Nigeria Onne Oil & Gas zone in Rivers State is a rip-off-PENGASSAN

By Jimitota Onuyume

Comrade Higgins Chika Onuegbu, an Economist, a member of the International Industrial Relations Association (IIRA), an Associate of the Chartered Institute of Taxation of Nigeria (CITN) and a Fellow of the Institute of Chartered Accountants of Nigeria (ICAN) is the Zonal Industrial Relations Officer of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Port Harcourt Zone. The zone is the hub of oil and gas activities in Nigeria and covers 10 states including Abia, Akwa-Ibom, Anambra, Bayelsa, Benue, Cross River, Ebonyi, Enugu, Imo and Rivers States .

In this interview with Jimitota Onuyume of Sweet crude, Chika as he is often called by close associates and friends focuses on the operations at the Onne oil and gas free zone, Rivers state. For him, the place is a rip off on the economy of the nation because its operations negate the essence for which it was established.  He urges the federal government to take drastic steps aimed at correcting what he termed the ills in the zone.

He also speaks on conflicts in the Niger Delta while calling on all parties to give peace a chance he passionately enjoined insurgents and militants in the region to spare oil workers in the region of any attack as they do not in any way contribute to the challenges of underdevelopment in the region.

Excerpt:

Let’s take a critical look at the operations of the Onne oil and gas free zone.

Let me start by reminding us that the Minister of Finance, Dr. Shamsuddeen Usman, disclosed in 2007 that well over N135 billion that would normally have accrued to the federal government as revenue, in the last four years, was lost to Import Duty Waivers during the inauguration of the Presidential Committee on Waivers, concessions and incentives.

That did not come to many people as a surprise. The incentives given to the oil and gas companies that are located in the Onne oil and gas free Zone are enormous and unnecessary, especially when you note that these incentives are in addition to many other incentives given by Nigeria for oil and gas activities.

For instance there is the MOU on incentives for encouraging investments in exploration and production and for enhancing crude oil exports. There are also incentives to encourage investments in LNG and other gas utilisation/development projects. Remember that oil and gas business is hugely US$ denominated and every year billions of US$ worth of transactions are carried out

. It is not difficult to see these sharp practices the moment you figure out the inappropriate use of the free zone. Almost all the oil and gas companies operating in the Onne oil and gas free zone carry out their oil and gas activities outside the free zone.

Up till today, more than 12 years after the Free Zone commenced operation, virtually ALL oil and gas equipments, tools, technology, exploration, drilling, production, sales and marketing take place outside the free zone. In addition, there is no oil and gas fabrication facility in the Free Zone.

Meanwhile the over 100 companies in the free zone have been reaping 100 per cent foreign company ownership, 100 per cent repatriation of capital and profits, 100 per cent exemption from Value Added Tax (VAT) and Withholding Tax, Zero Corporate Taxes and levies, Zero Personal Income Tax for Expatriates, Zero Expatriate Quota, 100 per cent import and export tax exemptions, duty on raw material only for manufacturing and 75 per cent duty rebate on processing special product without any commensurate benefit to the country. You will also notice that many of these companies with free zone status just have their offices in the free zone, while they carry out virtually all their oil and gas operations outside the Free Zone.

There is also no difference in operations and production between the companies located in the free zone and those in the custom territory excepting for that of location. What is more, there are many cases where these same companies maintain multiple offices. One in the Free Zone and the other in the custom territory. With the one in the free zone they are given free zone status and hence qualified to reap all the numerous benefits as listed above. All these complicate the administration of taxes and Import duties, and create room for manipulations.

Unfortunately, there is basically no additional benefit to Nigeria for the free zone status of these companies beyond that accruable to an industrial area. All that is happening now is that Companies that are hitherto located outside the Onne oil and gas free Zone area are now moving to the Free Zone Area just to REAP the benefits as listed above without any commensurate benefit to the country. A cursory look at the Approved list of the Companies in the Oil and Gas Free Zone Area as at April 2009 indicate that many of these organizations also exist outside the free zone area. In an environment of corruption such as we have in Nigeria , it is not difficult to see how the country is short changed in the process.

Nigeria obviously loses hundreds of billions of Naira in taxes and customs duties from this inappropriate use of the Onne Oil and Gas Free Zone. The loss appears to be more serious than we know. Only an investigation by the Federal Government will reveal the extent of the loss we are talking about. The investigations will also reveal whether indeed we need an Oil and Gas Free Zone in Nigeria . Remember Nigeria is the only country in the world with a free zone dedicated to oil and gas.

Another inappropriate use of the Oil and Gas Free Zone is that many of the companies in the Free Zone are using their location in the free zone as a cover to abuse the rights of their workers and avoid their corporate social responsibilities. These companies refuse to recognize   the right of their workers to join a trade union as provided in the 1999 Constitution.

In fact let me state that majority of the companies in the Onne Oil and Gas Free Zone do not respect the right of their workers and have refused the workers the right to be  unionised. These workers are first of all human beings. They are fathers, mothers, sons and daughters and citizens of Nigeria . They are not slaves and cannot be made slaves by reason of working for a company located in the Oil and Gas free Zone.

It is a well-known fact that non-unionised workers are the greatest victims of human rights abuses in the workplace. When you add to this, the inability of these workers to bargain collectively since they are not unionised, you will see that they also are poorly paid and miserable and hence would not be able to defend their rights. Their predicament is simply because the companies they work for are located in the Onne Oil and Gas Free Zone and the Onne Oil and Gas Free Zone Authority Act of 1996 abridges their right to freedom of association.

Unfortunately prior to the take-off of democracy in 1999 decrees reigned supreme over all other laws, including the Constitution (i.e. During the military era). However, with the advent of democracy in 1999, and the reinstatement of the constitution, the supremacy of the constitution over all other laws is no longer an issue for debate. In fact Sections 1 and 40 of the 1999 Constitution of the Federal Republic of Nigeria and Article 10 of the African Charter on Human and Peoples’ Rights (Ratification and Enforcement) Act give these workers the right to join a trade union for the protection of their interest.

Expectedly, the courts have also ruled, for instance, in A.G. Oyo State vs. NLC (2004 NLLR Pt 3), Okulate vs. Awosanya (2002 FWLR pt 25) and A.G Abia State vs. A.G Federation (2007 FWLR pt 101) that as from May 29th 1999, the constitution is supreme and all other legislations in the land take their hierarchy from the provisions of the constitution.

It is also very clear that the hierarchy of our laws since May 29 1999 are first and foremost the Constitution and then followed by Acts and /or other enactments (such as Onne Oil and Gas Free Zone Authority Act) deemed to be Acts of the National Assembly under section 315 of the 1999 constitution. One would therefore expect that these companies and indeed the Onne oil and gas free zone authority would honour the supremacy of the constitution over the Free Zone Act and respect the constitutional rights of their workers to join a trade union and bargain collectively. It is rather unfortunate that they prefer to treat these workers as slaves in their fatherland.

How should a free zone like this benefit host local government, state and the federal government?
Free Zones all over the world have been instrumental in boosting industrial and economic growth. Although some 50% of them have been failures. According to the Onne Oil and Gas Free Zone Authority some of the advantages for Nigeria in establishing the Free Zone are ”greater levels of foreign direct investment; technology transfer; manpower development; provision of employment opportunities and greater economic self-reliance”. I agree with that.

My only worry is that there is no demonstrable benefit to Nigeria for the Onne Oil and Gas Free Zone beyond that of an Industrial Estate since it commenced operation some 12 years ago. Meanwhile we lose billions of Naira and our brothers and sisters are treated as slaves in their fatherland.

In a nutshell Nigeria is not benefiting from her huge investment in the Onne Oil and Gas free zone beyond that accruable to an Industrial Estate.

The Eleme Local Government Council is crying of justice as the companies in the Onne Oil and Gas Free Zone do not pay levies to the local government and do not contribute to the development of the area. The host communities are also complaining of neglect, as the companies shy away from their corporate social responsibility. The state government revenue is negatively impacted, as expatriates do not pay any PAYE Taxes, although their Nigerian counterparts are made to pay taxes by the same law.

This is discrimination and an unnecessary one for that. The workers are crying as their rights are vehemently abused. The federal government despite its huge investment is losing billions of naira through the inappropriate use of the Free Zone by the companies and the disturbing manner the free zone status is accorded these companies. So who is benefiting from the huge investment in the free zone? Like I said before I struggle to understand the rationale for establishing a free zone for oil and gas.

The Onne oil and gas free zone should be changed to Onne Oil and Gas Industrial Estate, the operations, incentives and enabling legislations reviewed accordingly with a view to ensuring that the current loopholes and inconsistencies in the administration of the Oil and Gas free zone are blocked in the interest of the country. The Federal Government should also investigate the operations and activities in the Onne Oil and Gas Free Zone in the interest of the country.

In your view what are the kind of companies that should operate in the free zone?

A critical review of the Nigerian Economy will reveal that we do not need a free zone for oil and gas. This position is further strengthened by the fact that Nigeria is the only country in the world with a Free trade Zone dedicated to oil and gas. It is very wrong and we must not shy away from making the necessary correction. We need a Free Trade Zone for manufacturing and commerce, no doubt.

That is even why Free Trade Zones are under the Federal Ministry of Commerce and Industry. We need to channel these incentives to the manufacturing sector, the textile industries, commerce and agriculture. We need to attract Foreign Direct Investment (FDI) in the industrial and agricultural sectors to boost economic activities and create jobs. We are talking about a population of over 140 million people with fertile lands and a lot of solid minerals. That is a huge market.

FDI in Nigeria is largely Oil companies’ reinvested earnings, and more recently we have good inflows from the telecommunications sector. The Government should seek for ways of attracting FDI for manufacturing, agriculture, solid mineral development and commerce as these will boost the economy, diversify it from oil and gas and reduce the vulnerability of the Nigerian economy to shocks in the international oil and gas market.

Since the 1970s and the collapse of agriculture, Nigeria became a mono-product economy and it is not difficult to see the benefits of diversifying the economy. Why are manufacturing companies closing shop? What could be done to revive them and in fact bring onboard new ones?

How can we attract FDI in the manufacturing, commerce, solid mineral development and agricultural sectors? These are the sectors where we need a free zone, not oil and gas.

Can you explain how they are missing at the free zone?

I really struggle to see the use of a dedicated free zone for oil and gas. It makes no meaning at all. Oil companies will go to wherever they find accessible oil and gas in commercial quantity. Moreover there are already incentives in the MOU with the Federal government and other legislations for oil and gas operations.

The Onne Oil and Gas free zone is a mistake that is adding no value to the economy as aforesaid and is in fact bleeding the country and therefore ought to be urgently corrected. Let me give another example. With no expatriate quota restriction, 100% repatriation of capital and profits, and 100% exemption from PAYE tax by these expatriates where is the Nigerian Content in all these?

In case you do not know it costs about 34 times more to keep an expatriate than a Nigerian and the Nigerian Government through the NNPC eventually pays about 60% of that cost. Mind you no oil and gas fabrication facility exist in the Onne oil and Gas Free zone and almost all oil and gas tools, equipments and materials used in Nigeria and in the Free Zone are all imported. This is happening over 12 years after the commencement of the Onne Oil and Gas Free Zone.

What is the way out of these challenges you have identified in the free zone?

The Onne oil and gas free zone should be changed to Onne Oil and Gas Industrial Estate. The operations, incentives and enabling legislations should be reviewed accordingly.

The current loopholes and inconsistencies in the administration and operations of the Oil and Gas free zone should be removed in the interest of the country. The constitutional right of the workers to join a trade union and bargain collectively should be respected in the interest of rule of law and industrial peace and harmony.

The Federal Government should investigate the operations and activities in the Onne Oil and Gas Free Zone with a view to documenting the abuses and loses to the country. It is important we learn from it and apply that learning for the benefit of the country.

Militants in the region recently threatened to include oil workers in the region as part of their objects of attack. Any comment on this sad position?

I would like to appeal to them to show restraint. The oil workers are mainly ordinary Nigerians. They’re brothers and sisters who are just trying to make a living. They appreciate the problems of the Niger Delta and have joined other well-meaning Nigerians in advocating for the urgent need to develop the Niger Delta. Killing or maiming the oil workers will not solve the development problems of the Niger Delta.

It will only bring more pains and hardship to the ordinary Nigerians who do not have the power to cause a positive change in the Niger Delta.

How has the crisis affected oil workers?

The Niger Delta crises have adversely affected the oil workers. Some of the workers have been killed, others kidnapped and maimed. Their families and indeed that of other persons residing in the Niger Delta have not been spared. Their spouses and children have been killed, kidnapped, tortured or traumatized.

It is indeed a very pathetic and pitiful situation. Some of them are still in the kidnappers’ custody even after 9 months. Meanwhile oil production has reduced from a projection of about 3.5 million barrels of oil to the actual of about 1.4million. You will recall that in 2005, the Federal government had projected to produce about 4mln barrels of oil per day.

That formed the basis of investment by the Government and the Joint venture partners. People were employed, equipments ordered and commitments made to ensure the projection was achieved. The unusual escalation of violence in the Niger Delta from the 1st quarter of 2006 to date destroyed all that.

At the current production of about 1.4mln barrels of oil per day it is not difficult to see the magnitude of the impact of the crises on the Nigerian economy.

A lot of the oil and gas companies are forced to close shops and off course send their workers parking. The unemployment situation in the country has seriously worsened. As we speak, it is doubtful if the Federal and State Governments will meet their 2009 revenue target. Already interest rates and exchange rates have both worsened. Poverty is widespread. The situation is really terrible.

What is your advice on the way out?

You will recall that the Federal Government set up by the 45man Ledum Mitee-led Niger Delta Technical Committee to collate, review and distil all previous reports, suggestions and recommendations on the Niger Delta, and come up with plausible recommendations on how best to resolve the Niger Delta crisis.

The Committee has also submitted its report to the Federal Government. I think it is important that the Federal government implements the recommendations of the Ledum Mittee led Technical Committee on Niger Delta. It is also important that the NDDC Regional master plan for the Niger Delta is implemented. The National President of PENGASSAN Comrade Babatunde Ogun and the National Executive council of PENGASSAN have also forwarded some very important recommendations on the way forward to the Federal Government. All these need to be looked into with a view to addressing the root causes of the crises.

The Niger Delta State Governments should also demonstrate the judicious use of the resources at their disposal. The local Governments in the Niger Delta should wake up to their duties as a lot of money now goes to that tier of government. The Niger Delta State Houses of Assembly should show greater diligence and dedication in the discharge of their oversight functions. The oil companies should do more for the development of their host communities. The developmental impact of the presence of the oil companies should be positively visible and greatly felt by their host communities.

Oil firms seemingly share in the circumstances that gave birth to the crises in the region because they don’t seem to be doing enough to address problems of poverty in their areas of operations. What do you say?

Oil firms alone cannot address the huge unemployment challenges in the region. Although it is my opinion that they should set aside a reasonable portion of their jobs to the people of the Niger Delta.

A situation where the people of the region are alienated by omission or commission from the wealth creation that is taking place in their God given land could lead to hatred, mistrust and strong feelings of alienation. Having said that let me point out that Oil and gas business is capital intensive and so will not generate the number of jobs that a viable manufacturing and agric sector will create. Moreover the way we operate the oil and gas industry in Nigeria will only transfer much of the development associated with oil and gas to Europe and America .

We only produce crude oil and natural gas in Nigeria . Thereafter we export them in their natural form. We even go back to import the refined products from those who bought the crude oil from us.

Imagine the jobs that will be created if the refined petroleum products we use in Nigeria are all produced locally? Imagine also the number of jobs that will be created if 50% of the gases that are currently flared are utilized to power our industries, cities and as feedstock for fertilizer and petrochemical plants?

Imagine the number of jobs and the impact on our universities if 50% of all oil and gas studies are done in Nigeria ? Imagine also the impact on the economy if 50% of the oil and gas pipelines used in this country are produced locally? We have not really attracted foreign direct investment (FDI) commensurate with our potential.

In fact if the investment in the petroleum sector (which is largely upstream petroleum companies reinvested earnings) is stripped out, FDI in Nigeria is low for a country of such potential, with a population of 140million, available raw materials. Some of the reasons why this is so, is the over dependence on the petroleum sector to the detriment of all other sectors as well as inadequate infrastructure, corruption, insecurity and weak institutions. We need viable manufacturing, commercial enterprises, agriculture and allied businesses as well as competitive business environment to address the huge unemployment problem in Nigeria.

To tackle this terrifying unemployment situation, which poses a serious threat to security, we need to attract investments in labour intensive sectors. We also need to encourage entrepreneurial development, small and medium scale enterprises.

We need to eliminate or drastically reduce the impediments to doing business in Nigeria. We need a stable power supply and reliable infrastructure. We need peace and security. In fact we cannot address the unemployment problems in Niger Delta in particular and Nigeria in general until genuine peace returns to the Niger Delta region. Remember to build infrastructure and diversify the economy away from petroleum cost money and in the present day Nigeria, much of that money will come from revenue from oil and gas.

We cannot address the unemployment problems in Niger Delta until people feel secured to go about their normal businesses. We cannot address the unemployment problems in Niger Delta and in deed Nigeria, until we fix the power sector and eliminate considerably those things that make doing business in Nigeria very uncompetitive.

The cost of doing business in Nigeria is very outrageous and very prohibitive. The security situation in the Niger Delta for instance has added a lot to the cost of doing business in the region. Just begin to picture the cost of providing security for each of the oil and gas facilities and operations. It is outrageous. And that is why many oil and gas companies and other businesses have basically relocated from the Niger Delta to Lagos.

Property prices in Lagos have hit the rooftops together with their internally generated revenue. Hotels and the service sectors in the Niger Delta are now crying. All these need to be fully addressed by all including the Niger Delta elders and youths, the local governments, the state governments and Federal Government. Let me also remind us that the demand for labour is a derived demand. If there are no industries or the little we have in Nigeria are producing at very low capacity, where will the jobs come from?

It will indeed be very difficult to exonerate the oil companies from the whole of these crises. They obviously have their own share of the blame. The focus now should however be on how we can urgently resolve the Niger Delta problems and move the region and the country forward.

Can you advice on the way out of the woods?

The Federal Government should immediately begin the implementation of the Ledum Mittee led Technical Committee report on the Niger Delta as well as the NDDC Regional Development Master plan.

The National President of PENGASSAN Comrade Babatunde Ogun and the National Executive council of PENGASSAN have also forwarded some very important recommendations on the way forward to the Federal Government. All these need to be urgently implemented. However the implementation of the Ledum Mittee report, the NDDC master plan and the recommendations of PENGASSAN all require an atmosphere of peace.

The Niger Delta people, the Federal and State Governments and indeed other stakeholders of the region have an important role to play in ensuring peace. There cannot not be any meaningful development in the absence of peace and ‘peace’ without justice will fail the test of time. We need genuine peace leveraged on justice in the Niger Delta.

- See more at: http://www.vanguardngr.com/2009/07/onne-oil-gas-zone-in-rivers-state-is-a-rip-off-pengassan/#sthash.SqA2tFog.dpuf