment remains less than congenial. Venezuela and Ecuador provide visible examples.
Since 2010 when divestments began in the upstream petroleum industry, Nigeria has lost over $12 billion in capital recovery as companies give up their stakes in operated and non-operated assets before taking their leave from the country. From ConocoPhillips, Syntroleum, Equinor, Petrobras and now Addax, the Nigerian oil industry has suffered significant loss of world class investors and associated capital.
The prevailing divestment campaigns are also putting immense pressure on the domestic financial system and money market from where local asset buyers draw credit facilities to finance their acquisitions. This has led to acute liquidity crunch in the country’s forex system and portends worse scenarios as more and more JV stakes are put up for sale.
According to the Group Chief Executive Officer of NNPC Limited, Mallam Mele Kyari, government has struggled to resolve fiscal and policy issues inducing divestments in the domestic petroleum industry. He added that systemic measures are also running to stem the tide of community disturbances affecting operations and investment flow.
Luckily, the NLNG still holds medium to long term relevance in the global energy demand projections as energy transition from fossil sources begin to take toll on new petroleum development and related investment financing. And despite the prevailing global indignation towards new fossil fuel development, the NLNG is able to secure international financing for its ongoing expansion programme in a bid to earn the country greater space in the low emission energy market.
It is also evident that the NLNG is advancing to become the nation’s leading resource income earner and growth enabler in the imminent future.
In its 30 years of establishment and 20 years of operations, NLNG has catalyzed investment surge in the sector, arrested increasing gas flare emissions and associated resource waste; spurred investments in gas harnessing infrastructure; led new world class gas-based enterprises; and activated associated industrial activities that create jobs, earn huge revenue for stakeholders and financed social service interventions that alleviate the suffering of Nigerians.
According to its business report, the company currently takes 3.5 Bcf/d off flare and prepares to monetize additional 2.5 Bcf/d on the back of Train 7. It harnessed and processed over 7.0 trillion cubic feet of associated gas into LNG and NGLs, and helped Nigeria cut gas flares from over 60% in 1999 to less than 20%. The NLNG holds potential to valorize greater volumes of gas as it progresses with expansion with ambition for Trains 8, 9, and 10.
The company has also contributed significantly to meeting internal demand for cleaner energy by domiciling its full supply for cooking gas, saving the country considerable import bills for LPG and protecting the Nigerian consumers from sharp swings in retail prices of the product.
On revenue delivery to stakeholders, NLNG declared in 2019 that apart from cutting gas flares in the country and reducing operations impact on air quality, it had made market return of over $100 billion or N70 trillion, with 40 percent or N28 trillion ploughed back into social and economic development of the country.
The company declared in its 20 year anniversary performance report that it paid some $8.0 billion or N5.6 trillion in direct taxes to the government, and another $17 billion or N11.9 trillion in dividend to government for its overriding 49 percent equity stake in the business.
On the transaction side NLNG said in its operations report for two decades that it purchased $13 billion or N9.1 trillion worth of gas from the government through the Nigerian National Petroleum Company (NNPC) Limited, and another $2.5 billion or N1.75 trillion to secure feedstock and ensure full operations uptime at its existing six liquefaction trains.
Other payments declared by the company include employee income tax, state and local government taxes, as well as regulators’ levies and fees totaling over N60 billion.
Beyond dividends, taxes and gas purchase values, the company had in 2019 declared voluntary commitment of about N222 billion in corporate social responsibility projects in Nigeria, especially in rural communities.
Some of the details of the company’s corporate social responsibility in the country, according to it 20 year operations factsheet, include over N25 billion on community projects over the years; and over N2.0 billion in building world-class engineering laboratories in six Nigerian Universities under its University Support Programme.
Besides financial payments to government and funding contributions for development of social and economic infrastructure and amenities within 20 years of its operations, the company says it pulled in over $16 billion or N11.2 trillion worth of foreign direct investments into the country, created 12,000 direct jobs and 18,000 indirect jobs in each phase of its construction projects, dedicated its full production output for local supply of liquefied petroleum gas (LPG) also called cooking gas to the domestic market to further curb pollution with cleaner, and to provide cheaper and available fuel for homes and businesses.
The company added that it has also gone beyond business scope to participate in the pooling of funds for the development of host Niger Delta communities through the Niger Delta Development Commission (NDDC). The company had in the first 20 years of operations paid over N25 billion in contribution to the developments of the Niger Delta, committed to contribution of another N60 billion to the construction of the first ever highway of roads and bridges to link the Bonny Island to the rest of the country.
Provision of 50 percent of the project cost, The Oracle Today reports, activated a 40 year old plan by government to deliver 38 kilometre Trunk A highway across sinking marshy wetlands to connect the ancient kingdom of Bonny island to the rest of Nigeria for the first time in history. The Bonny Island which hosts critical oil and gas installations that provide considerable revenues that support government’s fiscal plans is currently accessible by sea, or by air courtesy of the Finima airstrip provided by NLNG.
According to the project details for the Bonny-Bodo road, north section of the road would be 17, 365 meters; south section would be 15, 806 meters while the rest would be made up of 1000 meter bridge across the Opobo River, 550 meter bridge across the Alfa Creek and other smaller bridges and culverts.
In addition to interventions in infrastructure development across host Niger Delta communities, NLNG says it is also promoting scientific research in developing solutions to key developmental challenges in the country through sponsorship of the $100,000 (N70 million) Nigeria Prize for Science.
It also sponsors another $100,000 Nigeria Prize for Literature to promote excellence in creative writing. The prizes are separate from scholarships, health initiatives and infrastructure development in many Nigerian communities, the company states in its CSR file.
In delivering the policy aspiration on Nigerian Content Development (NCD), NLNG brandishes its corporate profile as the first multinational joint venture that is operated with 100 percent Nigerian management team.
Group Managing Director of NNPC, Mallam Mele Kyari, who spoke on the Train-7 project, pointed out that NLNG has met and exceeded government’s short to medium term objectives on reduction of routine gas flares. He commended the company on enhanced Nigerian Content in its activities; gas revenue generation; ancillary business catalysis, cheaper, cleaner and reliable gas fuel supply; and job creation.
Executive Secretary of the Nigerian Content Development and Monitoring Board (NCDMB), Engr Simbi Wabote, said that the NLNG became the first multinational company in Nigeria to sign Service level Agreement (SLA) and Nigerian Content Plan (NCP) on projects.
It therefore defies any argument that a company with such huge economic value proposition for the country, high offer for commercial returns to shareholder, massive corporate social responsibility (CSR) scorecard, and methane emission mitigation value for the environment would default on a matter like pipeline right of way.
Whereas the N18.4 billion compensation awarded against the NLNG might appear minuscule against its huge spending size, pillaging the company with trifle financial demands and penal awards would be a huge dent on the integrity of the operating and regulatory environment. It strips incentives for further commitment to investments in generation of value.
Such ruling coming from the Senate simply lays business case for divestment by multinational promoters of the company who have since registered fatigue and distress in their Nigerian operations.
