By David Peters
In a fruitless effort to tarnish the hard-earned reputation of the suspended Managing Director of the Nigerian Ports Authority (NPA), Ms. Hadiza Bala-Usman, the May 11, 2021 publication on Sahara Reporters obviously sponsored by LADOL misrepresented facts and churned out falsehoods over the dispute between LADOL and the Samsung Heavy Industries Nigeria Limited just in a bid to justify her suspension.
However, the sponsors of the falsehood failed because the facts relating to the dispute have been in the news for over the past couple of years.
As an investment advisor with special interest in the Gulf of Guinea, this writer has consistently followed the dispute and has also analysed, distilled, and condensed the issues arising from the dispute.
While it is understood that most of the issues between Samsung and LADOL are pending before Arbitration in the United Kingdom and in various courts in Nigeria, it is also necessary to provide a proper contextual explanation.
The entire saga arose from Samsung Heavy Industries’ corporate decision to invest in Nigeria in 2012 and make Nigeria the hub of offshore and infrastructure fabrication and integration works in Africa.
Most of us, who influence investment decisions had welcomed this decision with enthusiasm, believing that Nigeria needed such investment at the material time more than ever before to revive the then moribund oil industry and boost the country’s economy.
Indeed, there is no doubt that Samsung could have elected to make any other African country its primary base in Africa, but it elected to focus on Nigeria because at the time the decision was made, the global shipbuilding giant saw the potential for growth, the friendly investment atmosphere and the vast opportunities Nigeria presented if the enabling environment was in place and security of investments was assured.
Investments, whether national or foreign, require a conducive environment which is essentially based on the rule of law and respect for contracts.
Samsung was engaged by Total Upstream Nigeria Limited (TUPNI) in 2013 as the contractor for the Engineering, Procurement, Construction, and Installation (EPCI) in respect of the Egina Floating Production Storage and Offloading unit for deployment to the Egina Field in OML 130 (operated by TUPNI).
It was evident from publicly available information that LADOL was not a party to the EPCI Contract, neither was it a partner to the Korea giant regarding the execution of the EPCI Contract.
It was gathered that the joint venture arrangement between Samsung and LADOL arose as a result of ship builder’s commitment to fabricate and integrate certain portions of the FPSO in Nigeria according to its EPC contract with TUPNI.
In furtherance of this, Samsung Heavy Industries Nigeria Limited (SHIN) identified the need to construct a fabrication and integration facility in Nigeria to execute the such EPC works in a long term point of view.
SHIN was said to have assessed other sites in Nigeria but after the assessment of various sites for the development of the fabrication and integration yard, the company decided to utilise the LADOL Free Zone Area in Lagos.
It was understood that when SHIN requested for a lease of land in the zone for the development of the fabrication and integration yard, LADOL indicated its interest in participating in a joint venture with Samsung.
This joint venture company would execute a subcontract for the local fabrication and integration of certain topsides of the Egina FPSO.
In furtherance of this, SHI-MCI FZE was jointly set up by Samsung and LADOL.
Also from the information available in the press, when Samsung entered the joint venture with LADOL, the location for the construction of the fabrication and integration facilities was a 12,100 square metres of swamp with no development whatsoever thereon.
It was also gathered from both parties that the initial rent agreed for the 12,100 square meters in 2013 was $5.6 million for five years.
However, by July 2014 and in order to resolve a dispute between Samsung and LADOL, Samsung was constrained to pay, for the same undeveloped bare swamp, the sum of $45 million for five years, which is a rent of $9 million per annum.
Meanwhile, LADOL pays less than $600,000 for five years to NPA for the same land.
When NPA under Bala-Usman discovered that LADOL charged such exorbitant fees without prior due process for an approval from NPA, it sanctioned LADOL for violating the terms and conditions in the Head-lease Agreement between NPA and LADOL.
It was this sanction that led to the Presidential directive, which was even overtaken by court orders, and which was referred to in Sahara Reporters’ report
Again, parties had agreed that the equity holding shall be 70 per cent SAMSUNG and 30 per cent MCI (LADOL affiliate).
The shareholding restructuring was to reflect the financial capacity of each party to meet its equity funding obligation. The 30 per cent allocated to LADOL was procured by advanced payment of $45 million lease rent (increased from $5.6 million) for five years which was agreed to be credited towards the 30 per cent shareholding of LADOL, while SAMSUNG was to fund its 70 per cent equity and procure 100 per cent debt funding.
So, it was the $45 million paid by Samsung that LADOL used to fund its 30 per cent equity of the joint venture company.
Interestingly, LADOL has never disputed this fact in all its media releases.
Further to this, information at the public domain, which have not been disputed also showed that Samsung invested: (a) $94.5 million for its 70 per cent equity; (b) $40.5 million for LADOL’s 30% equity as part of the $45 million as rent to LADOL for five years; (c) $135million of debt financing in forms of corporate and bank loan. This total amount of $270million was utilised to develop a world-class offshore fabrication and integration and fabrication facility capable of competing with most internal facilities of its kind.
In addition to these investments, other ancillary costs relating to the development brought the total investments to excess of $300 million. Evidence of all these inflows into Nigeria have been verified by the relevant agencies and authorities.
From this foregoing, it is evident that Samsung should be respected as a genuine investor in Nigeria.
Regarding the intervention of the NPA in the dispute over the land between Samsung and LADOL, it is necessary to clarify that this issue stems from LADOL’s failure to comply with the terms and conditions of the Head-lease it entered into with NPA in 2006.
When the joint venture between Samsung and LADOL was set up, LADOL granted a sublease to the joint venture entity (SHI-MCI) obviously without NPA’s prior approval.
However, the NPA/LADOL lease had a fundamental condition that any subletting to anyone without NPA’s prior approval would provide a basis for an automatic termination and consequently the sublease to the joint venture enterprise.
This was the major identified risk because such termination would directly impact multi-million dollar investments of Samsung.
It was gathered that despite several requests by Samsung to LADOL over a four year period to seek NPA’s approval, LADOL refused to obtain the approval.
In its letter terminating LADOL’s lease, the NPA alleged that the refusal by LADOL to obtain its consent was because LADOL did not want NPA to be aware that the rent it collected from Samsung was $45 million for five years while LADOL paid less than $600,000 during the same period to NPA and Federal Government of Nigeria.
Media reports also indicated that in 2018 a dispute occurred between LADOL and Samsung, following the attempt by LADOL to utilise its conflicting and monopolistic positions to strangulate Samsung’s operations by (a) refusing to issue an operating licence for continued operation of the Joint Venture; (b) terminating the sublease to the Joint venture and directing Samsung to vacate the multi-million dollar investments within 90 days; and (c) ceasing to provide services to Samsung at the critical time for the Egina FPSO project. It took court orders and also intervention of an international oil company (IOC) which is the owner of the FPSO and federal government’s agencies for LADOL to allow the completion of the Egina FPSO project.
Notwithstanding this, upon sail away to the oil field of the FPSO, LADOL continued its frustration of the operation and use of the facilities. In 2019, due to LADOL’s continued breach of its lease agreement by not obtaining the consent of NPA for the subletting and procuring an extension of its lease by misrepresentation, NPA terminated LADOL’s lease.
NPA subsequently leased the 11.2 hectares on which Samsung invested over $300 million, to Samsung and granted a lease over its remaining over 100 hectares to LADOL.
It is clear from these resolution steps that the lease from NPA to Samsung does not affect the over 100 hectares remaining land held by LADOL.
It should be noted that in 2018, His Excellency, President Muhammadu Buhari, had approved an application at the request of NPA for a grant of a lease in excess of five years to LADOL, which approval is required under the NPA Act. However:
(a) NPA’s subsequent discovery in 2019 of material misrepresentation by LADOL as well as material breach of the lease granted to LADOL formed the basis for termination of the LADOL lease in November 2019.
(b) When LADOL petitioned government authorities, NPA allegedly sought to reverse the lease granted to Samsung, the Korean investor in Suit No. LD/6899GCMW/2020, obtained a court order restraining NPA from taking any steps pursuant to the purported termination of the Samsung lease, including but not limited to peaceful enjoyment of Samsung’ rights under the lease or recognising or granting any interest in the demised land to anyone or acting in any manner contrary to the terms of the lease or that is adverse to Samsung’s interest under the said lease pending the hearing of the application on notice for interlocutory injunction. The Honourable Court on August 11, 2020 further gave an order preserving the res pending the hearing and determination of the interlocutory application. Since the Court Order has not been discharged, it is still valid and binding. So, any actions contrary thereto amounts to a contempt of court.
(c) Neither the termination of the LADOL lease nor the grant of a direct lease by NPA to Samsung breaches any applicable law nor does it create any unfair disadvantage on a local company.
(d) LADOL had not and did not develop any part of the 11.2 hectares in dispute as it was bare swamp land, which Samsung invested millions of dollars to develop. Indeed LADOL still holds over 100 hectares at same location.
(e) NPA had disclosed that since the commencement of the relationship between SAMSUNG and LADOL in 2013, it is understood that Samsung has paid to LADOL around $150 million dollars including the concerned land lease fee. Samsung has consistently argued that the attempt by LADOL to take over the facilities it developed is nothing but appropriation and unfair business practice.
(f) It is obvious that the lease granted to Samsung was to potect the significant investments of foreign investor in Nigeria and should affectively end any future conflict of interest arising from LADOL’s conflict of interest as sublessor, zone manager, exclusive service provider and shareholder. Analysts have insisted that such a direct grant of interest to a genuine investor is the appropriate approach to encourage and attract foreign investments and capital to critical infrastructure in Nigeria.
(g) NPA’s action will go a long way in attracting more foreign investments into Nigeria. It also aligns with His Excellency, Mr. President’s desire to make Nigeria the hub of investments in Africa and transform Nigeria to a major manufacturing and production economy.
……Peters, an investment advisor, writes from Yorkshire, United Kingdom
