Free Zone: In rebuttal, Samsung Heavy Industries Nigeria Limited accuses LADOL Group of theft

Slams AGF for complicity

Emmanuel Thomas l Saturday, August 14, 2020

LAGOS, Nigeria – Samsung Heavy Industries Nigeria Limited, a wholly owned Nigerian Korean company has accused LADOL Group of industries of abuse and theft of its investment in Nigeria.

In a letter of rebuttal to the Editor, Starconnect Media, signed by its Managing Director, Mr. Jejin Jeon with copies of the White Paper on the conception, preparation and acquisition of the Fabrication Yard, now known as Free Zone,  Samsung Industries explained that the content of an article published on our platform with the theme, Why The LADOL Free Zone Must Be Allowed To THRIVE was wholly or in  part laced with falsehood and proceeded to layout what it believes to be the facts of the matter.

Besides, Samsung Heavy Industries Nigeria Limited asserted that given the multiplicity of suits filed by the disputing parties, in Court/LCIA Arbitration, the dispute is thus subjudice and that until resolved by the adjudicatory dispute resolution mechanisms already commenced by the Parties, the Executive arm of Government cannot lawfully/whilst respecting the rule of law, by a mere order take an action that in all truth amounts to a national expropriation of a foreign investor’s investment in Nigeria.

It lays out  what it believes to be the facts below

1.        LADOL rose from a virgin land through the sweat of its Nigerian Shareholders and Stakeholder. SAMSUNG’s investment and technical expertise turned the swamp land to a Fabrication and integration/ Hub through the development of its state of the art facilities.

2.        The Yard exist due to the commitment of the Federal Government of Nigeria.

The Yard exists solely due to SAMSUNG’s business initiative, financial investment and technological expertise. The contract price for the construction of the Yard was $270M USD subject to a maximum cap of $300M USD. SHI-MCI funded the construction of the Yard using 50% debt and 50% equity as contractually agreed. Half the debt financing was obtained from an ING Bank backed by SHI Guarantee, whilst the other half was loaned by SHIN to SHI-MCI

There was no obligation under the Nigerian Content Act to build a new shipyard. In actual fact, other bidders planned to use existing shipyard, however SHI having examined and had concerns about the sufficiency of their quay walls, SAMSUNG undertook to develop a new state of the art Fabrication Yard in Nigeria for two reasons (1) to ensure its successful delivery of the EGINA Project in the event of a successful award (2) to position Nigeria as the hub for ship building activities in Africa, bringing greater revenue to the country while providing the mutual benefit of expanding SAMSUNG’s business in Africa.  It therefore undertook to build a yard in its local content plan.

3.        The commercial rift was between GRMFZC, GRML and its tenant SHIN:

 a)       SHI-MCI the JV and not SHIN was GRML’s tenant.

 b)       The commercial rift was between the entire LADOL Group in their various controlling roles in the Free Zone as Zone Manger, Landlord, Exclusive Service Provider and Veto Minority shareholder and the Samsung Group comprising of SHI-MCI the JV, SHIN and SHI, the Korean parent company.

4.        SHIN as tenant seized the land, created illegal private access and operated as if they were their own Free Zone.

There was no seizure, creation of illegal access or operation of a Free Zone by SHIN. The land was lawfully demised by NPA to SHIN as a lessee of the land, it has every right to access and exit its land.

The true facts are as follows:

NPA and LADOL Group (GRML) entered into a Lease Agreement dated 6 June 2006 under which NPA leased to GRML, 80 hectares of land in the Tarkwa Bay area which includes the land on which SHI-MCI Yard is located, currently known as the LADOL Free Zone. The Agreement contained a condition that GRML shall not alienate the land without NPA’s consent else its breach is a ground for automatic termination.

b)GRML entered into a Sublease Agreement with SHI-MCI dated 13 September 2013 for 121,000 square meters comprising the area on which the Yard is built “2013 Sublease”. The rent under this Agreement was US$ 5.6 million for 4 years (2 years paid in advance). The Agreement imposed an obligation on GRML to obtain NPA’s final consent. This consent was never obtained and in addition to other non-compliance issues by LADOL Group, a dispute ensued between the parties which was settled following Government’s intervention and led to the signing of new agreements between the SAMSUNG and LADOL Group in 2014, inclusive of a new Sublease Agreement dated 1st July 2014 between GRML and SHI-MCI “2014 Sublease”. Under this 2014 Sublease, the rent was exorbitantly increased to $45M USD for the purpose of SAMSUNG assisting LADOL Group to pay for its 30% equity in the JV. GRML still had an obligation to obtain NPA’s final consent, which it never obtained in spite of persistent requests by SHI-MCI.

c)         The LADOL Group in 2018 began to exert all its interlocking roles over SAMSUNG in the Free Zone to frustrate its operation in a bid to take over its investment. In furtherance of this unlawful plan, LADOL Group (GRML) purported to unlawfully terminate the JV – SHI-MCI’s 2014 Sublease in Sept 4 2018 giving it 90 days’ notice to move out whilst being fully aware that its related companies, GRMFZC and LILE in their roles as Zone Manger and Exclusive Service provider for ferry service etc. had denied SHI-MCI/SHIN access to the Zone since Sept 3 2018.

d)        SAMSUNG immediately proceeded to challenge LADOL Group’s purported termination in LCIA arbitration in London whilst also proceeding to the Lagos State High Court to seek an interlocutory injunction which it successfully obtained on the 31 January 2019 restraining the LADOL Group from evicting SHI-MCI from the premises and compelling them to continue to provide services pending the conclusion of arbitration. Till date, the LADOL Group has failed to honor the order of the Court as it maintains it provides access to TOTAL and incidentally to SHI-MCI as contractors of TOTAL and not as a Free Zone Enterprise and/or tenant.

e)        Following SAMSUNG’s appeal to the Government and relevant Regulatory Bodies for the protection of its investment against the LADOL Group’s appropriation attempts, on the 14th of November 2019, NPA wrote to GRML terminating its 2006 lease for failing to obtain NPA’s consent over the 2013 Sublease Agreement it entered into with SHI-MCI. NPA, by same letter offered GRML a new lease over the remaining land comprising the LADOL Free Zone excluding the 11.2426 hectares on which SHI-MCI’s Yard is built. It also on same date offered a new lease to SHIN over the 11.2426 hectares on which SHI-MCI’s Yard is built, which SHIN accepted and paid the stipulated rent on the 15th of November 2019 after which Parties signed the Lease Agreement on the 28th of November 2019.

 f)        SHIN being a custom territory company was not subject to NEPZA’s authority and was entitled to pursue access into its property as required. Consequently, seeing as access through the Free Zone entrance using the adjoining LADOL land was no longer possible, SHIN got valid approvals for private jetty operation from the relevant regulatory agency (NPA) using the Yard (SHI-MCI) quay, in addition to the fact that it is legally entitled to ingress and egress and peaceful enjoyment of its property under the Lease Agreement with NPA.

g).       However seeing as the land still housed a seating tenant who is a Free Zone Enterprise, SHIN needed to ensure that the operation of the JV would not be negatively impacted by the lease developments.

h).       Consequently, SHIN applied to NEPZA to designate its leased area as a Free Zone, seeing as it is legally no longer capable of being subjected to GRMFZC Zone management authority, given that NPA, by terminating LADOL’s head lease had excised that land from GRML’s holding, the legal implication was that GRMFZC could no longer act as Zone Manger over that premise (as its Zone Management authority is predicated on the land over it which it possesses a demise/sub demise interest). Consequently, SHIN applied to NEPZA for the designation of its land area as a Free Zone and the appointment of a new Free Zone Manager. Pending the completion of which process, it requested/appealed that NEPZA give interim approvals for SHI-MCI’s operation in the Zone and for NEPZA’s direct administration of SHI-MCI. It cannot and has never attempted to operate the land as a Free Zone.

5.        LADOL only collected USD4.5 million as rent, while the balance was kept by the tenant (SHIN) as investment by LADOL into the shipyard, which the tenant constructed as contractor.

            a)        The Tenant is not SHIN but SHI-MCI which is a JV of both SAMSUNG and the LADOL Group in which the current shareholding is held SAMSUNG (SHIN) 70% and LADOL Group (MCI) 30%.

            b)        LADOL Group collected $45M USD as rent. One Group member, GRML as landlord, kept USD4.5 million, another member of the LADOL Group – MCI who is the 30% JV partner in SHI-MCI used the balance to pay for it equity in the JV. LADOL Group was supposed to use its money to pay for its equity in much the same manner that SHIN provided its own fund to pay for its 70% equity, however given LADOL Group’s failure to provide funding out of its pocket for its shareholding, SAMSUNG(SHI-MCI) following the Government intervention, was compelled to pay an inflated rate of $45MUSD as rent far beyond the parties agreed rate in the 2013 Sub-Lease Agreement and way in excess of whatever token fee LADOL Group paid to NPA, in order that $40.5MUSD out of the rent fee can be used to pay for LADOL Group’s shares in the JV. In other words, LADOL Group did not pay a dime for its shares in the JV but was rather carried by SAMSUNG.

c)         At the outset of the Parties’ JV relationship as captured in the various document, it was agreed that SHIN will set up a free zone subsidiary – SHIN FZE to develop the Fabrication and Integration Yard, given that shipyard construction was SAMSUNG expertise and it offered the best commercial price for the facilities construction in comparison to any other 3rd party.

6.        LADOL was fully operational and established with functional facilities which attracted SHIN and SHIN went on to use LADOL to win the EGINA contract.

a)        LADOL Island was a mere logistics base and predominantly a swamp land as at the time in 2011. LADOL Group had no fabrication yard and lacked the requisite experience. SAMSUNG had indeed engaged in talks with the other experienced shipyards that existed in the country such as NIGERDOCK, INTELS, and who had fabrication facilities but they had either committed to the other bidders (Hyundai) or security and operational concerns hindered further development.

 Consequently, SAMSUNG proceeded with LADOL Group in spite of its several drawbacks because (1) it was located in a free zone which offered tax and other operational incentives (2) it was a small business and it appeared to be passionate and honest and it’s the SAMSUNG policy to encourage small businesses to grow. It therefore believed that it found a partner to grow into the future with, knowing that the SAMSUNG resources and expertise can be utilized.

b)        SAMSUNG won the Egina FPSO Project on the basis of its commercial and technical expertise and was the sole Contractor to TOTAL for the EGINA FPSO Contract. LADOL Group was neither a signatory, nor co-bidder nor beneficiary under the EGINA FPSO contract.

c)         The fabrication of the six (6) NC topsides and the integration of the FPSO was a scope of work to be performed under the Egina FPSO contract and which SHIN had identified that it will subcontract to the JV of LADOL Group and SHIN in the Free Zone, in the same manner as it identified in the Egina FPSO contract that it will subcontract the fabrication Pressure Vessels to EWT, Pig Launchers to Dorman Long, Riser Porch and LQ Blocks to NigerDock. LADOL Group’s role was no different than all other subcontractors such as NigerDock (subcontractor for the fabrication of the LQ Blocks and Riser Porch), the consortium of NECTO, DeltaAfrik and IESL (subcontractor for the detailed engineering) and all other NC sub-contractors with whom SHIN entered into Memorandum of Agreements prior to the award of the contract to secure their availability to discharge the scope, in the eventuality of the successful award of the contract. This practice of negotiating MOA’s with potential subcontracts by an EPC contractor is a standard practice and requirement by the IOC’s.

7.        LADOL’s sole obligation under the NPA lease was to pay rent and obtain approval

            –           It (GRML) paid rent for 2018 – 2020 in the sum of N880Milliom to NPA, N440M p/a

LADOL Group paid the above sum of N880m for its entire 80 hectares holding, however SAMSUNG paid 45MUSD, equivalent of almost N14 billion as 5 years rent for its 11.2426 hectares holding which is just a fraction of the entire 80 hectares holding demised by NPA to LADOL and yet SAMSUNG rent is several billion naira in excess of what LADOL paid to NPA for the entre Zone.

–           NPA by its letter of March 2014, gave explicit approval for the sublease issued by GRML to its tenant (SHIN)

As noted earlier, GRML and SHI-MCI had earlier entered into a Sub-Lease Agreement dated 13th September 2013 under which GRML had to obtain NPA’s final consent not conditional consent.

In the letter of March 2014 (clearly predating the Sub Lease Agreement of July 2014) NPA gave its conditional consent in respect of the 2013 sublease and in the last paragraph of the letter NPA stated “you are required to forward to us a copy of the deed of Sub-Lease between you and the Sub-Lessee to enable the Authority conclude the remaining process.”

The Plaintiffs never forwarded the 2013 sublease, which was later terminated between the parties, after which they entered into the 2014 Sub-Lease Agreement.

On the 18th of June 2019, NPA wrote further to its request in its letters of 12 March 2014, reminding GRML that it is yet to forward a copy of the Sub-Lease Agreement between GRML and MCI-SHI FZE (2014 Sub-Lease)

By a letter dated 24 June 2019, GRML forwarded the 2014 Sub-Lease Agreement five years after the Agreement and after it had purported to terminate the SHI-MCI 2014 Lease Agreement and evict it from the Zone in September 2018.

Thus, even though the conditional consent granted in the 12 March 2014 letter was in respect of the 2014 Sub-lease, GRML never submitted the 2014 Agreement to NPA in spite of the request in that letter and it never obtained approval for either that 2013 Agreement or the 2014 Agreement which it only submitted after its purported termination of the Agreement with SHI-MCI in September 4, 2018.

8.        In their wisdom and in line with the law, these ministries and agencies have resolved the regulatory aspects of the dispute, in such a way that local content is protected, not just for the shipyard but also for the many other budding capacity development projects:

            a)        The matter is yet to be resolved.

When NEPZA severally instructed LADOL Group to issue SHI-MCI’s Operating License, it refused. When the Senate Committee, the DSS and the Nigerian Content Monitoring Board upon conclusion of their investigation/intervention found that what SAMSUNG invested in the Yard and the shareholding was consistent with parties contractual undertaking and that its execution of the EGINA Project was in compliance with the NC Act, LADOL Group refused to comply notwithstanding that it was the one that petitioned these parties.

 When NPA issued a direct lease to SAMSUNG to break LADOL Group’s monopoly and protect SAMSUNG’s investment, LADOL Group challenged this action and solicited the help of its supporter the AGF/MOJ office who eventually communicated an alleged presidential directive to NPA to comply with the lease extension granted to LADOL Group (notwithstanding that LADOL Group had breached the head lease agreement and that a new lease over a portion of that land has been granted to SHIN), only at this juncture is LADOL Group claiming a resolution.

b)More importantly, given the multiplicity of suits filed by the disputing parties as noted above, in Court/LCIA Arbitration, the dispute is thus subjudice and until resolved by the adjudicatory dispute resolution mechanisms already commenced by the Parties, the Executive arm of Government cannot lawfully/whilst respecting the rule of law, by a mere order take an action that in all truth amounts to a national expropriation of a foreign investor’s investment in Nigeria.