The recent fall in oil prices has resulted in a 28.05% drop in Nigeria’s revenue thereby shifting the focus of stakeholders to alternative sources of energy. Can you assess the current legal framework for renewable energy in Nigeria?
In discussing any legal framework, it is useful to understand the grounds on which the scaffolding or structure stands. This thus leads me first to a consideration of statistics on our oil revenue – in a period where elephants are contending on the veracity of these numbers and basis of computation. But leaving that important issue aside, given its beyond the narrow scope here, one finds according to statistics released by the CBN Governor, that between Jun.30, 2014 and Dec.31, 2014 the price of Bonny Light declined by 50.7%, dropping from $112.78/b to $55.57/b and between Dec.31,2014 and Jan.23,2015, it recorded a decline of 15%, dropping from $55.57 /b to $42.22/b. In the premises, the search for alternative sources cannot be overemphasised considering the current dynamics of the domestic and international markets for energy production feedstock and output.
Undoubtedly, Nigeria is blessed, by the Maker of all things, with varied renewable energy resources including sunlight, wind, rain, tides, and biofuel. Advances in technology on terrestrial and extra-terrestrial study are also such that there indeed may be more of renewable sources that will come to market soon. Without any sarcasm, our governments have, with bad education and value systems, assisted us in becoming creators of mountains of debris and waste, which if well harnessed, as in other societies, could be used to generate much needed energy for this well endowed society of energetic people.
The volatility of energy supply and pricing as well as global concerns around climate change, with increased urgency for countries to become more environmentally clean and friendly and to promote the use of cleaner energy sources, are major factors, which our leaders claim, is steering the government towards a serious consideration of alternative energy sources apart from fossil-fuel. In addition, the need to improve the exploitation of other indigenous resources as well as the benefit of diversifying the countries sources of wealth has been reflected in various policy developments as well as legislation made in recent times.
1. In terms of the current legal framework for renewable energy, the fact is that it is very much in its infancy, even embryonic. Speaking as if I was skilled in the sciences, I would dare this is a matter that takes root in constitutional provisions on legislative powers as to the environment and power. From that soil will grow legislative ideas, perhaps fertilised with developed concepts abroad conformed to local circumstances. Going by the recent appeal decision by that most respected Judge Abiru JCA in the case of HELIOS v KADUNA STATE, based in the main on earlier cases on the subject like AG LAGOS v AG FEDERATION (regarding town planning) and AG ONDO v AG FEDERATION (regarding corruption), the final say on this matter will lie with the National Assembly, with probable powers for states and local governments in the process. This will be as far as environmental laws are concerned and it seems to me that this will be a major tributary of the waters renewable energy will flow, the other being no lesser a tributary than the electricity industry laws and regulations. But as, is well known, twin tributaries are fed by lesser bodies of water and this will be the case with renewable energy going by the way a whole panoply of laws are thrown at new subjects in the country.
Interestingly, being largely driven by federal legislative and executive powers, the Federal Government has kicked started this process with its initiative on Renewable Energy Programme under the aegis of the Federal Ministry of Environment. This is targeted at stimulating the renewable energy sector to attract capital and to encourage the development of renewable energy technologies in Nigeria. Statistics in developing countries show that renewable energy projects can be a direct and an indirect contributor to poverty alleviation as it improves employment as well as provides the energy needed for businesses to thrive.
The last few years have witnessed huge investments in the Nigerian electricity sector, though a huge portion of these investments have been in relation to gas fired power plants. However, there are a number of potential investors who are looking to generate electricity through renewable energy sources in different parts of Nigeria. Electricity supply by means of renewable energy is a regulated activity in the Nigerian Electric Supply Industry – which is generally regulated by the Electric Power Sector Reform Act 2005 (Act), Market Rules, and Regulations made by the Nigerian Electricity Regulatory Commission (NERC) in exercise of its powers under the Act.
Of significance, in this regard, is the fact that NERC is working out a robust feed-in-tariff that will allow participants in the renewable energy space to recover generation costs over a period of time. This is because it is recognised that a special regime needs to apply to the renewable generation participants to guarantee profitability other than the Multi Year Tariff Order which currently guides electricity tariffs in Nigeria.
There is, however, a lot that still needs to be done in the area of renewable energy and it is hoped that the industry would witness some innovative legislations in the near future. What is critical is reviewing how one body rather than a raft of bodies are permitted to regulate the sector, so as not to strangulate it with its umbilical cord while still in the womb of incubation. Today, apart from NERC and NESERA (the environmental sector regulator); others will rear their heads in a bid to have a hand in the pie of regulation as a means of taxation, as opposed to true public safety measures (the wont of many an agency today). Town planners; state land use regulators; the new emerging, but I dare say unnecessary regulators beyond NERC and such bodies should be expected to have a leg in the game.
Nigeria has been described as “gas province with a drop of oil”. What reforms should be introduced to the gas regulatory framework to enable us effectively harness our natural gas potential?
As you have pointed out, Nigeria has incredible gas potential, boasting nearly 200 trillion cubic feet of natural gas; the 7th largest natural gas deposit in the world. The implication of these statistics is that we have nearly 3-times more natural gas than we do crude. We also have quite a broad framework of gas legislation, in broad legal terms. These include the Associated Gas Acts, the Gas Master Plan and Pricing Policy, the National Domestic Gas Supply and Pricing Regulations (Policy Regulations) in addition to the more general statutes like the Petroleum Act and the PPT Act. However, as with many other pieces of Nigerian legislation, great deficiency appears to exist in implementation of the law – which in effect defeats statutory intent.
There are a few modifications to our modus operandi which may bolster the viability of our gas sector. As it stands, the fiscal policy of the oil sector is being applied to the gas sector and this is inapposite because of the fact that the level of infrastructural development in both sectors is in uneven. The playing field can thus not be described as level; neither is the expertise in either field the same. Too much lip service is given to the gas master plan, and we seem to be running down the same runway of disrepair on which we took-off on our oil policy. It is perhaps apt to say that we have too many layers of regulations that at times conflict, but perhaps most important is that what we need is first competence of both the public and civil servants charged with the administration and control of the sector; second is sincerity of purpose and third is recognition that the root of all evil is the ungainly love of money. In sum, what we need urgently is simply good public administration.
The enactment of the Nigerian Content Act and establishment of the Nigerian Content Management Board has increased the participation of indigenous oil companies in the oil and gas industry. Despite this development local companies are still experiencing difficulties competing effectively with International Oil Companies (IOCs). It does appear that the regulation of the oil and gas industry still weighs heavily in favour of international oil companies as against indigenous companies. Would you consider this assumption as correct? How do we ensure that indigenous companies are given the opportunity to grow?
What seems clear to me is that what we need is self-examination, and not pieces of regulation to make things happen for local participation in the commanding heights of the economy. I say so for a couple of reasons. We need to step back in time to get an exegesis of this matter. This travel in history will show, that not long between independence in 1960 and republican status in 1963, attempts were made to see to the Nigerianisation of the economy by passage of the Immigration Act, aimed in great part at transferring managerial control of the economy to Nigerians from foreign businesses that held sway here. History shows that in the hey days of rule by young boys in Khaki indigenisation laws were introduced to increase local participation now as investors and not just as managers, in the economy – which as of 1972 was then controlled, more or less, by foreign exploitative investors. Indigenisation was not anathema as it followed on UN resolutions of the time that allowed for such measures globally. The May 1 1974 Declaration on the Establishment of a New International Economic Order by the UN General Assembly recognised and encouraged the full permanent sovereignty of every State over its natural resources and all economic activities; and to do this each State is entitled to exercise effective control over them and their exploitation with means suitable to its own situation, including the right to nationalisation or transfer of ownership to its nationals; and the regulation and supervision of the activities of transnational corporations by taking measures in the interest of the national economies of the countries where such transnational corporations operate on the basis of the full sovereignty of those countries.
This was led by the third world, but pitifully and resisted by the West, aided in no small part by the locals who were more interested or content with being fronts rather than real owners. Truth be told though, our capital formation and mobilisation powers were limited and our banking market was miniscule – and at that dominated by foreign banks. We rolled back on indigenisation, and indeed abolished the 1977 replacement of the original 1972 statute. With IBB’s structural adjustment programme, the IBB-Shonekan transition government, the Abacha years saw a relentless attack of the private sector on government inefficiencies associated with governments holding play in the market. Shamefully, what was supposed to help local content turned out to be a massive failure in rent seeking and means of settlement of political patrimony.
I guess the scales fell off, and our chains were free again, starting with the Cabotage Act leading up to the Local Content law – measures aimed at pulling us back by the hair to our rightful place in this commanding sector of the economy. This no doubt is in compliance with the constitutional imperative, through social and economic objectives of the state, contained especially in Section 16, 1999 Constitution.
I struggle, in the premises, with the assumption that the regulation in the Oil and Gas industry favours the international oil companies. The Nigerian Content Management Board (NCMB) and the Nigerian Content Act have indeed played a huge role in promoting local participation in the oil and gas industry for the overall benefit of the Nigerian economy. A careful read of the relevant controlling pieces of legislation, as opposed to those of the near past, reveal that if there is any discrimination at all is in favour of locals – in that reminiscent of affirmative action. For instance the Act provides that indigenous companies should be preferred in the award of OMLs and service contracts; as well as provision of legal and financial services. In keeping with this is insurance law which also places a premium on local control of insurance; and perhaps most important is the “soludo solution” which assisted us in creating banks with financial muscle,
owned by indigenes, and who favoured citizens in funding of their endeavours.
Also, an initiative such as the Nigerian Local Content Development Fund which is administered by the Board exists to assist indigenous companies to raise finance and increase the bankability of their projects. Even from a market point of view, the statistics also bear out that most of government’s divestment of its interest in the industry has been in favour of the indigenous companies. The problem at the end of the day remains the lack of bench strength in the market: the lenders levitate towards fees than deal structuring; many still assist aliens with circumventing local content laws; foreign lawyers in fact have increased their participation in the industry; just as too many a businesses are run as suit case firms rather than enduring institutions. To cap it are the hurdles in the way placed by a host of regulatory armies as if set up not to make things happen. In sum physician heal thyself is my answer!
What aspect of the Act needs to be reformed to enable indigenous companies effectively compete in the oil and gas industry?
The Act has served as an effective backdrop for the implementation of the indigenisation and nigerianisation policy in the industry as it overtly expresses the state’s disposition to promote local content, and contains practical provisions for achieving that objective. Although, as with any other legislation, the Act is not without its own shortcomings, the Board has in fairness been quite effective – although one can still see it is ham-fisted. He nonetheless has consistently released very helpful guidelines to shed light and provide clarity on unclear areas and provisions. I think that the fast track to making certain that the Act achieves its primary aim which is to domicile a greater spend of the industry in Nigeria, is to ensure that adequate attention is paid to the mechanics of its implementation. But more can be done – for instance stopping the exportation of legal services and in some cases on purely local deals.
In keeping with the theme of the local content Sec 51 of the Nigerian Oil and Gas Industry content Act provides that legal representation should be done by Nigerian lawyers located in Nigeria however this is still not often the case. What can legal practitioners in the oil and gas industry do to reverse this trend?
As I just mentioned this aspect of the law is this big bull dog without a bark talk less of teeth! But this is not to say that practitioners that participate in the industry, have done themselves justice. You truly can count on your finger tips oil and gas law firms in the country. There must be greater spend by us on continually broadening our knowledge base, developing our technical capacity, attracting expertise that swim to the banks of banking and industry with better pay; realisation by those who hire lawyers that local firms are no second fiddle and should attract the same spend as they are ready to dole out to foreign law firms, and such like measures are needed in order to justify the priority afforded us by the Act.
The NBA also has a role to play: it can create a framework or platform for ensuring that industry players accord Nigerian legal practitioners the statutory priority afforded us is effectively utilised. NBA must stop the shenanigan of some regulators led by SEC of asking that lawyers register with them before practising what they have already been licensed for. NBA must step up its game in the way the world trade agreements we have entered into plays out in allowing foreign lawyers to defeat the purpose of local content. While a good number of the Nigerian “green shoe” firms are not shy of competing with these international firms, this is not to say that government should not meet its constitutional economic objectives set out in section 16 1999 Constitution. The only other caveat here is that except the administration of justice is improved upon, that there is near zero corruption in the field, that judges remember that they are like God’s representative that must do justice and not behave like others of the market place, that there is certainty of precedent (which is lacking given a new tradition of inconsistency in decisions up and down our courts), dispute resolution clauses will be negotiated to take both the solicitor’s work and that of the advocate to foreign lands.
There has been an upsurge in the divesture of assets by IOCs such as Shell Petroleum Development Company, Conoco Philips and Chevron in the upstream and downstream sector. What effect will this have on the economy?
Today 43% of the oil industry is owned by IOC’s, with NNPC controlling the other 39%; and the divestments have generally been targeted at involving more indigenous oil and gas companies. Viewed from a broad, legal perspective, these divestments have largely involved a transfer of economic value to indigenous entities. Without delving into economic analysis, it is possible to suggest that although there may be a capacity gap that may limit short term benefit, the divestitures will empower indigenous players in the long term. There are clearly a plethora of benefits that would attend the arrival of indigenous players to the center-stage of the oil and gas industry including jobs, infrastructure, the retention of capital within Nigeria. Another possible benefit is that the change of control may decrease host community issues, and illegal bunkering which while less tangible, than some of the other benefits, is clearly very important.
Perhaps a rare compliment of the Petroleum Minister, given the general pubic view of her stint in office, is the great rise of many local players in the industry – minding not whether the bread baked is with or without leaven of allegations now associated with the industry
How would you evaluate the procurement process in the oil and gas sector and in particular whether the highest bidder must necessarily win?
This is a matter that must be viewed with different lenses. That for private sector M&A activity – which usually is by a bid round; and that of publicly owned assets now luckily required to also be by a bid process – given the industry rules and our overarching public procurement law – which is, however, not free of difficulties. The financial element, by good procurement and risk management rules, while no doubt a key consideration in any bidding process, ought not to be the determining factor in sale of assets in the oil and gas sector. The nature of oil and gas assets and their importance to the Nigerian economy create the need to ensure that other factors must be considered to be successful in a bid for an asset, apart from the party with the largest purse. For instance, the recent 2014 DPR Guidelines for Obtaining the Minster’s consent spell out some of the factors that would be considered before the grant of Minister’s consent to any assignment of an asset. These include sufficient technical knowledge, experience and financial resources to work the asset being assigned. Consequently, assignors divesting their interests in an asset invariably have to ensure that these factors are also considered in assessing bids in addition to the financial bid for an asset, put forward by shortlisted bidders. It seems that the same has been the practice of the IOCs.
The disposal of Chevron’s OML 52, 53 and 55 in particular have been subject to much scrutiny. There is the subject of the pending litigation and while it is futile to speculate on the outcome of that matter and we will not ask you to, there is a pertinent legal question to raise, that is whether the owner of an asset has a prerogative to decide who buys such an asset in a public bid?
Generally speaking, a private party is free to transfer assets in any manner he chooses, even where a bidding process is utilised in the disposition of the asset. However, depending on the assets, this right may be restricted by contract and also statute. In the Nigerian oil and gas industry for instance, the requisite approvals/permits by the Minister of Petroleum Resources the DPR may effectively constitute some sort of restriction on the ability of a party to assign interests in an oil and gas asset to any party of its choice.
Further going by generally well established principles on public procurement some of which we find in our law thereon, the emphasis is on transparency and best value for money – which may mean the highest bidder may not be the winner if it fails other technical requirements. Imagine someone who has enough to bid highest but no resource to maintain and improve efficiencies on the asset. Where all that is in focus is cash in hand today (and that will be most myopic) the highest bidder will win. Where, however, the desire is to ensure the process is part of an overall plan on sustainability and economic development, and all the benefits these bring, other factors may indeed carry more weight in the bidding process leading to choice for instance with the party with commitment to sustain and not come in to asset strip.
In law a private company’s discretion to dispose of its assets is unfettered. That discretion is protected by the nature of proprietary rights. For assets as politicised as Oil Exploration assets, and bearing in mind the nature of the legal structure of Oil Exploration in Nigeria, does such a discretion stop being protected because of public interest?
Our freedoms to own property constitutionally allow us to deal as we please as private citizens. But that right has forever been subject to limitations. Thus a contract freely entered into with say a third party lender may restrict the ability to sell by the owner as it pleases. Further public interest law at times step into our private space to regulate what we do – so for example foreigners are restricted in certain forms of ownership in Nigeria.
There are public interest arguments that justify restrictions on the ability of parties to transfer their interests in a sector as strategically important as the oil and gas sector. Chief amongst this is the importance of oil as a natural resource to the economy and security of the Federal Republic of Nigeria – being a resource vested in the Federation by the Constitution and a number of other laws.
In MONI PULO LTD v BRASS EXPLORATION LTD, the Court took the view that petroleum resources were of such a critical nature that the absence of control by the Minister, of the ownership and transfer of such interests would create security and economic risks to the country as a whole.
The much publicised case of Brittania-U v Chevron and Seplat over the sale of Chevron Oil Mining Leases brings to the fore issues surrounding the divesture of oil and gas assets. In the above case Brittania-U has a contract with Chevron of which Seplat is not a party to, as Seplat has a separate contract with Chevron. A dispute has occurred and parties are in court. Should all commercial contracts come to a halt simply because a case has been filed in court?
Commercial contracts create various legal rights and obligations – well respected by the courts going by a long line of cases. Where an asset gives rise to varying contracts difficult questions of law could arise, and a court with a good sense of commercial realism will be more cautious where huge investments are involved. It is proper that when a case is filed in court, parties respect judicial authority and not take the law into their hands – bearing in mind that nothing must be done to bring the law into disrepute, oppilate the due administration of justice or frustrate the enforcement of court orders.
Emanating from these are a number of other general principles of law. One which is much waved at defendants by plaintiffs, and at times the courts, is pendente lite nihil innovateur: that is nothing new should be introduced during the pendency of an action. By this doctrine, the law does not allow litigants or give to them during the currency of the litigation involving the rights in it so as to prejudice any of the litigating parties. The doctrine negates and disallows any transfer of rights or interest in any subject -matter that is being litigated upon during the pendency of litigation in respect of the said subject-matter.
The technical angle to that doctrine is the concept of lis pendens, which indicates that anyone who acquires interest in real property which is the subject of litigation takes his interest subject to the litigation. The doctrine of lis pendens, which applies in a technical sense to interest in real property, prevents the effective transfer of rights in any property which is the subject matter of an action pending in court during the pendency of the court action. In its application against any purchaser of such property, the doctrine is not founded on the equitable doctrine of notice (actual or constructive) but upon the fact that the law does not allow litigating parties or give to them, during the currency of litigation involving any property (i.e. the property in dispute), rights in such property so as to prejudice any of the litigating parties.
The sum of the doctrine is to preserve respect for judicial authority and decisions so as not to render a judgment futile by the transfer of interests. But it appears rather unfortunately, in my humble view, that this principle in real property law has been extended, in error not just to moveable property, but curiously and certainly most wrongly by the obiter dictum of Aderemi JSC in the case which made a man who did not contest an election Governor and suggested we voted not for people but parties, is a nonsense and extending it makes no sense. I take the view that the part of his decision will not be followed being per incuriam. But be that as it may I believe it will be a long reach to argue that rights are frozen simply by the issue and service of a writ. This is indeed untrue of most matters before the courts who for example will stop being a Mrs X because Mr X has filed divorce papers? Should interest stop running on a bank loan because there is a suit seeking a declaration that money is not owed? Should we stop going to the market because there is a claim of ownership of the market by a third party? Why should a writ hold up a commercial deal if damages can compensate the plaintiff? Should a defendant stop building his house under a time bound fixed contract because there is a frivolous claim? Should one not exploit assets in an inflationary and currency devaluing economy – when undertaking as to damages is a paper tiger? If a court can exercise jurisdiction to determine if it has jurisdiction, and indeed if at times he even hears the case along with the challenge on jurisdiction, why should life stop because one has been sued? Is it not the proper law that an application is no order?
As this case throws up a lot of legal questions, can an injunction be granted against an action that has already occurred?
An injunction by its nature is a prerogative order of a court to restrain or mandate the doing of an act. A court of law does not act in vain. An act which has been carried out can no longer be restrained, neither can it be compelled. An injunction therefore is not a proper remedy against an action that has already occurred, or so to speak, a completed act. In such circumstances, the proper course for the court to take is to determine the substantive rights of the parties – except as true principles of law allow for mandatory injunctive orders.
Cue may be taken in the judicious and solomonic approach of the appellate courts in the Unipetrol take over case; or even the landmark Federal High Court decision of Sanyaolu J. which refused to injunct a public issue by NBL Plc. Pitifully our appellate courts and worse still trial courts treat high court decisions as not worthy of being persuasive talk less of being controlling authorities – when indeed true administration of justice and public policy underpinning that suggest otherwise. Is it not when there are irreversible competing claims that the balance of convenience should come to play in the injunction game? How is a res destroyed if it is about economic extraction, and a decision which may lead to mandatory injunction, vesting of title, seizure of assets and payment of compensation? Let me say no more lest I am impaled on the imaginary horns of judicial or should I say utter or inner bar rascality?
What improvements can be made to the process of bidding for oil licences to minimise the occurrence of disputes between parties?
The point must first be made that an oil licence confers an interest in an asset – which implies a vesting of rights, and where rights exist, disputes cannot be precluded. Thus, it will be impossible to eliminate the possibility of disputes over oil licences or other kinds of commercial interests. It is no matter of hypothesis to say as the tongue and teeth fight, so will there be disagreements on contracts. This is why we have section 6 of the 1999 Constitution - guaranteeing access to the courts and to justice. That the gates to our courts are wide open, and the average cost of litigation in Nigeria being ridiculously is low – with real cost, like wasted cost, being a rarity, litigation will continue to dog us.
In discussing the bidding process for oil licences, this may refer to the bidding process for oil licences from the Federal Government or from individual companies. As it relates to the Federal Government, there have been complaints about the exercise of discretion in awarding licences resulting in the Federal Government making significant efforts in recent times to facilitate more transparency and increased revenue from award of oil licences. Competitive and open tenders are the preferred mode for the award of oil licences because it ensures industry players with technical competence and financial capabilities acquire licences.
For the private licences, most companies abide by global best practices in the bidding process. However, this is left for each potential vendor of an asset to decide. Generally, a private company may not be pigeon holed or required to employ an open or transparent bid process as it is free to dispose its assets as it pleases. However, notwithstanding this apparent freedom, there are other considerations and regulatory requirements, such as the provisions of the Guidelines on Ministerial Consent which stipulates certain criteria that need to be met in the choice of a transferee. It is however safe to say that no bid or sale process is fool-proof as to preclude disputes.
At the end of the day the way to avoid disputes is (a) do business only with people with chivalry; (b) a proper bid process and appertaining rules made clear and plain; (c) sincerity and bona fide of the seller; and (d) remember that clear walls make good neighbours – in other words have well negotiated and documented contracts.
Is there a basis for challenging such an open bid? Or does the mere fact that it is “open” afford it the character of a “public” bid? That is, does the nature of the asset affect its disposal irrespective of ownership?
There may be basis for challenging an open bid, which may not necessarily be a “public” bid. By “public” bid, I believe you are referring to a bid for a licence from Government. A private oil company may, in the disposal of an asset, employ an open or closed bid system; most tend to adopt the closed bid system. However, the fact that a private company employs an open bid system does not make the bid process “public”.
On the second part of the question, the nature of an asset does affect its disposal and the form of ownership also plays an important role. For example, shares are not disposed in the same manner as goods, nor are goods disposed in the same way as services. Also, the mode of disposal of shares in a public company is different from that in a private company. In the context of the oil and gas industry, the fact that the industry is regulated tints the manner in which assets in the industry may be disposed. You will find legislative or common law principles underpinning these various forms of sales.
What therefore do you consider is the supervisory role of the courts in protecting the sanctity of a contract where tension exists between the parties and how can the tension be resolved?
By the provisions of Section 6, 17(2)(e), and 36 of the 1999 Constitution of the Federal Republic of Nigeria as amended, access to courts is a constitutionally guaranteed right. Parties seeking clarity to their rights and obligations whether under contracts or otherwise, are free to seek redress in court. For me the first point to note is that we must man our courts with men of letters in the field of controversy – this for example is the practice with trial courts elsewhere. This will bring realism as opposed to crass legalism to determination of disputes. Courts must not allow constitutional imperatives of fair hearing be vehicles of delayed justice which is denied justice. As I said we have wide gates to our courts, but an eye of a needle to pass through as exit. Trials and appeals are needlessly long. The courts in my view ought to exercise their inherent jurisdiction and powers to cut out delay tactics in the administration of justice.
In the days when books like Broom’s Legal Maxims held sway my second answer would simply have been: pacta sunt servanda. That is all agreements must be honoured. Courts employ various canons of interpretation to give effect to the intention of the parties. This will include an empirical examination of the words exhibiting the intention of the parties in their ordinary and trade usage, past dealings of the parties, and extrinsic materials pertaining to the contract in certain instances.
Depending on the circumstances of the case, the court may also be inclined not to give effect to a term or terms of the contract, if such would defeat the commercial purpose of the contract, or by reason of other vitiating factors such as the illegality of the contract, or a party lacking capacity to enter into the contract.
Although, the mantra of our Courts is “we are ever willing to lend weight to protect the sanctity of contract”, the truth is that the route to that end is tortious and punishing. It is insufficient to spout the right principles of law when the commercial object would have been lost; neither does it help if we find no controlling authorities on these matters. For me our courts go over and over the same thing, leading to a mosaic canvass, rather than a distinct painting. Consistency, certainty and speed are the things that will help, apart from confidence in the courts and development of a good supporting bar – both inner and utter.
The recent sudden fall in oil prices appears to have caught some third world countries unawares, including Nigeria. What are the consequences of this for Nigeria and how could such be averted in future?
The drop in oil, and other commodity, prices has sat with its overbearing weight upon our macroeconomics. The ripple effect of this has been the contraction of our GDP, reduction in our capital expenditure, a 12.3% decline in our foreign reserves between July 2014 and January this year and the depreciation of the Naira by 20% at the interbank market recently – with more, I believe, promising to come. Not much of it has been by surprise, as Goldman Sachs had at June last year predicted that with the change in US monetary policies, the Naira would trade at N165/$ in the next three months, N175/$ in the next six months and N195/$ in 12 months.
In order to absorb the shock and be better positioned in the future, it is imperative that Nigeria’s dependency on the sale of crude oil must be minimised. What most say, including our Overriding Minister, is that other sectors of the economy particularly agriculture, information technology, telecommunications and tourism should be developed. But it is not about diversification of the economy that is the pivot to sustenance in the time of want. Such is a good to have. Rather we need the wisdom of Joseph and the knowledge of Daniel in harnessing whatever we have. Allied to this is that stealing of crude which can be stopped in six weeks, the same way we gave six weeks to cut off the excruciatingly painful bite, confidence and arrogance of Boko Haram, by simply bombing all those tankers taking oil equivalent to what a whole Ghana produces daily will help. Transparency in administration, revision of corruption in our national civic duty curriculum will help. If we do not do these diversification of the economy will simply be diversification of new means of fleecing!
While most developing countries are now moving to shale oil, Nigeria seems to be stuck with crude drilling and its environmental devastation. What is the impact of this on the industry’s future?
Research has shown that it is greener to produce crude oil at a commercial level, than it is shale oil which involves extensive fracking and is thus damaging to the stratosphere, with increasing concerns around waste management, land and water pollution, diversion of fresh water, thus interfering with aquatic habitats. In addition, due to its status as a developing energy source that requires specific technology which is not widely in use, the cost of producing shale oil is very high and thus its viability is dependent on the price of conventional oil. Indeed, development of shale oil requires very heavy investment and could potentially leave investors out-of-pocket due to its high vulnerability to decline in conventional oil prices, which potentially could lead to the production price of shale oil exceeding the possible sale price.
Thus, due to the seemingly volatile nature of conventional oil prices, it is unlikely that the production of shale oil on a commercial level will continue to be economically viable, causing the market to turn back to either crude oil or alternative sources for energy. The United States may have begun to refine its shale oil for local consumption, drastically affecting the market, but judging from the marginal increase in global oil prices, the world still seems confident that crude oil remains the better and greener source of fuel.
The price of crude oil has increased from its all-time low of $46.18 USD/bbl in January 2015 to $60.09 USD/bbl in March 2015. This increase has been predicted to continue by the International Energy Agency, given the rise in demand and hold on supply. Whilst this may give some temporary respite, the need to diversify the economy still stands germane.
Again, the nation is groaning under the negative impact of another petroleum products scarcity. How can this perennial problem be addressed permanently?
In discussing the methods that may be adopted in addressing the perennial problem of fuel scarcity, it is necessary to point out that positing a holistic solution would be of limited usefulness as one would need to consider a myriad of causative factors as the issue is multifaceted. Were one to take an analysis of the last five occasions of fuel scarcity, you would see that these have been rooted in different objectives, and caused by different factors. Not least of these causes are governmental policies e.g. increase in fuel prices, removal of subsidy, removal of petroleum tankers from a particular loading bay, non-payment of subsidy amounts, etc; insufficiency or unavailability of products due to industrial actions by trade unions within the sector such as the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), or the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG). Given the seemingly immense power these trade unions have over the industry, it would take a good measure of political will to prevent the constant crippling of the Nigerian economy due to perceived disputes between these trade unions and government or IOCs, resulting in industrial actions. The recent elections at NLC and the believed betrayal of the people’s insurgency against the removal of fuel subsidy for the wrong reasons are pointers as to the role of unions in the matter. Too many a time tools are downed for what many see as unjustifiable and the courts have on a number of occasions rightly restrained strikes. We may need a Margaret Thatcher treatment of the obstructive influence of Arthur Scargill!
Not to put the blame solely at the foot of the trade unions, the recent scarcity has been caused by the alleged non-payment of subsidy amounts by the Federal Government and the attendant refusal of banks to renew the LCs issued to the marketers. A number of marketers are in default on their credit lines, due to the depreciation in Naira and are thus unable to import further products. Proffering solutions would thus require an analysis of each individual root cause and its own unique solution.
But without the benefit of expertise in petroleum economics, but as, I hope, a critic of what I see as governments without institutional safeguards as to transparency and accountability and inclusion, we will continue to have failed policies. While I was at one of the forefronts of the last war against petrol price increases, given the lack of transparency and cogency of reasoning, other than that of the then CBN Governor, the fact is that subsidy in that industry is now a scam. Subsidy in itself is no crime, as the best of governments use it as a tool for boosting external trade and indeed as a measure of domestic social provision. But looking at the figures we tout; the “Abiku” or “Ogbanje” nature of the Lamido allegations resurrected by his predecessor, Soludo; the perceived failure and true unconstitutionality of SURE-P; the fraud appurtenant to Sovereign Debt Notes used to pay subsidy; the opacity we see in PPPRA; the waste the public puts to use of energy; and the fact that indeed Nigerians have demonstrated with the indirect removal of subsidy in use of telephone and power with their effective market driven nature; there is no rational reason for a government of courage and conviction that is transparent and true to addressing social and economic displacement of the people, not to remove subsidy and let market forces determine prices. The subsidy we see is a child of military flattening of a terrain of valleys and hills – a unitary system that cannot work and fails to take account of true cost recovery.
Given the prices of crude in the international market, it was expected that Nigeria could have reduced pump price of petroleum products, especially petrol to about N46. Would you say the reduction from 97 to 87 was realistic under the circumstances?
Let me go back to the sensitive issue of subsidy as it is allied to this subject. The problem has been that EFCC, the National Assembly and the Aig-Imokuede Committee have all pointed to the subsidy industry as one big scam. That has made its removal emotive especially when recurrent expenditure of both the executive and the legislature are more obscene than the corruption we see. It is stealing by law, as is alleged to be the case with some state governments. There are allegations of contracts in perpetuity for a limited one off service; and payment of pensions that have no seat in logic. If our legislators spend the way SLS CBN Governor demonstrated and later corroborated by the Economist we need to remove their subsidy first. But that said in truth subsidy removal in petroleum products is inevitable in a properly run deregulated market that frowns on antitrust practices and upholds consumer rights.
That said, without any doubt, the reduction in pump price of petroleum products by 10.38 per cent was significantly below expectations when compared with other African countries who have equally been affected by the recent fall in oil prices. Comparatively, non-oil producing countries like Tanzania, South Africa and Zambia reduced their pump price by 16 per cent, 25 per cent and 23 per cent respectively whilst oil producing countries like Venezuela, Saudi Arabia, Libya, Qatar, Kuwait and Algeria have equally implemented favourable pump price reduction schemes. This unrealistic reduction has majorly been attributed to the lack of holistic consideration of the prevailing economic situation in Nigeria vis; devaluation of the naira; exchange rate distortions, etc. In view of the problems highlighted above, it will be crucial in the next coming years for Nigeria to aggressively embark on a privatisation of the refineries and encouraging investments in that area in a bid to alleviate poverty, reduce foreign capital flight, increase the overall employment rate and ultimately reduce the high demand for foreign exchange in the country.
Despite the obvious advantages inherent in the Petroleum Industry Bill, far too many reasons have been given for the non-passage of the bill. While some see it from a political perspective, others see it from a legislative and legal angle, while some give it ethnic undertones. What is your considered view on the non-passage of the PIB and do you think it is a good law for this country and if so why?
Whilst I am unable to categorically state the reason for the delay in the passage of the PIB, it would appear to me that one of the underlying causes for the inordinate delay is the existence of varied and unaligned stakeholder interests. The apparent difficulty in aligning the interests of the government, legislators, International Oil companies (IOCs), host communities, indigenous oil and gas companies, etc. has occasioned a delay in the passage of the PIB by the legislature. In addition, it would seem that another contributor to the delay is the lack of political will amongst the legislature and the executive arm of government. In view of the overall legal and regulatory regime in the Nigerian Oil and Gas sphere, the PIB is long overdue and it is thus critical for the legislature to take a second look at the legal and regulatory landscape for the Petroleum Industry.
Generally speaking it can be said that the PIB is a right step in the right direction – but not a good law that is fully well thought out. It in part behaves as if it was made for a monarch. That said it does have great parts, worthy of praise. First, there is an urgent need to harmonise the existing overlapping laws and regulatory agencies with conflicting roles within the sector. It is also pertinent that the existing fiscal landscape for the oil and gas industry is reviewed especially the provisions of the PPTA and the legal framework for the ownership, exploitation and acquisition of petroleum assets in Nigeria need to be reviewed. A transparent, clear and robust legal and regulatory regime would open up new vistas in the oil and gas industry, and the Nigerian economy. In general, the speedy enactment of the PIB into law would most certainly be a welcome development.
Considering the Petroleum Industry Bill (PIB) still unpassed since its inception in 2007, what effect do you see the further delays to passing it having on the interests of Indigenous Oil and Gas Companies that it is supposed to protect and IOCs like Total, Royal Dutch Shell and Eni who are gradually divesting from Nigeria?
I must correct the seemingly erroneous impression that the PIB is for the protection of indigenous Oil & Gas companies. Indeed, the main object of the PIB is to maximise Nigeria’s benefit in its Oil and Gas assets, through the provision of an improved regulatory framework, as opposed to protecting the interests of Indigenous Oil and Gas Companies vis-à-vis IOCs.
In that regard, the main consequence of the prolonged delay in the passing of the PIB is the uncertainty and lack of clarity in the applicable regulatory regime in the Oil and Gas Sector within the medium to long term for new investors. This has thus resulted in a huge reduction in the influx of foreign investment into the sector. As a legal practitioner, my firm has had to advice a number of foreigners who are willing to invest in the sector but are hesitant as a result of the impending change in the legal, fiscal and regulatory landscape in the Oil and Gas Sector. It is instructive to point out that the concerns relating to the uncertainty in the current regime equally extends to indigenous Oil and Gas companies.
With just a few months before the end of this legislative tenure, It does appear that the Bill may not become law, do you however see a chance of the bill being passed soon?
I do agree with you that under the current dispensation, it is clear that the Petroleum Industry Bill is unlikely to be made law, as the focus of the National Assembly has been shifted to electioneering with just a couple of weeks to the next elections. Going by the antecedents of the past 8 years in relation to the various attempts to pass the PIB into law coupled with controversies around the versions, it is unlikely that the PIB will be passed soon.
Given the plummeting crude oil prices and the effect that this has had on the Nigerian economy, are investors likely to suffer possible fiscal challenges as a result?
There is no doubt that the plummeting crude oil prices have had a significant effect on the Nigerian economy, resulting in a depletion of the external reserves and the depreciation of the Naira. It has also directly impacted the expected returns on investments of investors in the oil and gas sector, leading to a reduction in investments and alleged redundancy of staff.
Another challenge being faced by investors currently is the Federal Government initiative to review existing incentive regime granted to investors in accordance with the Industrial Development (Income Tax Relief) Act especially pioneer status. Pioneer Status is a tax holiday granted to qualified (or eligible) industries anywhere in Nigeria and the grant is aimed at enabling such a company achieve significant capital expenditure and returns within its nascent years.
Contrary to the provisions of the Act which provide for the grant of tax holiday for a period of (3) years which may be extended at the end of the initial three (3) years for a period of one (1) year and thereafter for another period of one (1) year or for one period of two (2) years upon satisfactory compliance with certain conditions.
The practice over the last few years has been to grant a 5-year tax holiday at once as against the statutory provision which states that the grant should be for an initial period of 3 years and renewable for an additional (1) year and a final (1) year thereafter, subject to satisfactory performance. The review carried out by the NIPC has thus led to the Federal Inland Revenue Service (FIRS) raising additional assessments on relevant companies for the last 2 years of the 5-year pioneer status hitherto granted. The implication of this is that such companies are bound to pay the taxes due for the 2 year or a longer period for which they had previously been granted pioneer status in contravention of the law.
No doubt madam co-ordinating minister is hungry for money. I do not blame her, but let us cut recurrent expenditure, security vote and stealing, or if you prefer to so call it corruption, first.
What roles do the local content laws play in engineering and interface with construction contract in the oil and gas industry and how practicable is this?
The local content laws have gone a long way in ensuring that the services of indigenous companies are largely utilised in the oil and gas industry. It is important to mention that the Nigerian Content Development Act provides a minimum local content level for engineering and construction services and all contracts in the industry are required to adhere to this standard. Thus, companies submitting bids to render engineering services must demonstrate adequate compliance with the local content requirement under the Act. However, it would appear that notwithstanding the clear provisions of the law and the efforts being put up by the Nigerian Content Monitoring Board, companies still find a way to sidestep the provisions of the Act.
An example is the recent dispute which arose between Lagos Deep Offshore Logistics (LADOL) and Samsung Heavy Industries (SHI) Nigeria Limited. According to LADOL SHI upon obtaining a contract for the building of a Floating Production Storage Offshore (FPSO) in conjunction with LADOL, purported to proceed to manufacture the FPSO outside Nigeria and without the input of LADOL. Although, the court of law did not rule on the matter, as it was settled out of court, it is evident that adherence to the local content law is pertinent to the execution of engineering contracts.
Culled from http://www.thisdaylive.com/articles/an-oil-company-can-transfer-its-assets-in-any-manner-even-where-bidding-is-utilised/203747/?
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