Oil, Gas Free Zones Should Be Linked by Rail – Umana
The Managing Director, Oil and Gas Free Zones Authority, Mr. Umana Umana, speaks 8 the role of oil and gas free zones in economic development in this interview with ‘FEMI ASU
QUESTION: What is the current state of the oil and gas free zones in the country?
UMANA: We have a number of free zones dedicated to oil and gas activities. The flagship free zone dedicated solely to oil and gas activities in the country is the Onne Oil and Gas Free Zone.
It started out as a logistics base to support oil and gas operations, and I believe, historically from inception, it has played a very effective role in supporting the industry and, by extension, the growth of the economy of Nigeria, taking into account the very prime position of oil and gas as a driver of economic growth in the country.
So, I believe, speaking from the standpoint of contribution made so far, the oil and gas free zones have done well. The Onne Oil and Gas Free Zone, for example, has licensed over 200 companies from inception and has attracted investment of over $6bn and the companies registered have come from 45 different countries, further affirming the position of the zone as the primary vehicle for the attraction of foreign direct investment into the country.
The Oil and Gas Free Zones Authority is a creation of law and the incentives we provide are also backed by law, and the mandate of the authority covers regulating the zones, licensing, issuing permits, and so on.
QUESTION: Why is it critical for oil and gas free zones to be established in the country?
UMANA: The shift in the evolution of free zones is to establish special economic zones. So, from general zones, the norm today is to have zones that are specialised and are based on specificity – in other words, a zone concentrates on a particular item like oil and gas.
There are other specialised zones that are focusing on other areas. And I believe, for a country like Nigeria, it was a good move to have zones that focus primarily on oil and gas operations because bringing all of the players together clearly has led to economy of scale because when you have a cluster of companies providing the same service and depending on one another, certainly facilities will be shared.
Going by the concept of the free zone, there are fiscal incentives and soft incentives in terms of efficient service delivery. So, the companies, by coming together and sharing costs, facilities and supporting one another, are able to save costs and they benefit from economy of scale.
There are other financial incentives that we provide in terms of zero import duty, zero export duty, the companies being exempted from all federal, state and local government taxes and having their immigration processes accelerated in terms of expeditious approvals for visas for expatriates when the companies are foreign, and efficient processing of cargoes where you have a port, like you have the Onne port within the Onne free zone.
So, it is a whole package and I believe that the effectiveness of the zone in terms of service delivery has impacted positively on operations in the industry.
Since I took over as managing director, we have taken steps to improve on our capacity and to deliver improved services to our clients, our licensees in the free zones. For example, in the past, it took 21 days to license a company but we have reduced the timeline to seven days.
Now it will take only three days to renew a licence and it will take only 48 hours to process operational requests within the free zones. This is an outcome of the collaboration between the Oil and Gas Free Zone Authority and Customs, and this fits very well into the agenda of the Federal Government to make life easy for investors who are looking at Nigeria to do business under the framework of the Presidential Enabling Business Environment Council, which is charged with the responsibility to ensure that our ranking in terms of the ease of doing business improves.
The whole idea of the free zone is to make life easy for investors because it is a geographical area segmented by law where rules and laws that apply in the Customs territory do not apply, especially if those laws will inhibit the drive for investment. So, that is why the law that relates to company’s income tax is suspended, and the companies don’t pay any tax.
So with the drive by the Federal Government to improve the condition for doing business in the entire country, it was important that as managers of the free zones, we had to take it a step further to also ensure that we change the narratives about doing business within the free zones by reviewing our timelines. When we came up with our new service charter, we changed the timelines just to make sure that our licensees could look forward to improved service delivery.
QUESTION: What other steps have been taken by your leadership to drive the growth of the oil and gas zones?
UMANA: We have taken a number of actions within the context of our enabling Act because we will not operate outside the law. We have taken steps to review tariffs that are applicable within the zone. We did a review because we felt tariffs had not been approved within the context of the law and we suspended the application of such tariffs.
Excess tariffs not moderated by the authority will impact negatively on the cost of doing business and may end up undermining the incentives that we offer to our investors. We also took steps to look at other areas that inhibit the smooth conduct of business within the free zone such as power.
For such a big facility, where you have about 170 companies operating, to be powered by generators, costs will be excessive. So, we have also taken proactive steps to engage an investor who would set up an embedded power plant within the free zone, and from the number that we have seen, it should be possible for us to bring down the cost of power by over 300 per cent.
To ensure that our zones are competitive by adopting processes that meet global standards, we have taken action to ensure that all our processes from operations to financials to registration, have now been automated. We had to engage Oracle and we deployed one of their most recent applications for our operations. We signed that contract two months ago. The application has been deployed and people are being trained just to ensure that we operate as a global player in line with best global practice.
We are also taking steps to ensure that areas of ambiguity in our law are addressed because we need a strong legal framework if we are to deliver on our mandate. And I must thank the Senate and the House of Representatives who have taken action to amend our principal Act. We are also looking at issues of infrastructure which have inhibited our drive to attract investment, including the access roads to our free zones, especially the Onne Oil and Gas Free Zone.
So we have reached out to other government agencies of the Federal Government, and we are hoping that through collaboration with them the roads will be fixed. We believe that for our free zones to achieve their full potential, they have to be linked by rail. We are happy to learn from our engagement with the Minister of Transportation that all of our zones are going to be linked by rail; they are part of the rail master plan. We have been assured that all the major ports will be linked by rail.
Looking forward, we believe that these are all positive developments that will impact positively on the growth of our free zones. So, I believe that, in spite of the current challenges, the future is bright. I made a presentation at the forum organised by the Nigerian Gas Association on the attractiveness of our free zones for gas investment, and I explained very clearly why foreign investors who are looking at the gas sector should engage the Oil and Gas Free Zones Authority to see how they can benefit from the incentives that we offer in making their investment decisions.
I believe that the future of Nigeria is in the gas sector, and for the expected investments to be attracted to that sector, the free zones cannot be ignored. As a creation of law by the Federal Government of Nigeria, other agencies who are also working to attract investments to that sector should work and collaborate with the Oil and Gas Free Zones Authority so that investors who are coming in will take full advantage of the incentives we offer. In truth, the incentives can change the profitability profile of a project because of the huge savings investors stand to make when the incentives are applied.
QUESTION: You talked about a bill seeking to amend the Act that established the authority; what are the things to be incorporated into the law?
UMANA: No law is perfect, and we believe that our extant principal Act has a number of flaws. So the amendment of that Act provides the opportunity to look at flaws that led to conflicts with other agencies or areas of ambiguity that created confusion.
It has been said in some quarters that some of the free zones are unviable. What is your take on this?
That is not true. I must say that the zones under the Oil and Gas Free Zones Authority are all viable, properly licensed by the authority and are being regulated in accordance with the law and the regulations. We must take into account some of the challenges that the industry has faced in the last three, four years.
The economy experienced recession, which was mainly attributed to the drastic fall in oil prices. The industry bore the brunt of the impact of what happened because the IOCs (international oil companies) had to cut down on their operations; they reviewed their budgets downwards, so those who were providing support also had to cut down on their operations. So it affected the industry but I believe as the economy picks up, we will get back to the level we were before we had the downturn.
QUESTION: What does the authority seeks to do going forward to drive the growth of the zones?
UMANA: Going forward, I believe we are key to the agenda of the Federal Government to drive and promote investment because when you look at the Economic Recovery and Growth Plan, one of the key pillars is the promotion of investment, and that is where we come in. So all the actions we have taken to improve the environment for business by ensuring that there is faithful implementation of our law with regards to incentives, then the steps we have taken on the basis of the new road map that was instituted when I took over as managing director that we make the zones professional and ensure that services to our clients are delivered in accordance with global standards. I believe that we have been proactive, not only in ensuring that the zones are professionally managed in accordance with the law, but also in ensuring that we deal with issues of service. I don’t think our free zones are going to be ignored by investors around the world.