The current recession in the economy as a result of the decline in global oil prices has significantly impacted operations at Nigeria’s oil and gas free zones.
The Managing Director, Oil and Gas Free Zones Authority, Okon Umana, told PREMIUM TIMES’ Bassey Udo in an interview in Onne that investors’ population in the zone dropped by about 33 per cent, from 200 to about 134. But, since assumption of office, he said his management has been working to lay a foundation for the zone as driver of growth and development for the economy.
PT: What makes the oil and gas free zone such a special territory?
UMANA: This is a geographical area designated by law, where financial regulations applicable in the Customs area are suspended for licensed operators, who enjoy special incentives, like exemptions from all federal, state and local government taxes as well as export/import duties. These incentives translate into huge financial benefits for the companies.
Every equipment brought into the zone does not attract import duties. Export duties will only apply where finished goods move into the Customs territory. If there is value addition in what is brought into the Zone and the state of the product is altered, resulting in the creation of employment, there is a 75 per cent rebate.
The companies also have the benefit of a special process of being issued immigration visas.
The zone started as logistics base to support the oil and gas companies’ operations. But, it now has companies doing more than just logistics.
The zone is a concentration of companies offering services relating to oil and gas industry operations – fabrication firms, pipes coating company, shipyards, etc. It is a one-stop shop to make life easy for investors in the sector; to enable operators within this environment benefit from economies of scale.
For instance, Indorama Eleme Fertilizer & Chemicals Limited manufactures and exports over one million tonnes of Urea annually from the zone, and supplies over 300,000 tonnes for the domestic market.
PT: The benefits of the zones appear to be a loss to government, in terms of revenue the companies are not paying for tax, customs duties, withholding tax, etc.?
UMANA: No! The benefits come by way of the foreign direct investments in infrastructures coming into the zones. This is different from portfolio investors who would be ready to move out of the country once there is any unexpected development.
But, with the zones, huge employment is created. At the peak of operations, over 200 companies were licensed to operate in the zones. These companies employ Nigerians. However, because of current economic recession, the number has gone down to about 134.
But, the good news is that fresh applications are still being processed from those wanting to be licensed. Although these licensed investors are exempted from paying taxes, they cannot operate in isolation. They depend on other companies in the Customs territory outside the zones to function.
If there is a company in any of the zones that wants materials to be sourced from outside, and a company comes to perform the service and is paid, the licensed company will deduct withholding tax and VAT in favour of the federal government.
Unlicensed enterprises are obligated to pay taxes. The licensed enterprises still do business with the unlicensed ones. So, there is still revenue from that source to government.
Again, although the companies don’t pay tax, their employees within the Zones pay PAYE taxes, which also go to the federal government.
Besides, products that come into the zones, if there is no value addition, when they move to the Customs territory, the full import duties would apply.
Between 2010 and 2015, the Nigerian Ports Authority, NPA, generated about $2 billion from the activities of the oil and gas in the zones. The Nigeria Customs also made about N400 billion. There are other activities not covered by the Oil and Gas Free Zones Act that still generated revenue for the federal government. There is also transfer of skills and technology.
Today, we are working closely with the Nigerian Content Development and Monitoring Board to ensure the companies in the Zone comply with the local content Act.
PT: It appears there is opposition from some quarters to the existence of the zones. What is it about?
UMANA: Well, I don’t know! What I know is that the free zones concept is a global strategy to drive economic growth and development.
Free zones have now moved from the initial stage of export processing to economic zones for specialized activities.
Nigeria had moved ahead of other countries when Oil and Gas Free Zone, Onne was established by Act No.8 of 1996, to focus on oil and gas industry.
For Nigeria, it was only proper to have a base that would support the oil and gas industry, being the mainstay of the country’s economy.
We are working with the investors to expand the zones. The success story of Onne is an example that public-private partnership can work effectively.
PT: Can you shed some light on the conflict between OGFZA and the Nigeria Export Processing Zones Authority, NEPZA?
UMANA: There is absolutely no conflict between the two agencies as far as OGFZA is concerned. This is what is happening. OGFZA was established by the Act of 1996, empowered to recommend to the President the establishment of free zones and designated economic areas. We are also mandated to regulate and license operators in the oil and gas free zones in the country.
NEPZA was established by the Act of 1992. OGFZA Act was domesticated by the National Assembly. So, it is a valid Act of Parliament. This is the extant law regulating what we do in the oil and gas free zones. I must admit that the law has some flaws.
Even the name in the principal Act, ‘Onne Oil & Gas Export Free Zone’ has some issues. Section 5(2) of the Act gave the Authority powers to take over all oil and gas free zones hitherto managed and regulated by NEPZA.
What that means is that our jurisdiction extends beyond Onne. That means the law empowers OGFZA to establish oil and gas free zones beyond Onne. But, there have been issues about taking what should really fall within our jurisdiction, which had been licensed by NEPZA. That appears to be what people see as conflict. But, the engagement and conversation on that is on.
The other point is in reference to exports. Not everything that happens here relates to exports. So, that very narrow description of exports was not right. This is also a flaw.
But, again, happily the National Assembly is in the process of amending the OGFZA principal Act. The Bill for the amendment has passed first and second readings. A public hearing was held recently. The Bill was not sponsored by OGFZA. It was sponsored by a member of the Senate Committee on Trade and Investment.
PT: But, it still appears NEPZA is not happy with the effort by the National Assembly to carry out the amendment?
UMANA: I am not in a position to know what NEPZA feels about that. What is important is that there is a clause in the Bill that designated certain ports where oil and gas cargoes could be discharged. Those terminals were Onne, Calabar and Warri. It was just a proposal. But, in our position, we objected to the designation of specific terminals by name, because that would be limiting the scope of our mandate. As a regulator, we will be fair to all. We don’t want to create monopolies. Our interest is the entire Nigeria.
The question to ask is: Why would anybody oppose the review of a law that has been in existence for over 20 years, and is overdue for review?
The purpose of the amendment of any law is to correct areas of imperfections, because no law can be perfect. What is the interest of those complaining against the review of the OGFZA Act? Why are they trying to stop the review of a law that is not perfect?
The NEPZA law also has its own issues. Even its own name too has a problem. There is a move to change the name to Nigerian Industrial Zones Development Authority, NIZDA. There is no reference to exports again.
Interestingly, the same people who are attacking OGFZA’s move to amend its laws see nothing wrong in NEPZA doing the same. It’s funny!
What we should focus our energies on should be for OGFZA and NEPZA to be strengthened to perform better, to the benefit of Nigerians. The non-oil sector is huge. Already government is talking about establishing six new industrial zones within the purview of NEPZA. The development of non-oil is critical if the country is to realize the diversification agenda of government. That is why NEPZA should concentrate on its area of jurisdiction and allow OGFZA to focus on its area.
Part of the problems that led to misconceptions is the communication gap, because Nigerians don’t know the truth about what is going on.
PT: NEPZA and their backers accuse OGFZA of tactically amending the law that established it without waiting for parliament to do so. OGFZA has added ‘s’ to the zone in its name, to become ‘Zones”, whereas the law that established OGFZA specifically said “Onne Oil and Gas Export Zone.” What would you say to this?
UMANA: What’s in a name? Even NEPZA also has a problem with its name. Its name should confine it to exports. But, that is not what they are doing. Have they amended their own law?
But, I think it’s neither here nor there. Agreed, there are flaws in both laws. NEPZA has made moves to correct the flaws in their own law. So, what is wrong with OGFZA also taking the steps to correct the flaws? Why are they still talking about the history?
What happened was that they went to Oronsaye’s committee to submit a memo asking for merger, which had nothing to do with names. The federal government considered the report of that committee and rejected the recommendations.
But, in the white paper it was embedded that the recommendation was rejected. The white paper made reference to Section 5(2) of OGFZA law, which empowered OGFZA to regulate all oil and gas fee zones in Nigeria, including the ones that were previously under the control of NEPZA.
It was that white paper that renamed the Authority as oil and gas free zones Authority. If the lawyers are saying that amounts to an amendment of the law, I don’t know.
The important thing is that the Senate in its wisdom is taking steps to correct whatever was the problem. That’s where we are. And we are very happy with the Senate.
Nigerians should equally be happy that the oil and gas free zones Authority that has done so well for the country would not be distracted by the matter of one letter in its name.
PT: Since your arrival, what should Nigerians expect from leadership of the Authority?
UMANA: Currently, we have Onne as the biggest zone in the country. We also have Warri zone. Brass is already licensed, but not yet operational. We are working on establishing three more free zones in Ibaka, Ibeno and Ikot Abasi in Akwa Ibom State.
We are also looking at another location in Delta State. Free zones remain veritable tools to drive economic growth and development in Nigeria if properly utilized. We are determined to ensure that Nigeria would benefit maximally from it.
We have already taken steps to provide the right foundation to change the business environment in the zones, with emphasis on enhancing service delivery to our clients.
The first thing we did was to have a retreat to decide on the steps we had to take to chart a new direction. We have developed a road map that looks at the goals we will pursue; the vision statement and values that should drive our performance. We have a target growth rate of 50 per cent within the next three years (2017-2019).
With the road map, we are ready to work to actualize our mandate in accordance with the enabling Act, to ensure that we reposition the Authority and our free zones for the benefit of Nigerians.
PT: What was the situation before your arrival?
UMANA: Before and after the establishment of oil and gas free zones in Nigeria, Onne Port had existed after NPA concessioned the facility to it. The growth rate was a mere 2.5 per cent in the pre-zones era. But, the growth became astronomical with the creation of the free zone. Investment grew to about $20 billion from inception. The impact of free zones on Nigerian could only be imagined.
In terms of cargo thru-puts, Onne Port has the largest thru-put among all the ports in Nigeria, above even Tin Can Island Port in Lagos. That affirms the fact that the decision to establish specialized, dedicated zones for oil and gas operations has been a huge success. By all ramifications, the OGFZA story is a success story.
If we are to talk about success stories in Nigeria, this will rank among the first five.
This is the largest oil and gas service centre in the world at the moment. It has been acknowledged by the Financial Times of London.
One of the steps we have taken since assumption of office is to push for the visibility of these free zones, especially Onne.
We have over $6 billion of investments in the zones so far. If one looks back at those days when NPA could not manage the ports, it was because of its failure, in terms of capacity to develop and expand the ports as well as modernise the ports that led to the concessions in the first place. Seeing what is happening today, Onne is a success story, compared to what is happening in Calabar, Kano and Warri.
PT: What do we expect to see, say in the next three years in the goals and new zones?
UMANA: We will focus attention on the development of the three new zones I mentioned earlier. But, we will go very aggressively for any opportunity that opens up. We are going to be visible globally. Wherever there are exhibitions by free zones looking for investors, we hope to be there to showcase our potentials.
Everything has to do with how solid our foundation is. Once the foundation is right, we are ready to run. That was why when we took over, we had to sit down to ask ourselves: Who are we? Let’s define ourselves.
We have since established that it is important that we act professionally if we are to become the premier government agency to attract secure and sustained investments in the sector.
Our clients would see us as professionals who mean business; who are ready to deliver on our mandate. Attitude is everything. It’s all about the rebranding and the new posture of the Authority to become a professional organization.
PT: If a new investor is coming to do business in the country, how long would it take to settle down to business?
U0MANA: The position in our law is that we grant licenses within 30 days. Part of our reforms is that we are improving efficiency and making things easy for those who want to register with us. We have reduced the time from 30 to within 21 days. We don’t even need to amend the law to achieve that, because 21 days is still within 30 days.
We have also said that when our clients meet the requirements for renewal, which include submission of annual returns and payment of the prescribed fees, the licenses would be renewed within three days. These are in line with the new posture of the Authority to enhance service delivery.
PT: How financially independent is OGFZA?
UMANA: In our road map, we indicated that our goal is to be financially independent. That means we have to think creatively outside the box and position the Authority in a manner that we can deliver on our mandate. What we came to meet is not encouraging. That is why we are taking steps to ensure that we think creatively to enable the Authority fund itself.