The current legal entanglement between Nigeria LNG Limited (NLNG) and Nigerian Maritime Administration and Safety Agency (NIMASA) may spell danger for the much needed foreign direct investment (FDI).
The legal tussle, over applicability of NIMASA levies to NLNG, which many thought has been laid to rest, took a new twist with the appellate court judgement delivered on March 29, 2019, mandating that the case be sent back to the High Court for fresh trial under a different judge.
“The peculiarity of the present case makes the outcome of the re-trial arguable and uncertain, given that the Court of Appeal has declined to address the substantive issues raised. The glaring implication of the Appeal Court’s decision means that the judgement delivered by the Federal High Court is rendered null and incapable of enforcement by either of the parties, NLNG especially”, said Ayodele Oni, energy partner at Bloomfield Law practice.
This has given rise to uncertainty of the likely outcome of the judgement of the Federal High Court this second time. Uncertainty is a definite red flag for investors.
How it started
On 3rd May 2013, a tug boat blockaded LNG Adamawa, an NLNG chartered vessel, at the instance of NIMASA acting through Global West Vessel Specialists Limited.
The blockade, according to a maritime expert, was “a self-help effort to extract levies purportedly owed NIMASA by NLNG”. These levies according to NIMASA, include shipping levies based on gross freight on exports and imports. However, the NLNG said the Act establishing the Nigeria LNG exempts it from payment of the Sea Protection Levy, the three percent freight levies on cargo exports shipped by NLNG, and the two percent Cabotage Levy.
NIMASA eventually lifted the blockade on 5th May 2013 after a meeting between the management of NLNG and NIMASA, in which it was resolved for lasting solutions to be sought under the rule of law.
On 21st June 2013, and in flagrant disregard of a subsisting court order barring it from further blockade of the Bonny Channel, NIMASA effected another blockade of the Bonny Channel, preventing NLNG vessels and vessels belonging to its buyers from accessing or leaving the NLNG terminal. After a three-week blockade, NLNG was compelled to start making the disputed payments “under protest,” which led to NIMASA ending the blockade.
Owing to the blockade which persisted in spite of court orders, NLNG claimed that it lost revenues of over $355 million.
NLNG filed a case in 2013 at the Federal High Court, Lagos Division against the Attorney General of the Federation and Global West Vessel Specialists Nigeria Limited, seeking a judicial determination on, among other things, the legality or otherwise of certain levies sought to be imposed on NLNG by NIMASA, an agency of the Federal Government and the consequent blockade of NLNG vessels by NIMASA and Global West as a result of the dispute.
On October 3 2017, the Federal High Court sitting in Lagos, delivered judgment in favour of NLNG against NIMASA, granting all the reliefs sought by NLNG in the case over applicability of the NIMASA levies.
Justice Mohammed Idris ruled that NLNG was not liable to pay the three percent gross freight on its international inbound and outbound cargoes and sea protection levy amongst other charges, to NIMASA, adding that NIMASA was wrong in blocking the NLNG from having access to its Bonny terminal for the purpose of enforcing the payments against NLNG.
According to the court, all such payments already made by NLNG to NIMASA “under protest” should be refunded to NLNG forthwith. The court went further to restrain NIMASA from taking or continuing any steps to block, restrain, seize, detain or restrict NLNG (or its shareholders or subsidiary vessels or chartered vessels).
The dispute can be traced to the apparent conflict between the enabling Acts of both organisations: the Nigeria LNG (Fiscal Incentives, Guarantees and Assurances) Act 1990 and Nigerian Maritime Administration and Safety Agency Act 2007, Merchant Shipping Act and Coastal and Inland Shipping Act.
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. However, NIMASA contends that its establishment laws exempt only military vessels from its various revenue payments.
Pyrrhic victory?
The maritime regulatory agency filed an appeal against the judgement of Justice Mohammed Idris leading to the Court of Appeal directing that the case between the two parties be remitted to the Federal High Court for re-hearing.
Dakuku Peterside, Director General, NIMASA, commended the appellate court judgement saying it has reaffirmed confidence in the Judiciary.
“This judgement has further shown that the judiciary is unbiased and remains a beacon of hope for Nigerians. On our part as responsible government agency, we will continue to work closely with the judiciary and other stakeholders to ensure that we realise our mandate of creating a robust maritime sector in line with best global practices,” Peterside said.
But then, the appellate court did not override the judgment of the trial court, neither did it uphold the decision.
“The Court of Appeal declined the invitation to delve into the substance of the dispute between NIMASA and NLNG”, Oni said.
Andy Odeh, manager, Corporate Communication and Public Affairs, NLNG, in a statement, said that “NLNG as a good and responsible corporate citizen remains committed to conducting its business in accordance with the laws of the Federal Republic of Nigeria, and to abide with all applicable laws including those that confer exemptions on and grant fiscal incentives to businesses, as a way of sustaining their operations and growing the economy.”
Another legal expert who spoke to BusinessDay said that “where the case is to be heard afresh, the position of the parties would revert to what it was as at the time the case was filed, in which case no payments of the levies in dispute would be made by NLNG to NIMASA pending the re-hearing and determination of the suit.
Where on the other hand the right of appeal to the Supreme Court is exercised, the status quo as of the date of the Court of Appeal judgment will be maintained, which is to the same effect”.
Tax holiday vs. levies
The issue of NLNG’s tax holiday has often created a mix-up of issues in respect of NIMASA’s levies. The NIMASA levies have nothing to do with the NLNG tax holiday. The 10-year tax holiday was a pioneer period incentive in the manner of similar relief to pioneer companies under the Industrial Development (Income Tax Relief) Act and pertains specifically to income-tax.
NLNG now pays Companies Income Tax and Tertiary Education Tax which are the heads of corporate income taxes recognised under Nigeria’s laws since the end of the tax relief period. The NIMASA levies are not heads of income tax. They fall within the fiscal incentives and exemptions contained in other provisions of the NLNG Act which are not time bound.
Corporate cousins?
“NIMASA and NLNG are neither foes nor competitors. We are corporate cousins working together for the common good of our great country. Judgements like this only serve to strengthen our institutions and ensure greater bonding,” Peterside said.
NIMASA, formerly the National Maritime Authority (NMA) is the apex regulatory and promotional maritime agency responsible for regulations related to Nigerian shipping, maritime labour and coastal waters.
NLNG was incorporated as a limited liability company on May 17, 1989, to harness Nigeria’s vast natural gas resources and produce Liquefied Natural Gas (LNG) and Natural Gas Liquids (NGLs) for export.
In a chat with Businessday during the recent signing of the Nigerian Content Plan Agreement for Train 7 with Nigerian Content Development Monitoring Board (NCDMB), Tony Attah, Managing Director, NLNG, recounted several feats recorded by the company which include monetising over 6.37 Trillion Cubic Feet of Associated Gas to Liquefied Natural Gas (LNG) and Natural Gas Liquids (NGLs), thus helping to reduce gas flaring by upstream companies from over 60 percent to well under 20 percent. From the monetisation of gas hitherto being flared, NLNG has generated over $100 billion revenue since inception; paid over $36 billion to shareholders as dividends, of which 49 percent of that total has gone to the Federal Government by virtue of its shareholding stake.
With six trains currently operational, NLNG’s plant is capable of producing 22 Million Tonnes Per Annum (MTPA) of LNG, and 5 MTPA of NGLs (LPG and Condensate) from 3.5 Billion (standard) cubic feet per day (Bcf/d) of natural gas intake.
“The $12 billion-Train 7, is projected to increase the plant production by 35 percent, attracting huge foreign direct investment (FDI) of $2 billion in upstream investment and some $5 billion in construction thereby creating over 10, 000 jobs during construction,” Attah added.
Ranked as the fourth LNG Company worldwide by market share, the NLNG is arguably number one in CSR in Nigeria having spent over N25 billion on community projects over the years; over N2 billion on building world-class engineering laboratories in six Nigerian Universities through the University Support Programme, and N120 billion on the construction of Bonny-Bodo Road in Rivers State. In addition, the company signed an MOU with the Bonny Island community to provide N3 billion each year for 25 years for the overall development of the Kingdom.
FRANK UZUEGBUNAM
