Nigeria could unlock a flood of capital if it loosened up on its other state assets in the manner it did with the Nigeria Liquefied Natural Gas (NLNG).
Africa’s largest oil producer can do with more foreign direct investment (FDI) at a time when only $222.8 million was imported as FDI in the second quarter (Q2) of 2019, the lowest since Q2 2016, according to the National Bureau of Statistics (NBS).
Not only does that compare poorly with FDI flows to African peers from South Africa to Egypt, it translates to an FDI per head of $1.14 compared to the Africa average of nearly $100 per head, according to World Bank data.
In 2018, while South Africa and Egypt attracted FDI worth $5.3bn and $6.8bn respectively, Nigeria raised $2bn, according to UNCTAD data.
The solution to unlocking sufficient amounts of FDI in Nigeria could lie in replicating the winning ownership and management model of NLNG across sectors where government has exclusive ownership, from rail to airports.
NLNG is run in a unique way that is different to other public assets, as it is owned partly by government and the private sector. It is however run exclusively by the latter, earning it plaudits along the way for its operational success.
The Federal Government, represented by NNPC, owns 49 percent of NLNG while international oil company, Shell owns 25.6 percent. French oil company, Total Gaz Electricite Holdings owns 15 percent and Eni owns 10.4 percent.
The ownership structure makes it an independent incorporated joint venture, guaranteeing an independent board of directors, effective decision making as well as funding for its projects.
“The answer to why the NLNG is so successful is in the ownership structure,” Adeola Adenikinju, gas policy analyst for the World Bank and professor of Economics at University of Ibadan told BusinessDay.
“NLNG is run like a serious business there is minimum government interference unlike NNPC,” Adenikinju added.
While NLNG points a way on how the Government can attract investments, the NNPC is the opposite.
A comparison of both has continued to beg the question of why the Federal government doesn’t adopt the NLNG model for all key oil and gas projects.
Unlike NNPC which is a golden goose to different political regimes, NLNG has over the years been largely insulated from Nigeria’s harsh business climate, unpredictable political games and unfavorable investments conditions.
The company has also raised funds for its projects, from a combination of shareholders loans, internally generated revenue and third-party loans.
Not only has NLNG fully paid without default the $5.45 billion taken from its shareholders to build its six existing LNG trains, NLNG has also paid as much as $36 billion to its shareholders as dividends over the years, in addition to paying joint venture (JV) gas suppliers $28 billion for feed gas supplies while helping Nigeria cut about 6.3 trillion cubic feet (tcf) of associated gas from being flared.
NLNG is discussing with the country’s top-10 lenders including Guaranty Trust Bank Plc and Zenith Bank Plc, to raise as much as $2 billion, and with foreign lenders and export-credit agencies for the balance which cannot be said of NNPC which still struggles to attract private capital.
“The NLNG business model needs to be replicated in order to generate opportunities for the power and gas sectors in the country,” Charles Akinbobola, energy analyst at Lagos based Sofidam Capital said.
A local investor in the Nigeria oil and gas market narrated to BusinessDay how he approached the NNPC concerning plans to build an export terminal to compete with the foreign IOCs terminal but was turned down in the final stage while the plan was given to another person who had no idea about the project. “Transparency and accountability is a major challenge when dealing with NNPC,” the local investor told BusinessDay.
NLNG, as it is known, has signed sale and purchase agreements with existing customers to take the additional volumes from the new plant while it expects that aggregate market growth will be driven by demand from emerging markets, including new destinations such as Pakistan, Bangladesh, Jordan and Jamaica, CEO of NLNG Tony Attah said.
The Train-7 project is expected to ramp up NLNG’s production capacity by 35 per cent from 22 million tonnes per annum to 30 MTPA.
With its plant construction, the company generated considerable Foreign Direct Investment (FDI) for the country. The project today has assets (i.e. property, plant and equipment) financed mainly by NLNG worth about $16 billion at cost, NLNG 2019 fact and figures said.
After signing the letter of intent few days ago, NLNG announced it preferred bidders for the much talked about Train 7.The project is advantageous for both Nigeria and NLNG Ltd. The expected increase in production capacity would increase Nigeria’s gas export, enabling the country regain its place as one of the top gas exporters globally, and encourage diversification of energy resources.
The project is expected to cut down poverty through the creation of massive job opportunities. Consecutively, this will increase fiscal and FOREX revenue which will drive economic activity and growth.
While NLNG seems to be performing relatively well, the same cannot be said of NNPC which is still plagued with age-long inefficiencies such as subsidy now called under-recovery, increasing pipeline maintenance cost and obsolete refineries.
In first three month in 2019 alone the government spent N132 billion on subsidies.
The combined value of output by the three refineries (at import parity price) for the month of August 2018 amounted to N8.67billion while the associated Crude plus freight costs and operational expenses were N9.78billion and N9.68billion respectively which resulted to an operating deficit of N10.79 billion by the refineries.
LOLADE AKINMURELE & DIPO OLADEHINDE
