Yemisi Izuora in this analysis looks at some charges that have been introduced by management of Lagos Offshore Logistics Base, LADOL which investors consider alien to overall policy of setting up Free Zones
Despite recent visit of Vice President Yemi Osinbajo to the Lagos Offshore Logistics Base (LADOL) free zone in Lagos to reassure investors operating in the zone of the determination of the administration of President Muhammadu Buhari to continue to provide incentives and assurances to wet investor appetite, the management of the zone is yet to address the harsh operating environment in the zone.
LADOL and its subsidiary company, Global Resources Free Zone Management Company (GRMFZC), have been at the centre of allegations of tyrannical rule and oppressive acts by both foreign and local investors in its zone, necessitating a visit by the Vice President whose efforts have boosted Nigeria’s ranking in the World Bank global Ease of Doing Business report.
One of the investments facing risk in LADOL Free Zone that may scare foreign investors from the country’s free zones is the investment of a member of the Samsung Group of Companies.
According to investigations, this investment by Samsung Heavy Industries (SHI) is the most valuable asset of the LADOL island.
The asset is the fabrication and integration facilities and Quay Wall developed by Samsung Heavy Industry Nigeria Limited’s majority owned subsidiary enterprise in the free zone – SHI-MCI FZE for the fabrication and integration of the $3.3 billion Egina Floating Production Storage Offloading (FPSO) unit built by SHI in Korea.
Investigation revealed that in addition to the $300 million invested in the zone by Samsung to create the assets, the utilisation of the investment for the Egina Project has created direct jobs in excess of 2000.
The fabrication and integration yard being the first of its kind in West Africa, has ideally positioned Nigeria as the hub for fabrication and integration activities around the continent.
But concern is being raised by the oil and gas industry operators that the prohibitive land charges and high cost of operations imposed by LADOL in the zone may potentially render the facilities uncompetitive to the oil and gas industry and other prospective clients.
As a Free Zone Enterprise, SHI-MCI has been the victim of LADOL’s alleged illegal, arbitrary and dismal acts.
Oriental News Nigeria, gathered that LADOL is plotting to force Samsung to abandon the $300 million asset by denying the Korean firm the renewal of SHI-MCI‘s Free Zone operating licence for the statutory one year without no valid basis.
The free zone licence in line with the Nigerian Export Processing Zone Authority (NEPZA) Act is to be renewed yearly on the payment of certain fees by licenced enterprise.
Investigation by Leadership showed that the Free Zone had initially refused to renew SHI-MCI’s operating licence, citing non-payment of a one per cent Free on Board (FOB) levy on the Egina FPSO, which is not backed by any Nigerian law.
When Samsung protested against the illegal levy and faulted the basis of its computation, all the stakeholders initiated a high-level meeting.
As these negotiations are ongoing, the NEPZA was said to have directed LADOL to renew SHI-MCI’s operating licence for the statutory one-year period as prescribed by the NEPZA Act.
But rather than comply with the NEPZA’s directive, LADOL’s subsidiary was said to have refused.
“Of course without the operating licence, which permits Samsung’s subsidiary to continue to do business in the Zone, it means Samsung cannot continue to carry on business in the zone and as the assets are fixed and immovable, it is clear that LADOL is trying to take over these assets by frustrating Samsung’s operation out of the zone,” said an official of one of the IOCs, who spoke off the record.
“It is quite worrisome that a developer would encourage foreign investment into the Zone at a high business cost and after an investor had made decision to set up on the zone in consideration of the investments offered in the Zone and has sunk in significant/substantial/huge foreign investment in the zone, and developed it to a stage of self sustenance, it would be deprived of its investment,” the official explained.
Oriental News Nigeria further learnt authoritatively that a class piping company which invested over $30 million in the zone has been denied access to its facilities in the zone and also had its operating licence withdrawn by the LADOL, because of alleged indebtedness to the management of the zone.
LADOL, which has a contract with Shell Nigeria Exploratory Production Company (SNEPCO) for the provision of a logistics base, is alleged to be planning to use the facilities of the piping company to execute this contract.
However, a source in SNEPCO told Leadership that SNEPCo is currently investigating this allegation. SNEPCo’s attempt to relocate its facilities from Onne Free Zone to Lagos has also been resisted by its Onne host community, which protested recently under the aegis of Onne Youth Council (OYC), alleging that the planned relocation would lead to the loss of more than 5,000 direct and indirect jobs.
In its reaction to the protest, a spokesman for SNEPCo, Mr. Bamidele Odugbesan, said in a statement that Shell did not shut down the Onne Logistics Supply Base.
“The base will continue to be utilised by The Shell Petroleum Development Company of Nigeria Limited (SPDC), operator of the SPDC Joint Venture for SPDC Joint Venture operations.
“SNEPCO’s operations are in the Bonga field 120 kilometers off Nigerian coast in the Gulf of Guinea and our operations staff and contractors work offshore in Bonga,” Odugbesan said.
In its reaction to the allegations, the Managing Director of LADOL, Dr. Amy Jadesimi said in advertorials that companies must meet certain criteria to operate within a Free Zone.
“These criteria include compliance with zone regulations on employment and working conditions, as well as obeying free zone rules and the laws of the Federal Republic of Nigeria.
“Free Zones in Nigeria offer investors a peaceful, safe, and cost-effective environment, with minimal bureaucracy. By design, the benefits foreign companies enjoy far outweigh the statutory charges levied by the Free Zone Management and Authority. The charges are known and required to maintain the zones and the Free Zone Scheme.
”Operating in LADOL under the federal government’s ‘Ease of doing Business’ regime results in real local content, which in turn means real cost savings for the companies operating in the Free Zone and the creation of thousands of jobs for Nigerians,” she explained.
Reacting to the issue, the president of Manufacturers Association of Nigeria, MAN, Frank Udemba Jacobs was disturbed over concerns raised by members operating at LADOL.
Jacobs admitted receiving complaints about various levies by management of LADOL.
But he said steps are currently ongoing by the Nigeria Industrial Council and Competiveness Advisory Council whose the issue has been reported to with the mandate to review fiscal arrangements and incentives applicable to the country’s free trade zones (FTZs).
Meanwhile, at the meeting of the council, recently its Vice Chairman and Minister of Industry, Trade and Investment, Okey Enelamah, said the council has been working to review the fiscal arrangements and incentives available to operators in the zones vis-a-viz the custom territory with the view to ensuring competitiveness of goods produced in the FTZs in the local and export markets.
There are many free trade zones at different stages of development in the country. Fourteen are operational, 12 under construction, while the development of 11 others is yet to commence. Also, the ongoing Special Economic Zones project is developing six special economic zones across the geopolitical zones.
Approved enterprises within FG-owned FTZs are entitled to the following incentives: Exemption from legislative provisions pertaining to taxes, levies, duties and foreign exchange regulations; full repatriation of foreign capital investment with capital appreciation of the investment at any time; up to 100 per cent of foreign ownership allowable; and no import or export licences required for operations; among others.
Over the years, since the promulgation of the NEPZA Act of 1992, changes have been made to the operational guidelines of the zones.
According to Mr Enelamah, a study by the council has identified some areas that need redress. For example, manufacturers outside the zones have complained about unfair competition as the tax concessions available to FTZ operators do not take into cognizance the fact that up to 100% of goods produced in the free zones can be sold into the Nigeria customs territory; inadequate definition of value addition and certification; and cash flow advantage to free zone operators who pay duties on constituent raw materials equivalent of finished goods after production and processing, while manufacturers outside the zones pay duties and other relevant levies upfront.
However, in the study, free zone operators raised concerns over their inability to effectively compete in the export market, high administrative charges on turnover and exclusion from export incentives.
To address these issues and others affecting the efficiency of the free zones, a technical committee comprising representatives of the Nigeria Export Processing Zones Authority (NEPZA), Nigeria Export Promotion Council (NEPC), Nigeria Investment Promotion Commission (NIPC), the Federal Ministry of Finance (FMF), the Federal Ministry of Interior (FMI), the Central Bank of Nigeria (CBN), the Nigeria Customs Service (NCS), the Standards Organisation of Nigeria (SON) as well as selected operators will be set up to review and recommend appropriate fiscal and operational changes to the free zones to ensure that goods produced in the free trade zones are competitive in the export market and that concerns around unfair competition in the Nigeria Customs Territory from goods produced in the free trade zones are addressed.
Also, future licensing of free trade zones should be closely linked to priority sectors for industrialisationand export growth; while NEPZA is to implement comprehensive measurement and certification guidelines and monitoring mechanisms for determining value addition for each prohibited item.
The council, which meets monthly under the chairmanship of Vice President Yemi Osinbajo, was inaugurated last year to spearhead the industrial agenda that will boost the contribution of manufacturing to the country’s Gross Domestic Product (GDP) by 250 per cent over a five-year period. The agenda will make Nigeria a manufacturing hub for West Africa and diversify the economy from its over-dependence on oil.