Nigeria has a joint venture with Shell, Total and Eni to operate the liquefied natural gas project through its state-owned company Nigeria Liquefied Natural Gas (NLNG). A joint venture owned by four shareholders including the Federal Government of Nigeria, represented by the Nigerian National Petroleum Corporation (NNPC), which has a 49% stake in it, Shell, Total and Eni have 25.6%, 15% and 104.% respectively in the project.
Based on their equity holding, the NNPC has $1.62bn in the project, while Shell, Total and Eni have $845m, $495m and $330m in it respectively. In a recent public presentation of a report into the project titled: Leaking Revenue: How a big tax break to European gas companies has cost Nigeria Billions, ActionAid disclosed that the country was fleeced through the extraordinary tax breaks granted the companies after the initial five-year tax break elapsed.
According to the report, the massive tax break was enabled by a unique law passed in 1990, adding that it was a triple whammy as a tax was break in three parts, stretching from 1999 to 2012. ActionAid stated that the tax holiday extension meant the loss of about $2bn in revenue and the rolled over allowances where the same tax was effectively foregone twice, meant Nigeria lost a further $1.3bn.
It added that tax foregone in the first five years was not counted, as this was the normal tax break. In addition, the report also noted that while tax holidays are normal, 10-year tax holidays, the type granted to Shell, Total and Eni, are not tailor-made laws like the type in this instance.
ActionAid also disclosed that the consortium is the only company in Nigeria with its own law defining its tax framework, adding that there is little publicly accessible information about how a special tax framework was created for the consortium. No website exists where the details of the tax arrangement of the project can be accessed.
“First came a regular five year tax holiday granted to most investors in Nigeria and second, an extension for a further five years exceptionally allowed for this particular deal. Thirdly, tax allowances that would have been used during the tax holidays were rolled over and exempted the companies from tax for a further two years,” the ActionAid report added.
However, in a swift response to the allegations, NLNG debunked the claims, saying that the tax incentives and federal government’s investment in the project had yielded $33bn in the form of dividends, taxes and feed gas purchases for Nigeria over the past 16 years. It added that an additional $5bn had accrued through corporate spend on local goods and services during the same period.
NLNG general manager, Kudo Eresia-Eke, maintained that the claim by ActionAid is false and misleading. He added that the concept of tax holidays are not an unusual practice in the global business community, as Angola offered as much as 12 years tax holidays to encourage investments in its liquefied natural gas industry.
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