Published on March 14, 2014
Celebration of Nigeria’s 3000th Export Cargo Welcome Address at the Banquet Ceremony at Transcorp Hotel Abuja By Babs Omotowa (MD/CEO, Nigeria LNG Limited) 13th March 2014 Protocols. Thank you all for joining us in celebration, and sharing in our joy. This is my first banquet with you in Abuja, yet in some ways I feel at home because I do feel I am surrounded by friends and family – in a sense, this banquet is a family reunion. For us, it has been a long walk – from the 1960s when we were first conceived, to October 1999 when the first LNG cargo was loaded for delivery to France – to the evening of 19th January 2014 when we delivered the 3000th LNG cargo to Turkey on board our own ship LNG Lokoja. This feat, coming in the same year that we are celebrating Nigeria’s centenary, more than anything, underscores how far the gas sector of our economy has come. It is an achievement made possible by the collective dedication of staff, support from government, host communities, shareholders and customers, and a strong corporate drive for world class standards. In English, African and American literature, there is a phrase one often hears at the beginning of a story: “Once upon a time….” It has a great effect upon listeners, and opens their hearts and minds. Every existence, even non-living ones, has a story to tell. Nigeria LNG Limited is no exception. I will try tonight to tell a concise version of the story of Nigeria LNG Limited. I am not a story teller, but I urge you to listen to our story and our narrative. Our story is stranger than fiction. Our journey began in the 1960s, and it was for 35 years, a story of none starts, half starts, and false starts. Initially, two Joint Venture projects of NNPC-Elf-AGIP-Philips and NNPC-Shell-BP were set up. So we were at some point called Bonny LNG Limited and we later became Nigeria LNG Limited
with 60% Nigerian holding, but none of these worked. While we were changing our name and shareholders, opportunities came and opportunities went. It was quite a journey, and looking back, I am sad that Nigeria lost 35 years of the benefits accruable from LNG. I am, however, grateful for the generosity bestowed on my company over the years. This is perhaps the only company that every post-civil war Head of State and President – from Gen. Yakubu Gown, GCFR to Dr GoodluckEbele Jonathan GCFR – has contributed to its success. There are numerous others – including former Petroleum Ministers, NNPC GMDs, GEDs, NLNG MDs, Board Chairmen, Directors, Shareholder Representatives, and so on – some of whom are here with us tonight – men and women, who by their dedication, industry and creativity wrote the NLNG success story. To you all I say very many thanks! I also recognise tonight the genius of the founders of this company, who found the courage to set its compass aright at the most precarious moments of its history when Nigeria was effectively a pariah to the world. I am talking about those who recalibrated its shareholding, who wrote its comfort decree, who provided money in escrow accounts that allowed this project to take off, and who granted it pioneer and tax exemption status. Looking back, these may not be earth-shaking stuff, but at the time they were very necessary needs. Without their courage and foresight, we perhaps would have spent another 35 years in the LNG wilderness; we would perhaps still be arguing about how to reduce gas flares, about how to monetise our gas resources, about how to diversify Nigeria’s mono economy. One may ask the question whether the vision has been realized. I will answer with a resounding YES, and please do permit me to explain why. On flaring, since 1999, over four trillion cubic feet (TCF) of Associated Natural Gas, which would otherwise have been flared, has been captured, thus helping to reduce gas glaring by Upstream Companies from over 60% to less than 25%. In doing this, the company has positively impacted on the country’s gas flaring status, and thus helped to improve the environment. On diversifying the country’s revenue base and monetizing gas resource, the fact as available in public records at Corporate Affairs Commission (CAC) and verified by Nigeria Extractive Industries Transparency Initiative (NEITI) speaks for itself. Nigeria now owns $14billion of assets on Bonny Island; the country has earned $13billion in dividends, another $11 billion earned in feed gas sales revenue, over $10 billion expenditure in local economy on goods, services and salaries of thousands of staff employed. Corporate Income tax will exceed N220billion per annum, by far the highest in Nigeria and Sub-Sahara Africa. Rivers State Government earns over
N6billion per annum from personal income taxes; Bonny Local Government over N88 million yearly as tenement rate, etc. Truly, the decision of NLNG’s founding fathers has indeed created wealth from a previously wasted resource. Who would have imagined that all these gains of over $50billion would come to Nigeria within 15 years from a meager $2.5billion invested! Also importantly, the take of Nigeria from Nigeria LNG revenue is now over 70%, comprising of the 49% dividend, 30% CIT, and other taxes. This is the classic story of the mustard seed that grew into an oak. Truly, our story is stranger than fiction. Every now and again, one reads of the appropriateness or otherwise of the comfort law and tax holiday granted Nigeria LNG Limited. I commend the writers for initiating the debate. However, as the dinner table is not the appropriate place for such debate, I shall let that pass. But before then, permit me to ask three simple questions: Before these concessions, how much money did Nigeria earn from monetizing gas? Are the critics aware that 71 industries in Nigeria ranging from ceramic to motor manufacturing and agriculture enjoy pioneer status with tax holidays? Are they aware that other countries with LNG projects like Oman, Angola, Trinidad, Qatar, Malaysia, etc, all have similar stabilization clauses and 10 - 12 years Corporate Tax holiday, and that a country like Egypt actually does not apply CIT to the LNG business. Those who think the NLNG Act is unprecedented need only to look wide. What NLNG got is less favorable when compared to what is given to export free zones in Nigeria, where the standard incentives for companies operating there include: 100% import and export tax exemption, 100% exemption from commercial levies, 100% reparation of capital and profits, 100% foreign company ownership, no quotas for expatriates, no corporate taxes, no VAT, no withholding tax, no levies. In addition, when they look further, they would see that more than 41 countries including Portugal (Madeira), Israel (Likat) and United Kingdom (Liverpool &Southampton) have tax free zones. Former Mayor of New York, Governor Cuomo, recently called for creation of tax free zones in over 100 locations in New York to boost the state’s lagging economy and change New York’s reputation as a high-tax environment. It is economically wise to grant tax exemptions, to grant pioneer status and to create tax free zones such as Onne Free Zone. Such incentives attract foreign and local investments, which is needed in these industries to get them off the ground. The bigger picture is that the subsequent multiplier benefits that such investments bring (financial, jobs, service industries) significantly far outweigh the value of the incentives as can be seen from the NLNG example.
I am of the opinion that similar concessions should be granted to Brass LNG Limited and OK LNG Limited and everything done to put them on stream quickly. They have stayed long enough on the drawing board. These are struggling LNG companies that need help and we should not allow them to die or to go through a 35 year cycle on the drawing board. Nigeria urgently needs the fortune these companies will bring in jobs and revenue. At Nigeria LNG Limited, we are ready to support and share our experience with Brass LNG Limited and OK LNG Limited whenever they need it, either now or post FID. Today we celebrate the export of the 3,000th LNG cargo out of Nigeria. We are indeed proud to be among the leading LNG companies in the world that have achieved this feat. NLNG remains the single biggest private sector investment in sub- Saharan Africa producing 22mtpa of LNG, and 5mtpa of Natural Gas Liquids (NGLs). We have buyers spread across the world. In a space of 10 years from 1999 to 2008, Nigeria LNG Limited was recorded as the fastest growing LNG plant in the world at the time. By 2008, we accounted for 10% of the global LNG business although our share of the global LNG market currently stands at seven per cent due to the entrance of new competitors with mega projects. Today we are the fourth largest LNG plant in the world. NLNG’s business has strong impact on key macroeconomic variables and our contribution to GDP rose to four per cent in 2008. In addition, to ameliorate the difficulties Nigerians were having with LPG (cooking gas), NLNG commenced supply of LPG to the domestic market in 2007 and, by that singular intervention, brought down the price of cooking gas from N7,000 to N3,500 per 12.5ky cylinder. We currently supply over 80% of cooking gas (LPG) in Nigeria and are increasing the volumes to 250,000MTA i.e. 67% increase. We are determined to support the efforts of the Federal Government to get more Nigerians to switch to cooking gas rather than the continued use of fire wood and kerosene, alternatives that have environmental and health disadvantages for citizens. Our presence is not only national, but also local. In Bonny, we provide 24hrs electricity to the 250,000 people on the Island and we also provide pipe borne water, roads, hospitals, vocation centres, just to mention a few of the facilities from the over N25billion we have expended on community projects. Our prestigious Nigeria prizes for Literature and Science have become internationally recognised and in the Shipping Industry we own 13 LNG carriers sailing all over the world. But what we are most proud of is that our staff, who have been critical in all our achievements over the years, are now 95% Nigerians, and our management team is 100% Nigerian, a significant achievement for an industry whose technology is barely 15 years old in the country.
However, notwithstanding these historic achievements, we face significant challenges in the future, which we are already developing strategies to overcome. Internally, we face challenges of sustained feed gas supply as well as ageing plants and ships. Externally, the Shale Gas phenomenon, and the expected start of Mega LNG Plants in Australia and East Africa pose significant competition and threat to our business. As an insight into the extent of the threat, the huge unconventional shale gas discoveries in the USA, with over 100 years supply has led to the USA, who used to consume 10% of world LNG, becoming an exporter. As a result, LNG price in the US, the Henry Hub, has fallen from $15/mmbtu in 2005 to less than $4.50/mmbtu today. Along with Australia, East Africa, etc, these supply potentials, if all realised, may leave only a limited window of opportunity for LNG projects to remain robust. The challenge being that whilst demand may continue to grow, pricing is likely to become depressed due to supply glut. NLNG can stay profitable and continue to deliver excellent value to the country, if we are able to play the number game of volumes in the global market. Part of the next phase of our company’s strategic response to the growing competition is the addition of a seventh train. When achieved, this will enable NLNG to add some eight million metric tonnes to its current production capacity, and increase annual output to 30 million metric tonnes. This is potentially capable of monetizing more of our gas, and yielding an estimated $3billion in additional revenues. More importantly, this will enable the creation of over 18,000 jobs during the construction phase, a deliverable that is in line with Mr President’s transformation agenda of creating jobs for the youths of the country. Nigeria’s strength is that with 187 TCF of proven gas reserves, and 600 TCF of unproven gas reserves, Nigeria has more than enough gas for both our domestic and export needs, i.e., adding all our domestic power and petrochemical needs with all the exports from NLNG’s seven trains, Brass LNG, OKLNG, all come to less than the 187tcf; yet we still have 600tcf unproven reserves. To further illustrate this, Australia with only 60% of our proven gas reserves, generates more than 40,000MW power and is working to export 80mta, whereas all our three LNG plants will only come to 52mta with current plans. In conclusion, distinguished Ladies and Gentlemen, the achievement of the 3000th export is a symbolic milestone for the country, a dream come true and an inspiration. We cannot afford to let our oars down. Nigeria is abundantly blessed with natural gas resource to earn significant revenue which will help meet the various government developmental plans, and the opportunities offered by investment in all these projects including Train 7 are quite enormous. The window of opportunity is quickly dissipating and there are many countries and projects scrambling to take
advantage of this window. In doing so, we will continue to generate significant value for Nigeria to address the capital and infrastructural challenges and create jobs opportunities for Nigerians. We deeply appreciate your support over the years and look forward to even more support in the future in the form of advice to our board and management; your visits to our facilities to encourage us to do even better; your open doors when we come to seek your support, and so on. We trust that we can continue to count on you in the years to come. Thank you for listening and do enjoy the rest of the evening with us.
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