Petroleum Club opposes proposed amendment of NLNG Act

A ship berths near the Nigeria Liquified Natural Gas company (NLNG) near Finima village, during an aerial tour by the Royal Dutch Shell company, in Bonny March 22, 2013. REUTERS/Akintunde Akinleye  (NIGERIA - Tags: ENERGY)

An LNG vessel berths at the Nigeria Liquefied Natural Gas company, NLNG, loading bay, on Bonny Island. REUTERS/Akintunde Akinleye. 

21 June 2016, Lagos — The Petroleum Club has expressed its opposition to the proposed amendment of the Nigeria LNG Act by the House of Representatives, insisting that the proposed changes would have a serious deleterious effect on Nigeria’s ability to attract Foreign Direct Investment, FDI, as it would portray the country as unable to guarantee the sanctity of contracts.

The association also said the proposed exercise would make foreign investors to see Nigeria as a country that cannot be relied upon for policy consistency and stability of fiscal terms.

In a memorandum sent to the National Assembly and copied the Vice President of Nigeria, President of the Senate, Speaker of the House of Representatives, Chairman of Senate Committee on Gas and Chairman of House Committee on Gas, the Club argued that it is a standard practice all over the world for governments to grant special incentives for Liquefied Natural Gas (LNG) projects due to the huge capital investment requirements and commercial risks involved in LNG projects.

“The international gas business has become much tougher and more competitive over the past few years as a result of which many countries are increasing their incentives to the gas business. There are now many more players in the LNG industry and the advent of Shale gas has transformed the industry. Prices in the United States have crashed and several LNG import terminals in the United States are being converted to exporting facilities. Floating LNG is also coming into operation, enabling the production of LNG from gas in remote, deep offshore fields. These new developments are impacting the profitability of LNG projects. Under these circumstances, NLNG requires increased support from all the arms of the government and not the imposition of additional taxes and levies, which the proposed amendment seems to be advocating,” said the Club.

The memorandum, which was signed by the Chairman of the Club, Otunba Funso Lawal and Chairman of Policy Committee, Dr. GS Ihetu, further stated that the NLNG Act gave confidence to international and local banks and export credit agencies to participate in the expansion projects.

According to the memorandum, which was obtained by THISDAY, the association stressed that Nigeria needs to be seen as having stable fiscal and commercial terms in order for international oil companies and lenders to commit funds to the country.

The Club further noted that the NLNG Act is not the arbitrary Act of any particular government but the recommendation of a working committee, consisting of the ministers of all the relevant ministries.

“The federal government reconfirmed its commitment to the NLNG Act in 2002 for Third Party financing for the NLNG plus project (Trains 4 and 5) from a consortium of international and Nigerian banks, with export credit guarantees in 2002. Without the assurance from government, NLNG would not have been able to secure the financing,” the memorandum added.

The Petroleum Club warned that the lack of substantial investments in Nigeria’s oil and gas industry in the last decade should be a signal for the government to avoid worsening what some investors regard as a hostile operating environment.

The Club identified the NLNG legislation as the NLNG Acts No. 39 of 1990 and No. 113 of 1993, together with the government guarantees and assurances, pointing out that the important elements of the legislation are exemption from import duties and taxes for a minimum period of five years and a maximum period of 10 years from the date of the first LNG cargo from Nigeria, which occurred in October 1999.
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