*The case of Nigeria Liquefied Natural Gas Company (NLNG)
The research for this report was financially supported by ActionAid Netherlands. The content of this report is the sole responsibility of SOMO. SOMO has reviewed the findings with the companies involved and their responses have been taken into account in the report.
The Centre for Research on Multinational Corporations (SOMO) is an independent, not-for-profit research and network organisation working on social, ecological and economic issues related to sustainable development. Since 1973, the organisation investigates multinational corporations and the consequences of their activities for people and the environment around the world.
This report presents a case study of Nigeria Liquefied Natural Gas Company (NLNG), Nigeria’s largest gas production facility, and examines the way in which its foreign shareholders – Shell (UK/Netherlands), Total (France) and Eni (Italy) – benefit from excessively generous tax breaks provided by the Nigerian government. The report sets out the implications of these tax breaks, including the potentially lost tax that could otherwise be used to support Nigeria’s public services.
Nigeria Liquefied Natural Gas Company (NLNG), the joint venture in which these companies have a majority stake (51%), has been awarded a 10-year tax holiday thanks to the NLNG Act – an act of parliament created specifically for the venture (in all other cases, new companies investing in Nigeria are given a tax exemption period of three to five years maximum). This special law has resulted in NLNG paying zero taxes for a total period of 12 years: ten years because of the tax break and two further years because of unused tax benefits built up during the 10 years of the tax break. In this report, SOMO has calculated that the total potential lost tax to the Nigerian government amounts to a staggering US$ 3.3 billion. Due to a number of conservative assumptions, this should be considered a minimum estimate.
SOMO aims to contribute to the discussion on responsible tax governance and financial transparency through this report by presenting factual evidence that tax breaks given to multinational corporations create unacceptable advantages for them that work against the interests of the Nigerian public.
The ultimate goal is to raise public awareness of the use and (negative) impacts of tax holidays by multinational companies, using Nigeria as an illustration. It also serves to inform the policies of the Nigerian Government and recommends reconsidering the use of tax breaks to stimulate foreign investment, and to ensure that foreign companies paying their fair share of taxes in Nigeria.
Context of the research
There are different ways to reduce the tax contribution of multinational companies, including tax evasion and tax avoidance; the former is illegal while the latter is legal if morally questionable. There is another way in which companies can reduce their tax contribution – tax incentives provided by governments. A tax incentive (also known as a tax break) is in essence a tax deal given to a company (or to a sector as a whole) to encourage it to invest. But tax breaks as instruments to promote foreign direct investment are increasingly discouraged, as their effectiveness is disputed by the International Monetary Fund (IMF), the Organisation for Economic Cooperation and Development (OECD) and others, and the losses to developing countries are enormous.
Nigeria Liquefied Natural Gas: a key player in the Nigerian economy
Nigeria Liquefied Natural Gas Company (NLNG) – Nigeria’s major liquefied natural gas company – is a joint venture between the Nigerian government and three foreign companies: Shell, Total and Eni.
The company started commercial operations in 1999 to harness Nigeria’s vast natural gas resources and produce liquefied natural gas (LNG) and natural gas liquids (NGLs) for export. It extracts natural gas from the ground, purifies and liquefies it to make LNG, and pipes it to customers.
The NLNG gas production facility is located on Bonny Island, on the southern edge of the Niger Delta – the center of the Nigerian oil and gas industry. The company is jointly owned by Nigerian National Petroleum Corporation (49%), Shell Gas B.V. (25.6%), Total LNG Nigeria Ltd (15%) and Eni International N.A. (10.4%). The main destination for the gas is Europe, which accounts for 80-90% of the facility’s total production. NLNG made a total profit of around US$ 29.5 billion over the period 2004 to 2013. As the 49% shareholder, the Nigerian state oil company NNPC has received a large part of these profits.
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Mark van Dorp