In the last few days, the Nigerian Liquefied Natural Gas (NLNG) Limited has been in the news for being the source of the fund with which the Muhammadu Buhari administration is bailing out cash-strapped states to pay workers’ salaries. Its Managing Director, Babs Omotowa, in an exclusive interview in Lagos yesterday with Assistant Editor (News) OLUKOREDE YISHAU, shed light on the company, its operations and potentials.
You had a meeting with the president recently. What did you discuss?
We were very pleased to have had the privilege and opportunity to meet Mr. President. We were really very encouraged. The President of course being a former minister for Petroleum knew about NLNG. In fact, the President was one of those who actually designed the LNG when he was Petroleum minister. He was able to reminisce on his days and the dream they had of building 12 LNG plants. He was very happy at the progress we have made to have built six trains. He was very pleased about our performance. He was pleased that we are really managing the company well. He also highlighted that he wasn’t pleased that we hadn’t grown up to the 12 trains that they designed. But, he was also very clear that his government will do the needful in terms of security and ensure that the security issues we face are resolved. He was also keen to help us resolve a lot of the challenges with multiple regulations and non-competitive charges that we are facing. So, Mr. President really encouraged us and we really got a lot of motivation from that visit and we look forward to continuing to work with the new government to actualise the growth activities that we have in front of us.
What has Nigeria and NLNG shareholders lost to the delay in the take-off of the Train Seven of your LNG plant in Bonny, Rivers State?
Think of the fact that we recently paid $1.6 billion as Company Income Tax (CIT), aside from the dividends that we paid from our current six trains, the seventh train is 40 per cent growth on that. So, you can imagine if we had built it by now, we will have been adding 40 per cent more than the $1.6 billion. But, I think it is even much more than that. The construction of the train will create about 18,000 jobs during the construction phase. This would have created employment for a lot of people. It would have also enabled us to have brought in Foreign Direct Investment (FDI) of over $10 billion for that construction phase, which would have created a lot of activities in terms of contracting, procurement of goods and services. So, jobs, money, reduction of gas flaring, these are things, I think, we would have benefitted if we had been able to put train seven on stream.
Of recent the NLNG paid some money to the government, can you shed light on this?
The $1.6 billion we paid on June 17 was our CIT and Education Tax. The money was paid to the Federal Inland Revenue Services (FIRS) as our 2014 income tax payment. You may recall that last year, we paid $1.3 billion to the same FIRS as our CIT and Education Tax for the previous year. So, that particular amount is for tax. Dividend is a different issue and different payment. We make dividend payment to our shareholders, who include the Nigerian National Petroleum Corporation (NNPC), Shell, Eni and Total. Those dividends are paid to them quarterly or bi-annually, depending on how much cash we generate. Of course, in the past, over the past 10 to 15 years, we have paid over $30 billion as dividends to all our shareholders.
How much of this has gone to the NNPC?
We can only tell you that we have paid $30 billion. Dividends are paid by the equity shareholding of each shareholder. The NNPC holds 49 per cent stake; Shell (25.6 per cent); Total (15 per cent) and Eni (10.4 per cent). Those are the percentages the dividends are paid.
What period does the $1.6b cover?
It is for the 2014 accounting year, which ended December. Of course, you have to do your audited accounts and you have to get that audited accounts approved and the CIT Law requires you to pay it before June ending.
As a major player in the oil and gas sector, I suspect that you have an idea of what other companies pay to Nigeria. Is there any other company that pays as much as NLNG pays to the government coffers?
It will be difficult for me to know what other companies pay. But, I know that in terms of CIT, we are the highest in the country. In fact, we are the highest in sub-Saharan Africa in terms of CIT. But of course, there are other payments other companies pay. Some of them pay royalties and pay other funds. We, in addition to our CIT, pay dividends to our shareholders. I think when the government looked at it last year, we were ranked the number four company by the government’s own rating. But, in that ranking, we were the number one indigenous, home-grown company because the other three are foreign companies. We believe we are in that sort of region in the top contributor to the Nigerian economy.
Why is it difficult to get the Final Investment Decision (FID) for the Train Seven? Is the problem funding?
Of course, it is not money. We can finance the construction of the project and we have done that for trains 1 to 6. So, it is not in doubt that we can do it. But, of course, a FID will require the gas suppliers from the upstream to be able to build their own gas gathering infrastructure and be able to send gas to us. So, for the upstream, there have been quite some challenges on the lack of the PIB to define the fiscals for them. Funding has been a big issue because of they require a lot of money from the NNPC to construct those infrastructure. Those are some of the issues we have been working to resolve. But, I think the good part about the project is that all the shareholders are committed, all the gas suppliers are committed and we already have signed sales agreement for the train seven. So, we are working through all the issues. Unfortunately, the bid for the tender for the construction that was done in 2008 has expired. So, we need to re-tender again with a new design. We need to include a lot more Nigerian content requirement into that. That will also take time to go through the bidding process, go through the Nigerian content activities we have to do on the project.
How long more do we think it will take for the FID?
One of the critical parts is the upstream gas suppliers. The time it takes them to get their gas projects constructed and approved. Currently, it still takes up to two years for them to get contracts approved through the bureaucracy. So, that remains one of the critical parts. For our own activities, within two to three years, we will conclude those and hopefully, within the framework of two and three-year timeline, they too should conclude theirs.
What are the different taxes the NLNG pay to government and its agencies?
At the federal level, we pay the CIT, which we discussed and the Education Tax. We also pay the Value Added Tax (VAT) and Withholding Tax of which we have paid over $1.4 billion over the years. Over the last 15 years, we have paid over $1.4 billion. At the state level, we also pay taxes, the Pay As You Earn (PAYE) taxes. We pay about N6 billion annually to the state government. At the local government, we also pay our local government fees and charges of over N100 million as well. And then for various agencies, including the Department of Petroleum Resource (DPR), NIMASA , Federal Ministry of Trade and Industry and a whole raft of agencies. I think we pay more than 20 agencies various fees, including the Nigerian Civil Aviation Agency (NCAA) for our airstrip… I think that is one of the big challenges in Nigeria that makes us less competitive in the global market because our operating environment is just challenging. Today, we have more than 16 people from various agencies who are in our plant from the government trying to carry out regulatory activities. This is just something that could be better streamlined.
You just mentioned NIMASA. Have you resolved the disagreement between this agency and NLNG?
You will recall that in 2013, we indeed went to court because we had been blockaded for more than 21 days at a huge loss to the country because today, the take of the government from the NLNG is 70 per cent from taxes, dividends and all of that. So, 70 per cent of the losses we suffer due to the problem with NIMASA are to the country, which is quite unfortunate. After we were blockaded and they refused to obey the court injunctions, we then paid under protest and after that we then went to the court and we have been in the court. There have been quite a lot of appeals by them. They have appealed to the Appeal Court, Supreme Court, most of which they have lost. But, we are following the process. We believe in the rule of law and we are confident that at the end of the day, judgment will be delivered in our favour and that this kind of extortion does not happen again in the future.
For how many years has the NLNG been paying the CIT and Education Tax?
We paid last year. We paid $1.3 billion last year to the FIRS. It is just more transparent under the new government that everybody seems to know. But, we did pay $1.3 billion last year to the Federation Account.
You said about $10 billion FID will come in for Train Seven. Where will this be coming from?
As you see when with the six ships we are building in Korea, we had to also get FDI of $1. 5 billion. We got much of that from Korean banks. KEXIM, the Korea Export Bank and KSURE, another Korean financial institution and we also got many of the international banks in the world to fund that. NLNG has such a strong balance sheet and a global name recognition that for us to borrow money is no problem. We actually have a higher credit rating than even the Nigerian credit rating. For us, we are able to finance ourselves and banks are willing to support us all over the world.
In simple terms, what really does it mean to say NLNG contributes four per to Nigeria’s GDP?
You measure GDP by various indices. Some of it is output and ome of it is based on jobs created. So, we have the University of Ibadan come and carry out an analysis, which was on output basis and their conclusion from that analysis is that NLNG’s contribution to the GDP was four per cent. And, I think you can even see some of that when you think of the $1.6 billion tax that we just paid, which is just one element of the several taxes that we paid. That money alone is about eight per cent of the projected revenue for 2015, from just that simple payment whereas we make several other payments on dividends, state government, local government and other regulators that we pay. I think that you can see very clearly that our contributions to the country are very significant.
How serious is the shale gas challenge to the NLNG?
It’s a challenge in the sense that the United States (U.S.) market, to which we were selling 35 per cent of our products when we started, is zero per cent today. And the U.S. is now self-sufficient and it is also planning to start export, which means not only have we lost the market in the U.S. but they will be competing with us elsewhere. It is such a big amount of reserve and people estimate that it could produce up to 70 metric tonnes from the U.S. per annum in the next few years. It’s a challenge but having said that, there have been various challenges over time. When Qatar came on stream, Qatar started to produce 77 metric tonnes per annum. Australia is growing significantly. They also want to get to 80 metric tonnes per annum. We are seeing Tanzania, Mozambique growth in all these areas. So indeed, the competitive space is a lot bigger than it was in the past but for us. Competition is good because it brings out the best in us. We are very proud of our reliability, which stands at about 97 per cent today. We are also proud of the fact that we are a very efficient organisation. We can compete very well and the forecast is that the demand for LNG will continue to grow. It is expected that by 2030, it would nearly have doubled because Southeast Asian countries, China, India and now use LNG in transportation, marine and land transport that are using LNG enable that growth. We see quite a lot of up sides and opportunities despite the shale gas challenge.
What is your response to this shale gas challenge?
When the Shale gas came from the U.S., we were very quick to identify new markets. We were one of the first to go to Japan when the Fukushima accident occurred few years back. We have been able to find new markets in South America, in Argentina, in Brazil and we are exploring new markets as we speak, even in Southwest Asian countries. So, the Shale gas has expanded competition but it has brought creativity and has also brought the need for us to be more efficient. As I said, we are one of the foremost plants in the world; we are the single biggest industrial complex in sub-Saharan Africa and with 97 per cent reliability, we are really loved by our customers all over the world because they are sure they will get products from us. So, the Shale gas itself is an additional competition. It has only brought us more creativity from us.
Is NLNG still number four in global LNG supply?
Yes, we are still number four in the world in terms of LNG plants.
Let’s talk about domestic gas supply. How involved is the NLNG?
On the Liquefied Petroleum Gas (LPG) side, we currently supply 80 per cent of the cooking gas in the country, which means every 10 cylinder that you see, eight are being filled with gas from NLNG. We want to grow that to two million metric tonnes per annum from the current 250,000 tonnes. There is room for 10 per cent growth and what this growth will do is to enable people to stop using the likes of kerosene, which the government is still subsiding by over $3 billion, or people chopping down trees, especially in the North, which is leading to deforestation and environmental issues.
Let’s talk about the Nigerianisation of the NLNG. Will you say this has helped the company or things were better when foreigners were running the show?
I think today, 95 per cent of our staffers are Nigerians. The whole management team is Nigerian. Of course, we have our Board, which consists of directors from the stake holders. And I think when you look at the company’s performance over the 15-year period, I think that we have been able to show in the period that Nigerians have been managing the plant and running the company to show that a Nigerian can also do what any foreigner can do. The company has been well-managed. Performance of our plant, the reliability is among the best in the world. Anybody who visits our plant from anywhere in the world has always been pleased with the way we have maintained it. Our customers and buyers are so proud of the reliability they get from the plant. Every day they are waiting for cargo from Nigeria, they know it will appear and we have been able to contribute what we are contributing to Nigeria and the Nigerian content part of it shows that having Nigerians have its advantages because we understand the terrain, we understand the issues, we feel the same pain and we are able to do things. When you think of what we have done on the ship construction side, how we have been able to train more Nigerians, how we have been able to get Nigerian manufacturers to be exporting products to the world, I think this shows clearly that the company is meeting its core value and vision of building a better Nigeria while being a global player. I think we have been able to demonstrate that with more Nigerians, the company has been more successful than it has been in the past.
Where do we see NLNG in the next 10 years?
Clearly, we see growth. We expect that in 10 years, our Trains Seven and Eight will be on stream and NLNG will be able to deliver more values to the country both in terms of financial contributions and Nigerian content. We are looking at creating many more local champions, companies that can become exporters and even global players from our efforts. We are seeing years that other companies will have seen how NLNG has been able to run a successful business and that learning would have been able to help others, be it in refineries and several other areas to also get more Nigerian companies being run as successfully as the NLNG. We are optimistic that in 10 years, we will continue to be an inspiration to the country and continue to be a key player in building a better Nigeria.
