Egina FPSO integration: Nigeria’s Attorney General faults Samsung …Insists 70:30% equity structure violates NCDMB Act
Nigeria’s Attorney General of the Federation AGF and Minister of Justice, Abubakar Malami SAN has faulted claims to 70:30per cent equity structure by Samsung Heavy Industries Nigeria SHIN, which partly led to the contractual dispute between it and LADOL Free Zone Enterprises and its subsidiaries on the implementation of the local content portion of the Egina Floating Production, Storage and Off-loading FPSO integration.
The Lagos Deep Offshore Logistic Base LADOL had on September 18, 2018, petitioned the office of the AGF in which it made some allegations against the commercial conduct of SHIN, a subsidiary of the Samsung Group based in Korea with respect to the execution of the local contents of the Egina contract awarded by Total Upstream Nigeria Limited TUPIN in 2013.
A summary of the petition states that MCI, LADOL’s subsidiary and SHIN entered into a Joint Venture JV for the construction and ownership of a new fabrication and integration facility at the LADOL yard in Lagos, resulting in the formation of a new entity, MCI-SHIN Free Zone Enterprise MCI-SHIN FZE to undertake the works with an initial ownership structure of 80:20per cent in favour of LADOL, among others, which Samsung restructured to 70:30 in its favour with the false claim that it invested $270million ($135million equity and $135million debt) in the construction of the fabrication yard.
In an 18-page legal opinion and directives on the way forward by the AGF on the dispute dated March 27, 2019 and copy made available to our correspondent, he observed that the restructuring of the equity structure from the former 80:20 in favour of LADOL to 70:30per cent now in favour of Samsung does not conform to the provisions of the Egina FPSO contract since Samsung is a foreign entity.
This according to the AGF, it is given that the project pertains to the construction and maintenance of the Egina FPSO and the fabrication facility in line with the Nigerian Contend Development and Monitoring Board NCDMB Act 2010, insisting that Samsung would not have been awarded the contract based on 70:30per cent ownership structure in its favour.
The AGF, who held meetings with both parties to the dispute, which had led to an arbitration matter in the United Kingdom instituted by Samsung and another suit at a Federal High Court in Lagos instituted by LADO, also engaged some agencies of the government critical to the transactions, which include the NNPC, Nigeria Export Processing Zones Authority, NCDMB, the Nigeria Customs Service and the Federal Ministry of Industry, Trade and Investment.
He observed that while Samsung in its response reiterated that it invested $270million in constructing the fabrication and integration yard in the form of equity $135million and debt $135million, it declined to deny or admit LADOL’s claim that the Egina FPSO contract actually provided for the sum of $214million to undertake the construction of the facility and that Samsung could not have independently invested the $270milion it claimed.
“In making his legal opinion on the matter, the AGF said: “I have expressed my opinion and conveyed the way forward and directives pursuant to my constitutional status as the chief law officer of the Federal Republic of Nigeria and pursuant to the receipt of a petition by my office calling for attention for certain matters with potential consequences for the national economy, particularly in the oil and gas sector and the local content segment of the national economy.
“Of relevance and significance is the statutory provision as to the minimum local content for oil and gas projects under the NCDMB Act 2010, which provides that the minimum content in any project to be executed in Nigerian oil and gas industry shall be consistent with the level set in schedule to the Act. Under the said schedule, the minimum content prescribed for construction and maintenance services is 80 per cent.
“Therefore the subsequent restructuring of ownership of 70:30 in favour of Samsung would not conform to provision of Egina FPSO contract since Samsung is a foreign entity and the project for which the contract is awarded pertains to construction and maintenance of Egina FPSO as well as the fabrication facility. In line with the NCDMB Act, Samsung would not have been awarded this contract based on the subsequent ratio in its favour”, the AGF had said.
On his findings, the Attorney General noted that the OML 130, which is inclusive of Egina Oilfield is an oil bloc in the Nigerian deep offshore region, which is currently operated by Total Upstream Nigeria on behalf of the Joint Venture partner; the Nigerian National Petroleum Corporation NNPC acting for the Federal Government of the Federal Republic of Nigeria.
He also said that following the decision of the JV partners (NNPC/Total) to develop the Egina Oilfied, Total documents that it has incurred expenses totaling about $16billion, which it paid out to Samsung and other contractors including SAIPEM, who exercised various responsibilities in the course of the development programme.
It was further gathered that out of the $16billion, Total paid about $3.9billion to Samsung as Total’s contractor to build and integrate the Egina FPSO platform, which is the major facility for the recovery of the deep offshore oil and gas.
“The formation of the SPV company (MCI-SHIN-FZE) with an 80:20 (LADOL/Samsung) shareholding structure made the partners collaborate and established the status of Samsung as the main contractor and LADOL as its local content partner, which met the provisions of the Egina FPSO contract. This was alluded to by the Federal Ministry of Industry, Trade and Investment in its letter dated February 7, 2019 (ref. FMITI/LEG/1308/8 and NNPC’s letter dated February 26, 2019, addressed to my office.
“As a matter of fact, the $214million paid by Total to Samsung is captured in the Work Unit 1.6 of the Egina EPC contract between Total and Samsung. By reason of that inclusion, Total is entitled to deduct the entirety of the $3.9billion including the $2.4million to Total by allowing Total to lift that amount of cost oil. This is referenced by Total’s letter dated February 21, 2018 addressed to Samsung
“It must equally be emphasised here that a foreign investor under the Nigerian regulation would need to provide evidence of having been issued with Capital Importation Certificates (CICs) by the Central Bank of Nigeria CBN to justify its claim of investing in the fabrication yard. Samsung has not submitted any such documentation to my office in the course of this dispute resolution. It is also considered that Samsung has exported profits from this contract without these certificates”, the Minister of Justice said.
On the way forward, Malami advised both parties (LADOL and Samsung) to refrain from any act of self-help forthwith, which may have the potential to further lead to an escalation of the present tensions and create an environment hostile to investment and productivity.
He is also of the view that both parties should take into consideration the paramount importance as well as critical role of the fabrication and integration yard at the LADOL Shipyard to Nigeria’s local content programme within the context of the Federal Government’s job creation strategy and the need to preserve the facility as a going concern and viable hub for technology promotion in the oil and gas industry. He also warned that the Federal Government would strongly move against any party seeking to frustrate the viability of the facility for selfish motives.
“Consequent upon the findings that the construction/upgrade of the facility was funded as a component of the $3.9billion Egina FPSO contract, the parties should abide by the terms of the contract in respect of the JV as provided in the said attachment 12a.
“In view of the Nigerian Oil and Gas Industry Content Development Act, which has defined the ‘Nigerian company’ for the purpose of the local content provision, I am of the strong view that the current shareholding structure of the SHIN-MCI-FZE, which is 70:30 in favour of SHIN (Samsung) is a violation of spirit and letters of the contract and the NCDMB Act
“The parties on the basis of the current intervention, which they both consented to, are hereby advised and encouraged to withdraw all pending suits and arbitration proceedings against each other or any other party in order to ensure unencumbered use of the facility for future investments in the overall interest of Nigeria’s economy”, the Minister also said.