By Engr Saidu Njidda
It is in strategic management or corporate strategy or management policy as it is variously called; that identified the requirement of managing an organization from the top; to most involved the determination of their mission, vision, objective and deployment of resources adaptively in order to achieve overall company objectives. “Helping to put out the flares in Nigeria” is therefore a mission statement of our pioneer gas liquefaction company, the Nigerian Liquefied Natural Gas Limited (NLNG). The Nigerian Gas Company (NGC), a subsidiary of NNPC, although older and more of a creditor company (NEPA alone owed them N2 billion) than a profitable business concern compared to the NLNG; They are not a liquefaction company. All NGC’s products are consumed locally. The West African Gas Company whose pipes are being laid and its products targeting to the international markets is also not a liquefaction-based consortium.
The NLNG Ltd remains the first and only Nigerian Company with a fractionalization plant process. It is however of interest to note that other NLNGs include West Delta LNG, Statoil LNG, Agip-Philips-Brass LNG, though yet to be in production.
The NLNG, a limited liability company was incorporated in 1989 with shareholders of note and as usual of petroleum industry practice in Nigeria with joint venture capital, the NNPC holding brief for the Federal Government of Nigeria (FGN) with 49% shares, Shell 25.6%, Total LNG Nigeria Ltd 15% and Eni of Italy 10.4%. The company is in full production in Finima Island, a village in Bonny Local Government Area of Rivers State since 1999. The end products of NLNG are basically three: –
1. The Liquefied Natural Gas C1, that is used for industrial heating.
2. The Liquefied Petroleum Gas (LPG) C2 that is used for domestic heating
3. The condensate C4, C5 used for industrial solvent.
The LPG and condensate are actually an addition as product diversification to the LNG and that is why sometimes advertisement is made for potential buyers of condensate. It is unlike most business markets, the specialty of LNG’s makes its selling unique, LNG’s of this world makes sure that their products are sold upfront before even an investment decision is signed. Recall that the first major assignment of the NLNG’s Chairman then was the signing of M.O.U for the sales and purchase agreement (SPAS) and the project was nearly truncated when one of the buyers Enel of Italy wanted to pull out. The final investment decision (FID) by the shareholders to finance the project was effected in November 1995; productions started in September 1999 and export of first LNG cargo was in October 1999. The NLNG has also floated a subsidiary company, the Bonny Gas Transport Limited (BGT) to handle the transportation and shipping of its products to five of its European buyers that signed the (SPAS) for twenty two and a half years duration. They are Enel of Italy, Gas Natural, SDG SA of Spain, Botas of Turkey, Gaz de France of France and Transgas of Portugal.
The concepts of NLNG are beautiful as highlighted in their vision and mission statement. The company intends to be a world class LNG, helping to better Nigeria and to produce and export LNG reliably and profitably thereby growing the business to its full potential and helping to put out the flares in Nigeria. However, the objective of the company was salient and therefore, through their operations the objective is emerging and this will be identified and shared.
Nigeria is blessed with massive reserves of gas in excess of 160 trillion cubic feet and is ranked amongst the 10 largest in terms of proven natural gas. The associated gases are almost being flared and therefore Nigeria is the biggest gas flarers in the world. Inview of environmental hazards and health implications, the government has set a 2008 target for zero flares and in conformity with global requirements.
The NLNG has positioned itself to collect or pay for little these gas from the fields and notably from communities land of Soku, Ibewa, Ubeta, Obagi, Idu, Mbede, Obiafu-Obrikom, Omoku, Ebegoro, Ogbogene, Ebocha all in the Niger Delta region with their pipes running and affecting over 110 communities before reaching the plant site at Finima. These gas are now refrigerated in a train to a temperature of -160oc and loaded as solids in a ship and delivered as cargo to the buyers in Europe and America. A cargo ship provided by the Bonny Transport Company has a capacity of about 132,000 cubic metres of gas and so far not less than 125 cargoes had been delivered to buyers with 16,500,000 cubic metres of gas sold and paid for the company.
Therefore, with the signed (SPAS) and gas selling at USD 2.9 Bqu it can be comfortably estimated that NLNG has earned about USD 1.3 billion in 2003, i.e. selling price of USD 10 million per cargo and with the above profitable trend the company can generate USD 30 billion within the sales purchase agreement.
The question is with these revenues, what is the objective of NLNG?
The operations of the company entails trapping of flares and natural gas from community lands to a train at Finima, process it and export same for a value. The estimated cost of a train is USD 1.8 billion. The company has 3 trains operational and trains 4 & 5 is under construction. Trains 1 & 2 was wholly financed by Equity while train 3 was financed by Equity and surpluses from train 1 & 2. Trains 4 & 5 are presently being constructed and financed wholly by borrowing through international banks such as BNP Paribas, Citigroup, Credit Lyonnais, MCC and West LB with some few local banks to give it credibility. Why borrow? When you started with Equity and surpluses are coming in.
The Theory of the Trapped Economy
Whatever economic advantages borrowing has, the fact remains that you borrow when you don’t have. Nigerian external debt obligations stand at USD 30.9 billion and Mr President told the nation in 2004 budget that significant amount of money has been invested in gas exploration and yet it has not brought money to the coffers of the government. The borrowing started by NLNG in trains 4 & 5 is therefore a strategy to achieve its salient objective of trapping the Nigerian economy. The company started borrowing for expansion purposes unlike established standard where borrowing is associated with new projects and as you break-even such loans are repaid and expansion are financed through surpluses, the present borrowing adapted is not because NLNG cannot expand its trains with profits and surplus being accruing to the company, the idea of borrowing is to create “Evergreen Loans”. The other shareholders 51% who are foreign nationals have already broken even through the sales of their equipment and job generations to their nationals and to avert Nigeria from paying its foreign debt through the use of these huge foreign dollars have devised in collaboration with the I.M.F, the idea of loanable funds inorder to create evergreen loans to also flares the revenue from our gas to the western economies.
Evergreen loans are exploitative credit facilities usually the developed nations extend to the developing corrupt nations whose initial principal amount are too big for the borrower to repay/or the borrowed principals keep rising through the negative effects of compound interest and its capitalization. All economic production units have optimal point beyond which further endeavours cause a deterioration or decline of output rather than improvement or increased production. Therefore, a unit of production that has reached this optimal production level but is obliged to share with foreigners the entire income or output among current liabilities with nothing left (i.e. with no surplus and savings) for capital plough-back can at best only stagnate. This is the objective of NLNG and they failed to state that in their mission statement. The situation is worse when even the amounts charged to capital depreciation are used to service the initial loans used to set up the production unit. The fate of such a production unit is obviously doomed. It will not just stagnate; it will collapse but of course after the foreign shareholders have benefited enough. However, if the production unit is liable only to internal obligations, that is, if its entire income or output is to be shared among internal claimants, the achievements of economic growth or higher output is possible provided the recipients invest part of their receipts internally to increase production. Thus, the endogenous sourcing of loans through the Nigerian banks may be welcome. But how much is the Nigerian bank’s contributions in this expansion loan? We may have to wait until the Soludo solution of N25 billion capital base is achieved.
The whole noise about local contents and Nigerianisation in NLNG does not exceed USD 8 million per annum with the pressure coming on to the management of NLNG, the company has declared a dividend of $512 million on 15th June and the Federal Government is expected to receive about N3.3 billion as its shares. It is desirable that these monies be paid directly to the debt management office and the Director General be appointed on the Board of NLNG together with the Chairman of Revenue Mobilization Allocation and Fiscal Commission and be given mandate to use these monies for the settlement of our foreign dent; since it was not considered as revenue accruing to the nation in 2004 budget. This must however be done after deducting 13% derivation revenue and plough it back directly to the communities mentioned as contributors of these gas lands.
However, if necessary steps are not taken, to both monitor the foreign interest in NLNG and the Nigerian representatives as signified by NNPC, the history of diverting anything from the oil companies to the federation accounts may repeat itself and the ruination of the country may increase. Recall the diversion of $37 million dollars paid as education tax by (SPDC) when the present Accountant General of the federation Mr. Kayode Nayeju was in charge of Education Tax Fund (ETF) and CBN did some debit and credit to close the case. We should not continue with business as usual and extra care must be taken so that our resources are managed to the advantage and benefit of all Nigerians.
However, if care is not taken; with our usual poor monitoring and corrupt management of our resources, these meagre amounts being invested by NLNG as local contents and community projects of Shagari low-cost houses standard may turn out to be the only return we may get from our huge gas investment as similar faith observed above may also befall the West African Gas Pipeline project. The trapping of the third world economy has already been perfected despite all resources and revenues we can generate within globalization and its discontents.
Should we live without gas revenue or live with gas flares? For the trains are both there; of gas flares and revenue flares.
ENGR SAIDU NJIDDA