NLNG: New report reveals how Nigeria lost N650billion in dubious tax exemption

nlng

A new report by Action Aid Nigeria has revealed how Nigeria lost $3.3 billion (about N650.1 billion) in seven years to what appeared questionable tax exemption granted the Nigeria Liquefied Natural Gas (NLNG) Limited.

The report titled: “Leaking Revenue: How a big tax break to European gas companies has cost Nigeria billion” highlighted the loss by the Nigerian government through the contentious pioneer status regime granted the company.

The Nigeria LNG is a joint venture project by the Nigerian National Petroleum Corporation (NNPC) in partnership with Royal Dutch Shell (25.6 per cent), Total (15 percent), and ENI (10.4 per cent).

The consortium was established in 1989 to help Nigeria harness and exploit her huge reserves of natural gas resources for exports.

In a bid to encourage the company realise its objective, the federal government had granted a pioneer status to the project, an incentive granted legally to fresh investors that venture into difficult economic terrains to do businesses that positively impact the country’s economy.

Under the pioneer status arrangement, benefiting companies are entitled to exemption from all corporate income tax payment for the first three or five years of operation in its chosen area.

A company with pioneer status is always entitled to deduct the costs of interest payments and investments in physical capital, capital allowances from its pre-tax profits, making it easier for it to borrow to invest in capital equipment.

However, under the provisions of the NLNG Act approved by the Nigerian government in 1990, the company was not only granted the legal five years exemption, but also an extension for another seven years.

During the period of the extraordinary tax holiday, the NLNG was not only exempted from paying 30 per cent corporate tax on its profits for five years between 1999 and 2004, but also for an extended seven years period till 2012 valued at about $3.2 billion (about N630.4 billion).

The exemption also covered a range of other taxes, including two per cent of its profits in education tax earmarked by the government for the advancement of education in Nigeria.

This exemption cost the country a total of $141 million (about N27.8 billion).

The third component of the controversial exemptions, for which the report said was difficult to come by accurate data, covered capital allowances the partners got from government each time they bought equipment, which were allowed to roll over to periods not covered by the pioneer status regime.

Details of the loss through the dubious tax arrangement showed that the Nigerian government lost a minimum of $1,668 million (about N328.6 billion) in revenues through the share of tax the Shell BV should have paid for the period.

Another $977 million (about N 192.5 billion) was lost through Total, in addition to $677 million about (N133.4 billion) through ENI, based on calculations from the NLNG annual accounts.

The NNPC share was however not covered by the losses conveyed in the report.

The report said findings from its investigations showed that during the tax exemption period, the NLNG had calculated what its tax benefits from interest costs and capital allowances would have been if it had paid CIT.

However, these deductible costs items were forwarded in NLNG’s balance sheet, by deducting its reservoir of deferred tax assets from its CIT payments.

The report noted that although the tax holiday granted under the NLNG Act ended in 2009, the NLNG did not start paying CIT until 2012.

During the period of the holiday, the report said NLNG had accumulated a total of $2,157 billion in tax assets, which explained why the company paid no CIT in 2009, 2010, 2011 and part of 2012.

The $1.148 billion that would have been due for payment in 2012 after the reservoir of deferred tax assets, the report pointed out, was however delayed following the report of further unrelieved tax obligations not reported during the year as “deferred tax liability.”

Although the report said under normal accounting practices, such deferred payments would eventually be paid, it however expressed doubts regarding when the NLNG would do so.

Citing the example of the situation in 2013, the report said although $1.402 billion was booked under “current deferred liabilities” in the company’s balance sheet, no CIT was paid by NLNG.

“This massive tax break was a triple whammy”, the report noted. “First, came a five tax holiday granted to most international energy investors in Nigeria; second, an extension for a further five years exceptionally allowed for this deal, and third, tax allowances would have been used during the tax holiday were rolled over and exempted the companies from tax for further two years.”

The report criticised the tax arrangement, arguing that even with a normal five-year tax holiday, the NLNG would still have been profitable.

A review of the company’s accounts showed that it earned a profit every year since 2004 if its tax holiday had ended that year.

“The difference in the Consortium’s actual profit (with the 10-year tax holiday) and the estimated profit it would have earned with a five-year tax holiday is less than 20% on average over the years 2004-2013,” the report said.

The NLNG is yet to comment on the report. So also is the Nigerian government.

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  • SAPAS

    what /////////////////////////////////////////////////////////////////this reminds me of ” FORTUNATO” of the old days and his p.d.pigs pals abi???? or what do you say friends ?????????????????????????????????????????????????????????????????????????????????????????????????????????????

    • Musings

      Crying your head out because of only N750b? Are you aware of the $12.7b (Dollars) missing when IBB was in charge in 1991? Price. For your info, price of oil at its peak in August 1991 was $234/barrel. Better believe it. That was the price. You can confirm from the internet or website of OPEC. ………..That was when Dubai and other Gulf states made money to develop their wonderful cities today. But in Nigeria all the money went into the pockets of Northern military officers and few civilians. Does this not explain why they have limitless funds to fund Boko haram terrorist group. I am sure if we trace the source of wealth of the richest man in the North it might be traced to this period. Because nothing was know or heard of him before this windfall…Maybe they use him to launder the stolen money with ‘legal’ business. Maybe. Just maybe. Hmmmmm…there is nothing really hidden under the sun. We shall see.

  • Dr Onajite M. Overedjor

    About a fortnight ago, the US govt sent 24 Armoured vehicles ‘free’ of charge to Nigeria barely 5 weeks after the Nigerian military killed over 300 civilians of the Shite sect in Kaduna. This is the same US govt that had earlier (8 months ago) based its refusal to ‘sell’ arms to Nigeria on the killing of about 200 hundred terrorists in Baga as it moved to expel the Islamists from the community. The pertinent questions are:
    1. Why did US govt refuse to SELL to Nigeria but gives FREE to Nigeria even when the military is in worse form in terms of human rights?
    2. That aside, what is Nigeria doing with the 24 armored vehicles?
    3. Is anyone thinking of dismantling one of the vehicles in order to study and replicate the technology?
    4. Or have we resigned to fate that we are eternally incapable because of our skin colour?

    But Nigerians are not asking questions. When I look at the Editorials of Premium Times and other news papers I weep for not just Nigeria but Africa. Many times I wonder what kind of education these Editors received and from where? Only 48hrs ago Premium Times came up with what it categorized as a Editorial based on “how the govt should appoint the next CBN governor”. The Editorial is a shameful piece of unbridled and jaundiced political journalism, a clear case of journalistic infamy. Just because the Editors are not comfortable with the ethnicity of the current CBN governor – an echo and propagation of the strong sentiments initiated and propagated by Ahmadu Bellow 51yrs ago in that his infamous interview available on yuutube.

    In contrast, all China needs to see is the design on paper and they will assemble their engineers to replicate the machine. But Nigeria has been gifted the physical hardware and our Buhari is alien to science with an F9 in Mathematics and very unlikely to have the mental capacity to reason along the line of technological advancement. But science, technology and innovation is the way to go. At $27/barrel oil prices will drop to $5 and potentially less. This is why we need thinking, smart and sharp leaders and not an old inactive uneducated fellow.

    • Rommel

      We already know the Boko Haram sponsors,the cartel is headed by Ibrahim Dasuki,it was him all along and Fortunato knew

  • A-Cry-for-JUSTICE

    —–

    #Probe_Boko_Haram_SPONSORS

    #Probe_Boko_Haram_SPONSORS

    #Probe_Boko_Haram_SPONSORS

    #Probe_Boko_Haram_SPONSORS

    #Probe_Boko_Haram_SPONSORS

    #Probe_Boko_Haram_SPONSORS

    #Probe_Boko_Haram_SPONSORS

    #Probe_Boko_Haram_SPONSORS
    ————————————————————————

    QUESTIONS
    a) ….are we saying that money matters more than the 18,500 lives that have been lost through Islamist terrorism by Boko Haram?
    b) ….On whose side is Mr Buhari?
    c) ….Why is no effort made on tracking down the sponsors of Boko haram?
    d) ….Does Mr Buhari have any skeletons to hide?
    e) ….Are the “arrested” terrorists and even Children not talking?

    Mr buhari and its propaganda machine (Premium Times) should STOP diverting peopls’s attention with this corruption probe. We DEMAND probe of Boko haram’s sponsors too. I lost my Grand Dad and friends to the terrorits and I want justice. Nothing more, nothing less.

    Mr Buhari should remember that the hottest places in hell is reserved for those who in times of injustice chose to be neutral or indifferent. Lives are worth more than money. Going after money that could have bought weapons and failing to go after those who financed the weapons used to kill Nigerians is willful vanity which in every way is analogous to criminality at its height.

  • Rumournaire

    Be careful here. NLNG is not just “a European company” as implied in this write-up. The Nigerian government holds 49% share and would have to cough out 49% of any tax under-payment. (Shell holds 25.6%, Agip 15% and Total 10.4%.) Besides, I believe this write-up is based on inadequate knowledge of the issues.

    • New Nigerian

      Sue let all parties cough out the tax as you put it. It is about efficiency and running an enterprise transparently and fairly.

      • Rumournaire

        I sure believe in transparency. But wait and see: We will all later discover that the story is a distortion and not based on adequate knowledge. It will be like the alleged N25b TSA/REMITA scam. Have you heard anything about it recently? You want to know the truth? The Senate found it had been misled by one of its own who had been hired by the anti-TSA lobby. Keeping quiet is the Senate’s way of saving face. It now realises there was complete transparency in the deal. TSA continues with REMITA as the hub.

        Multinational oil companies operating in Nigeria are well aware of the scrutiny around their operations. If they would rip off the country, I assure you, it would not be by breaking the tax laws. There are cleverer ways of doing it!

    • Bashir

      Indeed! Sensationalism at best! Why is the talk only about hypothetical loss in tax and not how much the Country has earned in revenue and knock-on effect on local economy through spend on contractors, and general capacity building on Nigerians? Didn’t we struggle between 1965 and 1990, when it happened, to attract investment for such a venture and could not? Did it occur to the Action aid that the ‘ tax holiday’ is some how the government’s investment contribution in the venture which saw such a rapid growth in so short a time? No doubt the NLNG is a success story and we can only attempt to damage it at our peril! After all the Government has towed with idea of Brass and OK LNG now for several years and are yet to take-off the ground. All this so called civic right organizations that seeks cheap popularity and only know about ‘distractive’ rather than constructive commentary / criticisms.

  • share Idea

    PT please stop exposing Buhari and his party. Does anyone remember the drama from Buhari and Lai M during the bail-out of state then – PDP stated that NLNG was was having tax holiday and thus, could not ave been sharing any proceed from them and Buhari and Lai M said that it was not true that PDP were diverting the money.

    Today, PT is feeding us the story that actually, NLNG was enjoying tax holiday as PDP stated. Can Buhari and his team propose a bill that will stop granting of tax holiday to such investors as everything in Nigeria is politicized. Nigeria we hail thee

  • bib

    Nigeria! The country of abracadabra! The more you see the less you have seen! Don’t even think of understanding!

  • New Nigerian

    This should be investigated. Knowing PDPlutocrats NLNG probably “paid” those taxes through some “private company” owned by PDPlutocrats while the money ends up in private pockets and the government received nothing. EFCC should review this…EFCC, ICPC and CCB should hire 100,000+ Nigerians and have one team at every level of government – Local Government, State and Federal to comb the books and follow through on all monies disbursed or revenue generated with federal components in the last 16 years. I guarantee you assets recovered would fund Nigeria’s development and well being towards greatness.

  • okelomo89

    Did the last administration really stole that much?

  • Contributor

    Sensational. Shockingly uninformed. Downright misleading report.
    Shame on Action Aid for doing this report, but a bigger shame on Premium Times for publishing it without cross checks or sounding any caveats.

    The buffoons who did this report are obviously ignorant of a legislation known as THE NIGERIA LNG (FISCAL INCENTIVES, GUARANTEE AND ASSURANCES) ACT ( As Amended)  which accorded the company income tax relief for ten years, from the date of commercial production ( not from the date of incorporation nor even date of commencement of business). This is a legislation that has been lauded in many parts of the world where governments are trying to attract investments in LNG projects as a classic LNG investment incentive model. But the problem with Nigeria is, people just dabble into specialised and technical issues without seeking expert advice. And they just pontificate out of shocking ignorance.

    Whoever wrote this report so simplistically compared LNG projects to other investment projects, without knowing that LNG projects are so difficult to come by ( reason why there are no more than 10 LNG projects world over – only two in Africa; Nigeria and Algeria ). It requires huge upfront cost, and thus extensive government support and participation, hence the tax incentives.

    • Minotaur

      Income tax relief so funds are diverted to Shell shareholders?
      This leakages need to be blocked
      Why was NIMASA chasing NLNG?

  • Bloomberger

    Oil sank to a 12-year low of less than $28 a barrel in London on Monday
    as the removal of international sanctions over the weekend freed Iran to revive
    crude exports, threatening to swell a glut created by fellow OPEC members and
    U.S. shale drillers. Global oil markets could “drown in oversupply,” sending
    prices even lower as demand growth slows and Iran revives exports with the end
    of sanctions, according to the International Energy Agency.

  • Minotaur

    MOST OF THI FUNDS END UP ORGANISING DINNERS AND PAYING DIVIDENDS TO FOREIGN SHAREHOLDERS. AND NIGERIANS ARE YET TO HAVE DIRECT COOKING GAS. $3.3 Billions of TRAPPED AND PIPED GAS WILL SURELY LINK EVERY LGCs of Nigeria.
    You have deadbit individuals who cannot run their home run companies no innovative ideas.