NLNG Limited Secures Landmark Federal High Court Tax judgement

October 5, 2017

A Federal High Court sitting in Lagos on 3rd October 2017, finally issued its long awaited decision on the high profile tax dispute between the Nigerian LNG Limited (NLNG) and the Nigerian Maritime Administration and Safety Agency (NIMASA) in favour of NLNG.

NLNG is a multi-billion Naira company that prides itself as one of the largest investments in a single industrial undertaking in Sub-Saharan Africa. NLNG was created by a consortium comprising three international oil companies: Shell Gas B. V. with 25.6% shareholding; Total LNG Nigeria Limited – 15% and Eni International – 10.4% and the Federal Government of Nigeria [represented by the Nigerian National Petroleum Corporation (NNPC)] – 49% to harness Nigeria’s vast natural gas resources and produce Liquefied Natural Gas (LNG) and Natural Gas Liquids (NGLs) for export.

These shareholders entered into a Shareholders Agreement whereby the Nigerian Government provided certain fiscal guarantees and incentives in consideration of the multi-billion Dollar investments made prior to the take-off of the LNG project in Nigeria. These guarantees (which were subsequently enacted into law as the NLNG Act) include pioneer status; time-specific tax reliefs; protection from new laws not generally applicable to other companies in Nigeria; the promise that the guarantees, assurances and undertakings shall not be suspended, modified or revoked during the life of the venture except with the mutual agreement of the FGN and the shareholders of NLNG. These gave NLNG’s investors the confidence to make the final investment decision that enabled the LNG project in Nigeria to take off and become the resounding success it is today.

As the largest shareholder of NLNG, the Nigerian Government has reaped billions of US Dollars in dividends since the company’s establishment. With the expiration of the time-specific tax incentives, NLNG is one of the highest tax paying companies in Nigeria. This is in addition to numerous other contributions it makes to the Niger Delta area and the Nigerian economy in general.

The NIMASA dispute is the latest chapter in the long line of challenges that NLNG has had to contend with since its establishment in 1989. Different revenue collecting agencies of the Nigerian Government routinely make demands on NLNG for a piece of the proverbial cake; notably the Niger Delta Development Corporation (NDDC) which dispute was resolved by all courts in Nigeria in favour of NLNG.

NIMASA, the agency responsible for maritime administration and safety in Nigeria, made demands on NLNG for the payment of certain levies, charges and impositions including 3% of gross freight; 2% surcharge for cabotage and other levies and impositions. NLNG contended that it was clearly exempt from the latter laws and it is therefore not liable to pay levies, charges and impositions under these legislations. Rather than submit the dispute to the court, NIMASA withdrew its suit under the guise of settlement and embarked on a blockade of NLNG’s vessels leading to a stand-off that cost NLNG and by extension the Federal Government hundreds of millions of US Dollars. NLNG had no option but to approach the court.

After several voyages through the ladder of courts in Nigeria, involving multiple jurisdictional challenges, the Federal High Court presided over by Honourable Justice M. B. Idris resolved all the issues submitted to it for determination in favour of NLNG and granted all reliefs sought. The court pronounced the blockade as illegal and found that NLNG is entitled to a refund of all payments illegally demanded and received by NIMASA.

Top Nigerian commercial litigation firm, Babalakin & Co. represented NLNG in the dispute and the team comprised of Olawale Akoni, SAN; Oyetola Oshobi, SAN; Dr. Bayo Adaralegbe, Kehinde Daodu and Orji A. Uka.