Why Intels Nigeria’s 2017 free zone operating licence is delayed, by OGFZA

Oil and Gas Free Zones Authority (OGFZA) has said Intels Nigeria Limited has not met the conditions for the renewal of its licence, hence the delay for the 2017 free zone operating permit.

OGFZA explained that the payment of a licence fee is necessary, it is not a sufficient condition for the renewal of a free zone licence. “The payment of free zone licence fee by Intels does not in and of itself constitute a sufficient condition for the renewal of its licence.”

Besides, the free zone regulator implored Intels to renew its licence to be in a position to find solution to other issues with which it differs with the Authority, warning that the agency would not yield to any form of blackmail, threat or intimidation meant to distract it from the pursuit of its core mandate.

Responding to Intels complaint, in a letter dated 26 October 2017, over the non-renewal of its operating licence for 2017, OGFZA, in a letter dated 29 October 2017 signed by its legal adviser, Barr.A.W Sule, said: “We regret our inability to find any merit in your complaint because you are yet to comply with the provisions of Section 35 (i-ii) (b-c) of the Oil and Gas Free Zone Regulation 2003. This was made clear in our letter of December 2016, which Intels received on 21 December 2016 but has not responded to up to date.”

According to the document, “Section 35 (i-ii) (b-c) of the Act states as follows: A licence shall be valid for one calendar year. Upon expiration, a licence shall be renewed on payment of the prescribed fees; payment of any outstanding amount due to the Authority; the presentation of any other documents, returns or information which the Authority may require.”

In line with Section 35(b) of the Act, OGFZA in a letter FZA/INTEL/02/FZE/VO1/007 (received on 21 December 2016), had requested Intels to submit its audited accounts and other reports. The Authority said Intels has yet to meet that requirement and has not even responded to the letter.

OGFZA said Intels’ explanation for non-compliance is that it has disputed some of the charges that it has been asked to pay. By its position, Intels is asking for the suspension of Section 35 of the Act so that it can meet the conditions for licensing.

“We find your position quite unacceptable because payment of fees and any outstanding amount due to the Authority cannot be compromised on the altar of a purported dispute unilaterally set up by a prospective licensee,” OGFZA stated in its response to Intels. “More so, other licensees who had issues with the demand notices, took immediate steps to meet with the OGFZA in order to reconcile areas of differences.”

Intels also disputed the land lease/sublease registration charge demanded by the free zone regulator, claiming that the land it occupies was leased from the Nigerian Ports Authority (NPA) and not from OGFZA. However, all the other free zone licensees, including concessionaires and tenants, have complied.

“We are rather surprised that you are now contesting the legality of the land lease/sublease charge after the team of OGFZA and Intels Nigeria Limited (INL) met to reconcile the demand notices, and INL accepted liability through the email of their managing director by confirming to OGFZA that an initial payment of $3m had been made by INL pending final reconciliation,” OGFZA told Intels, claiming that the said $3m that Intels claimed to have paid has not reached the Authority’s account up to now. “Your recent position is in bad faith, and an after-thought.”

The OGFZA, which sees Intels’ position in this regard as an attempt to confuse the public on the issue, explained the matter as follows: “The registration of lease/sublease contained in the Free Zone Tariffs and Other Charges Order 2015 was made pursuant to Sections 9 and 10 of the Oil and Gas Export Free Zone Act No.8 of 1996 and Sections 34, 36 and 49(4) of the Oil and Gas Free Zone Regulations 2003.

“Sections 34(a), 36 and 49(4) of the 2003 regulations will explain away the basis of the administrative charges for registering leases/sub-leases within the free zone, such lease agreements being a condition precedent for licensees holding land under Section 9 of the Act and 36 and 49(4) of the regulations.

“Section 49(4) of the Oil and Gas Free Zone Regulation 2003 also stipulates that whether the lease was obtained from the NPA or the OGFZA, as long as it is within the free zone, it must be submitted to the Authority for registration.”

OGFZA explained that it is mandated by law to ensure that licensees are physically present within the zone, and to do so, they must, among others, acquire land space, office space, warehouse space and stacking areas and all acquisitions must be registered with the Authority as provided for in the cited Sections of the Act.

According to OGFZA, “the lease agreement between Intels and NPA shall be registered as a requirement for license renewal. The terms and conditions of the contract between Intels and NPA, which Intels referred to as excuse for not complying with a lawful demand, do not in any way preclude the Authority in its capacity as the administrator of the zone from registering such lease agreements.”

“Our charge, apparent in the 2015 regulation, is based on a nominal rate of 30 cents per square meter as against the corresponding sums ranging from $71 to $337 that Intels charges,” OGFZA stated. “This is an average of 0.1 per cent of the tariff on land the lessors pay to Intels.”

The agency stated that “the charge is for registration of leases/subleases and covers houses, offices and equipment acquired by Intels with the benefit of zero import duties, zero VAT and zero tenement rate among others, as provided for in Sections 12 and 18 of the Act, which grants incentives to free zone businesses.”

OGFZA added: “Intels position that it is not liable to pay the lease/sublease registration charges because the premises it occupies were granted by NPA is incorrect and not tenable. The lease/sublease registration charge is pursuant to Section 9 of the Act and 36 and 49(4) of the Regulations, cover leases/subleases of ALL facilities (land, offices, living quarters) developed with free zone incentives, including the offices and estates in Aba Road and Heliconia Park, Port Harcourt. The issue is not about ownership of land, but rather that all the leases in the free zones under Regulation 49 have to be registered with the Authority in line with Regulation 36.”

According to OGFZA, Intels interpretation of Section 14 of the 2015 Regulation cannot be correct because the company is not billed as a concessionaire but as a licensee.

On the Industry Wide Standard Tariffs (IWST), OGFZA restated the position that Intels was wrong to impose the IWST on free zone enterprises without the approval of the Authority in keeping with sections 10 (4), 25 and 23 (2) of the Oil and Gas Free Zone Act, as well as section 11 of the Oil and Gas Free Zone Regulation 2003.

OGFZA explained that as a responsible regulator, it could not overlook the exorbitant tariffs, which Intels imposed in the zone, and which had provoked protest from free zone enterprises and forced some of them to relocate from the zone because the incentives they came to enjoy had been eroded by the exorbitant tariffs.

On Intels’ claims for payment on its property used by OGFZA, the Authority said it would be settled once the claims are verified.

OGFZA said Intels’ complaint about the renewal of residence permit and its expatriate employees was not tenable since even by its admission it does not have a licence to operate in the free zone.

OGFZA claims that it is the sole Authority vested with powers to administer the oil and gas free zones, and that no part of the 27 sections of the OGFZA Act provides to the contrary. The agency said a combined reading of 5, 10 and 25 of the Act clearly shows that the law vests the free zone authority with the responsibility of administering and managing the export free zone, with Section 5(e) of the Act empowering the Authority to supervise and coordinate the functions of various public and private sector organisations operating within the zone.