Charges in Nigeria’s free zones threaten Foreign Direct Investment

With Nigeria’s move to improve the ease of doing business, investors cry out over high charges especially in the country’s oil and gas free zones which may threaten Foreign Direct Investment (FDI) drive and hinder economic growth.

To ease the flow of doing business, Nigeria’s Free zones offer a highly competitive range of tax concessions plus other investment incentives including minimal bureaucracy. In these free zones, licenced operators are free from some financial regulations of the Nigerian Customs. They enjoy special incentives such as exemptions from federal, state and local government taxes as well as export/import duties. These incentives translate into huge financial benefits for the companies hence attracting investors into the country.

Oil and Gas Free Trade Zones in Nigeria are one of the largest and fastest growing global oil & gas transit and supply base. Investors who are looking to cash in on their millions are displeased with developments in the sector.

Citing Shell’s Lagos Deep Offshore Logistics Base (LADOL free zone) warehouse which has been abandoned in the free zone as an example of the harshness of operating in the environment, some investors noted that rising charges as well as other unfriendly policies of private free zones were threatening the overall country’s stance in the work towards making it a favourable place to do business.

A similar case is the threat of Free on Board charges (FOB) by the management of LADOL on Korea’s Samsung Heavy Industries (SHI). SHI was charged a “statutory” $3.3 billion Egina Floating Production Storage Offloading (FPSO) meanwhile SHI investors argue that these charges were not contained in their contracts.

In 2015, LADOL came into partnership with SHI to build an FPSO vessel fabrication and integration facility for Total Upstream Nigeria Limited. The FPSO vessel fabrication and integration facility currently operated by SHI-MCI FZE, a Nigerian Local Content initiative-driven incorporated joint venture between Samsung Heavy Industries and LADOL was borne of the partnership.

Surprisingly, SHI with a 70 percent stake in the joint venture, alleged that a 1 percent charge was imposed by LADOL (30 percent stake) on the 200,000 barrels per day FPSO being constructed for Total. SHI stated that the charges which amounted to a sum of $33 million dollar was not contained in its original contracts.

Meanwhile, in her defence, LADOL’s Managing Director, Amy Jadesimi described the allegation as false. Revisiting the the contract papers, she noted that a section of the contract stated that 1 percent should be paid to the Nigerian Content Development and Monitoring Board (NCDMB) in accordance with the Nigerian Oil and Gas Industry Development Content Act (NOGIDC) Act of 2010. However, she stated that this provision is not covered by any law.

With the inception of free trade zones, Nigeria through its port authority (NPA) generated close to 2 billion from activities of the oil and gas industry in the zones between 2010 and 2015. Also, the Nigeria customs made more than N400 billion over the same period. Currently, the government has realized over $6 billion in investments from the zones.