Disparity in prevailing liquefied natural gas fiscal terms and those of the Nigeria Liquefied Natural Gas (NLNG) Act of 1989 has caused the economy to lose billions of dollars, with no end in sight to the losses.

While prevailing international market price averaged $12/Million British Thermal Units (mmbtu) for June and July spot market delivery, the NLNG fiscal term is between $0.7 - $3.00/mmbtu.

At the New York Mercantile Exchange (NYMEX), prices for the September delivery contract decreased 38 cents per mmbtu, settling at $8.077. Last week, the September contract price dipped below $8 per mmbtu, reaching this level for the first time since February.

Vanguard gathered that in two separate deals, recently, the Korea Gas Corporation and another American Corporation paid premiums of $20 and $23/mmbtu.

Although the Federal Government had devised favourable fiscal incentives to attract investment and monetise Nigeria’s abundant gas resources, this was contrived along time lines including a 10-year tax holiday among others.

Vanguard learnt that the NLNG (Fiscal Incentives, Guarantees and Assurances) Act came into force on April 24, 1989, wherein the Federal Government  gave certain assurances, guarantees and undertakings contained in the Act to Nigeria LNG Limited and its shareholders concerning the LNG project.

These assurances, guarantees and undertakings were granted in consideration of the magnitude of the investments to be made by the company and its shareholders in Nigeria.

These assurances, guarantees and undertakings included pioneer status, tax relief during a period, protection from unilateral government action purporting to remove these guarantees and assurances, protection from new laws, regulations and except such laws, regulations etc are generally applicable to other companies in Nigeria.

During a presentation last year before the House of Representatives Committee on Gas regarding the proposed amendment of the NLNG Act, Chief Sena Anthony who stood in for the Group Managing Director of the NNPC argued that the tax holiday granted the company was time bound.  

She said: “NNPC has carefully reviewed the issues canvassed by NLNG on the implication of the proposed amendment and our views are that the tax holiday granted is time bound and is due to expire by 2009 or earlier, if it can be established that the LNG cumulative average sales price has reached $3/mmbtu.

“On expiration of the 10-year term or earlier, whichever comes first, NLNG should revert to CITA as the applicable law for LNG project and other downstream gas utilisation projects,” she said.

Chief Anthony who is NNPC’s Head of Corporate Legal Services Department (CLSD) noted that this was the only way to ensure that the company complies with subsisting laws of the land.

She explained that the fiscal terms had been devised by the Federal Government to monetise the country’s gas resources .

“The NLNG Act of 1990 was the first major project specific legislation enacted by Government to give incentives to the development of LNG,” she said.

In its reaction, however, Shell Gas B.V., the operator of the NLNG urged the House Committee to refrain from altering the Act, noting that adequate fiscal regime was provided during and after tax relief periods.

Worst still, other LNG projects in the country are dogged by both security concerns and inability of the partners to resolve fiscal terms.

For instance, the Brass Liquefied Natural Gas (Brass LNG) project has been held up for a year by security concerns following series of militant attacks on oil industry facilities near the site in the Niger Delta.

Shareholders in the Brass LNG project were originally due to take a final investment decision by the end of 2006, but ConocoPhillips had pushed for an indefinite postponement following an upsurge in militant attacks and kidnapping in the area.

Uncertainty over fiscal terms pending the implementation of the new gas law is also holding up the final decision to commit funds to the project. While final investment decision is scheduled for 2009, shareholders have resorted to releasing limited funds to keep the plans alive.