The need to avoid discouraging international business in the free-zone

LADOL recently became the first company in West Africa to be awarded International Organisation for Standardisation (ISO) certifications recognising international best practice in areas including risk-based thinking and occupational hazards. Commenting on the certifications, LADOL’s Managing Director, Dr Amy Jadesimi said that soon LADOL will not only,“exceed international standards, it will set them.” However, LADOL […]

LADOL recently became the first company in West Africa to be awarded International Organisation for Standardisation (ISO) certifications recognising international best practice in areas including risk-based thinking and occupational hazards.

Commenting on the certifications, LADOL’s Managing Director, Dr Amy Jadesimi said that soon LADOL will not only,“exceed international standards, it will set them.”

However, LADOL has terminated the operating licences of at least two foreign investorswith significant investments in the zone – Africoat and Samsung Heavy Industries (Nigeria) (SHIN).

Over the past years, both have brought considerable investment, training, employment and transfer of technology to the local Nigerian workforce.

As indicated on its website, LADOL’s vision since inception was to provide the“first purpose-built, state-of-the art logistics and engineering base west of the Niger Delta.” The industrial free-zone’s core mission was to develop a 100 per cent Nigerian owned operation, to attract international companies and to encourage them to manufacture in Nigeria.

The project was vital to the Nigerian economy – it promised to bring foreign investment into the country, provide jobs and training for local communities and unlock the country’s vast oil wealth.

Africoat was one such company that set up in the free-zone to take advantage of an attractive regulatory regime and manufacturing conditions within the free zone area.

Africoat protested its innocence. First, it denies some of the outstanding charges brought by LADOL, which it describes as ‘exorbitant’, without merit and not per the original agreement between Africoat and Ladol, the free zone regulations or applicable law.

Africoat was never made aware of such charges, neither did it agree to the charges, and was not offered the chance to discuss or negotiate the charges once imposed.

Importantly, Africoat also claims it was never made aware by LADOL or GRML, the free-zone administrator, of the breach of LFZ regulationsprior to termination.

The services agreement between LADOL and Africoat made no mention of the regulations and its impact on the agreed rates between the parties.

Several reporting cycles passed without Africoat being made aware that it was in supposed breach of the regulations.

Eventually, the Minister of State for Industry, Trade and Investment, Dr. Okechukwu Enelamah,  was obliged to intervene to settle the dispute. Africoat’s operating licence has been renewed but not without a considerable loss of trust between Africoat and LADOL.

Samsung Heavy Industries (Nigeria) – In 2013, SHIN was awarded the contract by Total Upstream Nigeria Ltd for the fabrication and installation of a $3.3-billion Floating Production Storage Offloading platform destined for the Egina oilfield.

SHIN set a record for local content development, fabricating six out of the 18 modules in Nigeria using Nigerian work-force. SHIN also shared the work with other Nigerian yards to complete the project, including Nigerdock and Aveon, all adding to the $1.9-billion in-country spend.

SHIN and LADOL set up a free-zone joint venture in order to construct a state -of- art facility and quay wall to do certain in-country fabrication and integration of topsides on the EginaFPSO.

This joint venture entity (SHI-MCI Free Zone Enterprise) was granted an operating licence to operate in the LADOL free-zone.The partnership promised to be a success and beneficial for all, including Nigeria.

However, in April 2018 LADOL made a demand for one per cent of the total Egina FPSO contract price as a “FOB Charge”, which is a purported tax – $33-million.

SHIN challenged this request for tax payment as unlawful, bad-faith and contrary to the tax, charges and levies exemption offered by the free-zone in accordance with applicable law.

In addition, SHIN was of the view that such a charge, levy or tax should only be payable directly into the Government Treasury Single Account as directed by the President of the Federal Republic of Nigeria and not into LADOL’s personal account.

LADOL retaliated by suspendingSHIN’s operating licence. This threatened timely delivery of the Egina FPSO and forced SHIN to commence legal proceedings in July 2018 in the Federal High Court, Lagos. The tax was ultimately paid by Total to guarantee delivery of the Egina FPSO. However, as soon as the tax issue was settled by Total, LADOL argued further reasons not to renew SHIN’s operating licence, citing alleged outstanding payments and non-compliance with Nigerian law.

On September 3, LADOL abruptly stopped all services to SHIN’s yard in the free-zone, effectively denying access to SHIN and its workforce. The following day – September 4, SHIN received a letter from LADOL terminating the sublease agreement over the yard. LADOL required that SHIN remove its fixtures and fittings and to vacate the zone within 90-days. The grounds argued were breaches of the sublease agreement.

The Nigerian Export Processing Zones Authority (NEPZA) is the government body responsible for regulating Nigerian free-zones, including LADOL. Barr. Emmanuel Jime, Managing Director of NEPZA, having reviewed LADOL’s allegations against SHIN/SHI-MCI and the latter’s defence, directed LADOL to renew SHIN’s operating licence for 2018/2019 and to restore all rights and services to the free-zone yard as SHIN were entitled, pending the outcome of a NEPZA committee review. LADOL ignored this directive, which was issued by its own regulator and delegator of LADOL’s authority to administer the free zone area.

SHIN was once again forced to resort to the protection of the Nigerian courts and lodged an urgent motion before the Federal High Court, Lagos. The court has since granted an interim order in SHIN’s favour restraining LADOL from evicting SHIN from the fabrication and integration yard. The court ordered that SHIN be free to move in and out of its yard with its employees, agents and service providers. Furthermore, the court has directed LADOL to provide all services such as water and power supply to the yard. The case is ongoing.

Africoat and SHIN have demonstrated a commitment to Nigeria that should be respected. SHIN has created over 2,000 jobs and opened opportunities for Nigerians at management level. It has also set up a welders’ training facility where it has trained almost 600-welders at its purpose-built Technology Training Centre up to international standards. In 2016, it gave a grant of $2.7 million to LADOL to develop a Santa training facility. To-date LADOL has not utilised the funds to develop the facility. As part of its corporate social responsibility, since 2015, Samsung has worked with Vision Care in the annual Eye camp to give free cataract surgeries to patients at risk of blindness.

What next? – LADOL must operate on the global stage to fulfil its mission of encouraging international businesses to manufacture and invest in the free-zone. As Dr Jadesimi noted, LADOL must exceed international standards. However, LADOL is developing a reputation for hostility towards international business. International business will not invest in the free-zone if there are lingering concerns that LADOL will move to seize their assets.

LADOL is now at a junction- it will either go the way of graft and short-term gain, or it will engage properly, fairly and transparently with its international partners for its own long-term benefit, and the benefit of all Nigerians.

SHIN’s newly appointed Managing Director, Jejin Jeon, said the Egina project, “plugs into the core themes about development, energy transition, human capital development, and responsible investment.” Far from frightening SHIN from the Nigerian market, the local content laws were the life blood of the project, allowing SHIN to train and employ the local workforce.

Jeon is optimistic for replication of the Egina project elsewhere in Nigeria, creating a “wealth of opportunities, job and education for people of Nigeria.” Nigeria should hope that these opportunities are not squandered needlessly.

Ibrahim, a public policy expert, writes from Abuja