Omotowa:NLNG Is A Huge Blessing To Nigeria

Nigeria is a big country that has not quite lived up to its billing. It has few transnational companies and fewer world-class companies. Anyone that will look at the Nigerian business landscape from the outer space will, but for one or two blips, see vast emptiness. One of those blips will be Nigeria LNG Limited. The other will be Bonny Gas Transport Limited. These are perhaps the only Nigerian companies you can count amongst the first eleven in their respective industries, globally speaking. They are perhaps the only two Nigerian world-class companies. They represent something very unusual in these climes: consistency, seriousness, an uncompromising attitude and work ethic that is daunting, single-minded, and almost perfect. Their main focus is improving/expanding the markets – the building blocks of all economies. Together they have done so well as to have given Nigeria over USD $ 25 billion over the years and to foreign shareholders — Shell, Total and Agip — fabulous returns on their investment.

In terms of net worth, this business in which Nigeria invested less than USD $ 3billion in 1993 has grown to six-train plant worth over USD $ 15 billion with 24 ships in its fleet and six new carriers under construction in Samsung and Hyundai dockyards in South Korea. The ships expected to set sail in a few years time. In real terms, NLNG and BGT assets and cumulative earnings have surpassed the assets and earnings of the 189 companies listed on the 53-year old Nigerian Stock Exchange with a total capitalisation of USD$ 57 billion as at December 2012. It is that big and important to Nigeria’s economy and prestige. Those who appreciate its importance to Nigeria’s wellbeing moaned in anguish recently when it was blockaded for a dispute over $ 140 million levy. In other business climes, the company would still have been allowed to go on with its business until the matter has been resolved in courts and fines, if any, paid, if anything, to avoid revenue loss and reputational damage. But this is Nigeria…what happened seemed to be a sad case of a prophet not honoured in its homeland or what the Igbos would describe as the abominable act of killing an acclaimed warrior in a family dispute! But that’s a story for another day. Independence anniversary is usually a good time to count a country’s blessings and the focus naturally turns on great companies such as the NLNG, which has not only helped the country to put out flares, thus improving the health and environmental conditions of the Niger Delta and monetizing gas resources that were hitherto wasted, but has also (perhaps, even more importantly), single-handedly provided the country with elite manpower comparable with any around the globe. The Guardian on Saturday team of SHINA SHAKUREDEEN BANKOLE, LAOLU ADEYEMI and IBUKUNOLUWA KAYODE, sat down to interview the chief executive officer of NLNG and BGT, Mr. Babatunde Omotowa (Babs to friends and colleagues, Yemi to school mates) who besides running world class businesses, has become a poster boy for what young Nigerians, given the chance, can do. What are the qualities that took him to the top? How has NLNG’s immense success rubbed off on Nigeria? What is his take on some national problems? And—of course we couldn’t resist it—what really led to the widely reported NLNG/NIMASA imbroglio? Babs, our team discovered, is a thorough homebred (primary, secondary and university) who rose through a combination of obsessive scrutiny, uncompromising integrity, precise and detailed recollection of facts and issues. He puts all his intelligence and sensitivity and vitality into his work in a consistent way. He is private, Spartan, and does not waste his time. He always goes straight to what matters most and nothing else. This is the first of a very interesting, engaging three-part interview.

YOU have been the Managing Director of Nigeria LNG Limited (NLNG) for almost two years. What are your most important achievements and challenges?

There were two targets set at the beginning: one was to sustain the excellent performance of NLNG and the other was to move the business to the next level. We have maintained and even surpassed NLNG’s historical success. Last year was a record performance in the history of NLNG, in terms of production, financials and operations. This year, we have continued the same trend, maintaining the fundamentals despite the fact that we have faced significant challenges in terms of gas supply interruptions and the Nigerian Maritime Administration and Safety Agency (NIMASA) incident, both of which will have impact on our year-end result. On moving the business to the next level, we have put a lot of effort into the growth of NLNG, which is Train 7, but we have not moved as far as we had hoped. We are working on it and we remain optimistic. On shipping, we are modernising our fleet by building six new ships which increases capacity by over 10 percent. We are also making progress in instilling a world class culture, evolving our long term strategy as well as refurbishing our plant.
On the whole, it has been a fulfilling period.

NLNG was said to have recorded an unprecedented achievement last year. What in specific terms was achieved?

We earned $ 11.6 billion revenue which is 20 percent higher than any revenue earnings in the history of the company. Earning before tax was $ 5.6 billion, which is another record. So financially, it was outstanding. This resulted from excellent underlying performance, including production volumes which were unprecedented at 334 LNG cargoes. In terms of plant performance, plant reliability was 97 percent which is top quartile performance. Significant commercial success was achieved in moving products from depressed markets to more attractive markets.

Of course, we were building on the shoulders of our predecessors and continuing their previous hard work. Also, we did benefit from the high global oil and gas price. And as an organisation, every part of the company pulled together to achieve these results.

How has Nigeria benefitted from NLNG success?

Significantly and in many aspects; firstly, about 70 percent of our profits in NLNG now go to Nigeria. The Government, through Nigerian National Petroleum Corporation (NNPC), owns 49 percent shares in the company. Therefore, it gets 49 percent of our dividend. But Nigeria also gets 30 percent company income tax that NLNG has started to pay after the end of the tax holiday. You then add other payments NLNG makes like VAT, Education Tax, etc. So anything that happens to NLNG, 70 percent of it actually is happening to Nigeria.

NLNG also plays a big role in the society by providing over 70 percent of the cooking gas in Nigeria. We recently increased our supply to the domestic market by 67 percent and we have ensured that supply is no longer a problem in Nigeria. We are now working with other stakeholders on how to increase the usage of cooking gas in the households to prevent the health and environmental problems that alternatives like firewood have. Also, our contributions to the education sector, including the prestigious science and literature prizes, as well as our community development projects, all bear testimony to how NLNG has continued to be a force for good in Nigeria.

NLNG has been accused of cherry-picking the country’s laws in terms of revenue payment. Can you address that?

NLNG prides itself as a company that strongly complies with the laws. Most of those who make such accusations have not read those laws because when you read them, you will understand the various provisions. For example, The NLNG Act has several provisions. A section is on the company income tax which gives a ten-year holiday period. Another section is on levies, duties and charges which grants an evergreen waiver. So, it is not a matter of cherry-picking. It is a matter of abiding by the different provisions of the law. There is nothing unusual about this as governments all over the world do grant incentives to attract investors. For example, we have a number of export laws in Nigeria that provides evergreen tax free incentives to companies who operate in free trade zones. I will encourage those accusing NLNG of cherry-picking to go and read exactly what is stated in those laws. Only then will they be able to understand better rather than mix up issues.

I know NLNG is in court with NIMASA which is at the heart of this dispute? You have listened to their case; what do you think of their position and your position. Why is there a gap between the two?

The Government of Nigeria in its wisdom puts various laws through legislation and it is not unusual that some laws may conflict especially with laws being passed over time; some were passed in the 1960s, others in the 1970s and some in the 1990s, amongst several others. Also remember that we have three arms of government: the executive, the legislature and the judiciary. When laws created by the legislature are in conflict, the judiciary is the best place to resolve such. This is why we have approached the court to resolve what we believe is a conflict in law.

In the course of your defence during the argument with NIMASA, you said your position was informed by patriotism. In other words, NLNG was protecting the interest of Nigeria vis-à-vis the inflow of foreign direct investment. Could you be more explicit?

One of the challenges Nigeria faces, with 160 million people, is that we don’t have enough money to execute all our developmental needs including power, industries, road, rail, agriculture, etc. Huge investments are needed and the Government has been on a drive to attract foreign investors. Take the telecommunication industry for instance; we saw how the involvement of foreign investors transformed that sector.

But we are in competition with other countries since foreign investments can flow anywhere. Just as the Government is going round looking for it, other countries are also looking for the same fund. From experience, investors take their funds to where there is clarity, stability, and returns; not necessarily where there is the highest return, but where there is rule of law.

So, for a country like Nigeria that needs hundreds of billions of dollars for development, respecting the rule of law is crucial. Think of this: it is how you treat your first wife that will inform how your second wife will prepare when coming into your house. If the new wife sees that you treated your first wife very badly, then she will ensure that she will not suffer the same fate. It is important for a country in need of investment to treat previous investors in a fair manner; that what we have promised and committed to, we are able to honour; and that where there is need for clarification or change, we work in accordance with the rule of law, otherwise, future foreign investment will either shrink or come at a premium. That is why we were very keen at NLNG that Nigeria was not put in a position not to be able to attract good investments needed for the development of our country.

Do you think that message was lost on those who ought to know that you were trying to protect the country?

Issues were quite varied for the several parties involved. For us, it was about the rule of law. For some, it was about generating more revenue for the country. For others, it was about capacity building of government agencies, etc. However, what was missing was for key stakeholders to take a step back and look at the bigger picture. Let me give you an example; of the $ 140 million we paid as NIMASA levy under protest, 25 percent goes to the Federal Government, which means $ 35 million. The same Government, unfortunately, lost $ 560 million revenue due to the blockade from its 70 percent take from NLNG. To lose $ 560 million revenue for a gain of $ 35 million is the bigger picture.

Can you clarify? Who gets the remaining 75 percent?

I was made aware by very senior government officials that only 25 percent of payments to NIMASA go into the Federal Government’s coffers. I do not have any information where the rest goes.

Let’s talk about the bigger picture. It would appear that all the benefits Nigeria can get from this kind of investment is not on the table or obvious to everybody. Is that your reading of the situation? How can you get policy makers to understand so that these kinds of issues do not arise?

As a company, we have followed exactly what the Government put in place for its interest in NLNG. As I earlier mentioned, 70 percent of what NLNG makes goes to the country. Some of that flows through NNPC and others directly to the Federal Inland Revenue Service, States and Local Governments. We have no opinion on where Government chooses to put its returned revenue. If that in itself has created any gaps in terms of how much NLNG is seen to be contributing, we have just followed the Government’s directives. But the facts are there on the significant contributions from NLNG.

There was a complaint especially from the legislature that NLNG Act tied up its hands; it encroached on the nation’s sovereignty. Have you heard about this complaint? Is this something that everybody needs to sit at a table and look at again?

It is the lack of people taking time to read and understand these laws that makes them utter such uninformed statements. There is no law of a country that ties the hand of that same country or government. That simply defies logic. One of the things stated in the NLNG Act is that in such a review, the parties to which those incentives were given should be consulted, which is in line with the principles of International Bilateral Investment Treaties. Does that mean the hands of the Government are tied just because it is consulting people in the process? Consultation in a democratic environment is indeed the right thing to do which is why we have public hearings before new laws are passed. But it doesn’t stop the Government or lagislature from carrying out a review at any point and as such, when done properly, appropriate changes can be made.

I thought there are parts that you can’t impose additional levies on the company other than the normal run of doing business. Is it a usual act?

We have several free trade zones backed by laws which give quite a lot of generous incentives to encourage exports, much more than what the NLNG Act does. There is nothing unusual in evergreen incentives. Remember that for more than 30 years, Nigeria tried to get an LNG project without success. It took the NLNG Act to attract the investment and technical know-how to get this project going. The Nigerian Government invested about $ 2.6 billion and today, revenues to the country has exceeded more than $ 25 billion. So, it is unfortunate to have created such huge reputation problem and financial losses for the country for levies that all comes to less than $ 200 million, for a company that the country has already reaped $ 25 billion from. These are the bigger pictures we need to keep in view.

You wear several hats including protecting the interest of the shareholders. Would it be a fair thing for a country that contributed 49 percent to take 70 percent?

This is not unusual. If you look at the joint ventures in the upstream sector in Nigeria, the Government owns about 55 to 60 percent. The total take of the Government in those ventures is over 80 percent. It is not different to what occurs in many other countries especially as it is the country that owns the resources. So once the initial investments have been fully recovered and appropriate returns made, and after benefiting from a 10-year tax holiday, it is only fair that some of those incentives like the company income tax holiday fall away and for the country to take a much greater share.