Olufola Wusu

Fola Wusu

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It was reported in the news that Aliko Dangote, Africa’s richest man, had called on the federal government to sell its stake in the Nigeria Liquefied Natural Gas Limited (NLNG) to beef up Nigeria’s foreign reserves.

Coincidentally a few days after Aliko Dangote’s suggestion, Godwin Emefiele, the governor of the Central Bank of Nigeria (CBN), and Senate President Bukola Saraki, also expressed support for the sale of national assets, in a bid to get out of recession. Emefiele stated that the sale should be done with a “buy-back” clause, so that the government could recover the asset in a time of boom.

This article without considering the “noble” motives behind the suggested sales; aims at analyzing salient issues in the proposed sale of NLNG and alternatives to the possible sale.

Oil and Gas Assets vs. Human Capital Development

The success of the NLNG may have brought about Nigeria’s first crop of NLNG professionals from LNG engineers to LNG lawyers, this is a remarkable feat. Nonetheless, Nigeria may wish to consider a paradigm shift; as the constant focus on oil and gas assets with scant attention to human capital development by the Nigerian government may have inadvertently aggravated the current downturn. Dubai’s rise to stardom cannot be divorced from its huge investment into human capital development. Oil and Gas assets have a limited life span; human capital is constantly evolving and often produces ideas that can change societies. NLNG recently unveiled a 25 year plan for the people of Bonny Island.

Regulatory Certainty will Attract FDI

The numbers stack up. India’s foreign direct investment “FDI” hit a record high at USD 55.5 billion in 2015-2016. Passing the PIB and making it cheaper to do business in Nigeria by providing adequate infrastructure will go a long way in improving the ease of doing business in Nigeria and should help increase the inflow of FDI into Nigeria.

J. P. Morgan vs. Aliko Dangote

Aliko Dangote, Africa’s richest man, altruistically called on the federal government to sell its stake in the Nigeria Liquefied Natural Gas Limited (NLNG) to beef up Nigeria’s foreign reserves.

Meanwhile on February 20, 1895, J. Pierpont Morgan & J.P. Morgan & Co. led a bond offering that in no small way helped rescue the United States from a severe two-year economic depression. This crisis started from the post-war railroad boom that caused a series of bank failures and a run on gold. By 1895, the country’s gold reserves had significantly dwindled.

J. Pierpont Morgan one of the richest men of that time, was said to have formed an international syndicate to buy gold and protect the Treasury from further withdrawals. J.P. Morgan & Co. led a syndicate of bankers to sell U.S. bonds to buy back gold from foreign investors. The firm offered the bonds for sale at $112.25 and sold out the entire issue in New York within 22 minutes! Source: www.jpmorgan.com

Selling Assets vs. Cutting cost

Senate President Bukola Saraki also expressed support for the sale of national assets, in a bid to get out of recession. Interestingly, Saudi Arabia in a bid to cut cost is reducing the salaries of ministers by 20 percent and cut benefits of senior officials and bonuses for public employees as lower oil prices continue to pinch the economy of Saudi Arabia. Saudi Arabia is home to Aramco the biggest oil and gas company in the world, which is poised to have an Initial Public Offering for its shares.

Convert the contractual JVs in oil and gas to Incorporated JVs

Nigeria has a couple of contractual JVs with oil and gas companies for various oil and gas projects, which are often plagued by joint venture cash call defaults on the part of the Nigerian government running into billions of dollars. It may be beneficial to convert the contractual joint ventures into incorporated joint venture companies, just like the NLNG, so those IJVs can raise funds to do business and build their human capital base.

Facilitate Stalled LNG Projects

The former Chief Executive Officer/Managing Director, NLNG, Mr Babs Omotowa, was quoted as having said that, train 7 of the NLNG awaiting FID, should cost approximately $10 billion to build and requires another $15 billion investment by upstream companies in drilling for gas. That means train 7 alone has the capacity to attract $25 billion worth of foreign direct investments and should increase NLNG capacity by say 40%…

The 10 million metric tonnes Brass LNG and the 12.8 million metric tonnes OK LNG are sure to attract considerable FDI if sufficient support is given to those projects to bring them to realisation.

Mr Babs Omotowa, was reported as having said Nigeria was losing $5bn in revenue yearly as long as the stalled gas projects remain uncompleted. During the 2014 Nigerian Oil and Gas Conference in Abuja He delivered a paper titled, ‘Global LNG Developments: What are the opportunities for Nigeria?’He decried the fact that the 10 million metric tonnes Brass LNG had been delayed for four years; the 12.8 million metric tonnes OKLNG had suffered a three-year delay while the eight million metric tonnes NLNG Train 7 was yet to get the final investment decision after five years.

Mr Babs Omotowa was quoted as having said that “With additional 30MT per annum, Nigeria can generate additional $15bn revenue annually. Revenue to the Federal Government will increase by $5bn per year and 50,000 construction jobs from the three projects.”

The FID on the Brass LNG project suffered a major setback when ConocoPhillips, in 2013, announced the intention to divest its Nigerian assets.“As a result, Brass LNG is now seeking third-party investors to take on the remaining 17 per cent stake,”

IPO for sale of NLNG

Local IPO

Nigeria may wish to consider using pension funds worth trillions of Naira to buy shares in the JV assets after they may have been converted into incorporated joint ventures. Using the pension funds will provide enough liquidity to purchase the shares in oil and gas IJVs even if the cost price is in a foreign currency.

Foreign IPO

Sovereign Diaspora Investment Fund

Diaspora remittance into Nigeria was reported by the World Bank to be over $20 billion yearly.

Option A

Organize diaspora remittance into a Sovereign Diaspora Investment Fund and use it to acquire shares in oil and gas IJV.

Option B

Using Nigeria’s embassies, Nigeria can sell shares in oil and gas IJVs to Nigerians living abroad. For the options above, the Bank Verification Number (“BVN”) can be used as an identity marker with caps on how many shares each Nigerian citizen/entity can buy, to allow other Nigerian citizens/ entities buy shares too.

Need to revive the manufacturing base in Nigeria

The absence of a manufacturing base may mean that even if we will sell our assets Naira will stabilize for just a short while. So what happens to the income stream generated from those assets even with all the inefficiency in the system? As this suggested sale, is coming up a short while before an election year. A Manufacturing base will enable Nigeria produce enough goods for export which will earn badly needed foreign exchange.

Need to prioritise Oil and Gas Intellectual Property

The basic types of Intellectual property prevalent in the oil and gas sector are the following; Patents, Trademarks, Copyrights, Trade Secrets and Others like brands, Know-How, Know – Who and Professional Credentials & Credibility.

In protecting innovation, a key benefit of an intellectual property system is that a contractual right is only enforceable against the person who entered into contract with you; while a property right is enforceable against the whole world! Reports have however shown a strong correlation between the presence of intellectual property in oil and gas companies and their profitability.

Innovation/ Intellectual Property that made Qatargas 2 possible

Qatargas 2 maybe the largest liquefied natural gas project in the world and Qatargas’ first expansion project.

The offshore platforms are unmanned, and were pre-fabricated in Abu Dhabi and then floated out to the North Field, making it safer and easier for the platforms to be constructed.

Qatargas 2 has surpassed the quantity of gas that an LNG train has produced before, now reaching 7.8 million tonnes per year. This is a 66% increase on any performance ever achieved in the industry – a key step in making LNG economically viable for long distance markets. Over 40 new technologies and 3 million pounds of new equipment and systems were implemented.

Qatargas 2 needed a fleet of ships to take the LNG it would produce to UK and beyond. Qatar’s ships will represent 25% of the world’s LNG shipping capacity. The Q-Flex and Q-Max ship design and construction standards features; state of the art fire-fighting system and onboard liquefaction, which ensures that all of what is loaded onboard is delivered. The size of the largest conventional LNG ship is around 151,000 cubic meters – Qatargas increased these ships up to 266,000 cubic meters with the Q-max, allowing for an 80% increase in capacity. One full cargo of a Q-Max can heat every home in the UK – that’s 26 million homes – for one day. Submerged Combustion Vaporizers and other specialized technologies will minimize air and water pollution. Source: www.qatargas.com

F. I. D. on Brass LNG project-IP

The seemingly endless delays in signing the Final Investment Decision on the Brass LNG project seem to highlight the need for Nigeria, International and Indigenous Oil and Gas companies to pay attention to the Intellectual Property involved in Oil and Gas transactions. IP though invisible cannot be wished away.

LNG is intensely technology driven and this technology is protected by patents and other IP owned by companies who either directly participate in LNG projects or license out their IP including patents to others to use for a hefty fee.

At the onset of a joint venture the members of a JV contribute resources to make the JV successful, some members usually have Intellectual Property that they have developed, own or license and which they ostensibly intend to contribute to the joint venture…

Intellectual Property in LNG Joint Ventures?

Intellectual Property in LNG Joint Ventures becomes a valuable asset to the Oil and Gas companies involved in a LNG-Joint Venture when the parties are aware of the potential issues related to Intellectual Property and its value. It is even more valuable when it is registered and steps are taken to prevent competitors from accessing and using it for free, more value is derived when the owner of such Intellectual Property actively seeks to commercialise his intellectual assets by synergising with companies willing to use his LNG-Intellectual Assets for a fee in exchange for a license…

“Change begins with me” vs. “The Buck stops here”

President Buhari recently launched a new National Orientation Programme, tagged “Change Begins With Me”. Telling the citizenry to change the way they do things.

Meanwhile the sign “The Buck Stops Here” was on President Truman’s desk in his White House office. The saying “the buck stops here” derives from the slang expression “pass the buck” which means passing the responsibility on to someone else. The latter expression is said to have originated with the game of poker, in which a marker or counter, frequently in frontier days a knife with a buckhorn handle, was used to indicate the person whose turn it was to deal. If the player did not wish to deal he could pass the responsibility by passing the “buck,” as the counter came to be called, to the next player.

In his farewell address to the American people given in January 1953, President Truman said that, “The President–whoever he is–has to decide. He can’t pass the buck to anybody. No one else can do the deciding for him. That’s his job”.

Conclusion

NLNG in this writer’s opinion is the liquefaction of the excellence in the “Nigerian Spirit” into a local company with international standards.

Nigeria is a gas province with a drop of oil. Selling a high performing asset that is the crystallization of the excellence in the Nigerian Spirit into liquid may not be the most prudent choice to make. The road to industrialization may also be paved with the by-products of gas related products.

There is a need to prioritise the recession as a national crisis. Nigeria needs to walk away from the provincial partisanship that has characterised our reaction to national problems such as this recession. All hands need to be on deck, to solve the problems facing us. Our politicians need to show much needed sincerity in order to nip this problem in the bud. The Venezuelan debacle may be good reason for timely and sincere actions…

Comments anyone?

Olufola Wusu is a Commercial, Oil and Gas and I.P. Lawyer based in Lagos

Olufola Wusu Esq. © 2016

Olufola Wusu is noted for his “dynamic practice” and “commercial acumen”. He is praised for his “first-rate skills” in assisting clients…