Notable amendments to cabotage act

Introduction

The National Assembly enacted the Coastal and Inland Shipping (Cabotage) Act in 2003 to enhance indigenous participation in the maritime sector. (1) The act focuses on the development of tonnage and the establishment of a financing fund to bankroll domestic vessel acquisition. With a coastline measuring over 800 kilometres and a wealth of natural resources – including hydrocarbon deposits, zinc, ore, iron and billions of crude oil reserves – Nigeria has numerous global trade opportunities.

The export of its hydrocarbon deposits is beneficial to Nigeria’s economy and, in light of this, the cabotage act has a fundamental role in the advancement of the country’s economy and trade relations.

Background

The existing law provides a relatively broad definition of the term ‘cabotage’, capturing:

• the carriage of goods and services from one coastal point to another point in Nigeria;
• the carriage of goods and passengers in the exploration, exploitation or transportation of mineral or non-natural resources; and
• the operation of a vessel or any other marine activity of a commercial nature – including towage, salvage and dredging – in Nigerian waters in accordance with the Nigerian Maritime Safety and Administration Agency’s (NIMASA) guidelines on implementing the existing law.

The existing law (2) restricts its applicability to:

• vessels wholly owned by Nigerian citizens;(3)
• vessels wholly manned by Nigerian citizens;(4)
• vessels registered by Nigerian citizens;(5) and
• vessels built by Nigerian shipbuilders. (6)

   The existing law provides guidelines on regulating the participation of foreign vessels in Nigeria subject to stringent requirements. For example, Section 15 necessitates the grant of a licence by the minister of transport before a foreign vessel can operate in Nigerian waters.

Section 42(1) of the act establishes the Cabotage Vessel Financing Fund (CVFF), which targets domestic vessel acquisition. Its primary objective is to facilitate indigenous ship acquisition through the CVFF, providing credit facilities to interested Nigerian citizens. Section 43 of the act further provides that the CVFF is financed through “a surcharge of 2% of the

contract sum performed by any vessel engaged in the coastal trade” and “monies generated from this Act including the tariffs, fines and fees for licenses and waivers”, as well as any sum that may be stipulated by the legislature.

With its robust sources of financing, the CVFF arguably bolsters the act’s objective of strengthening indigenous participation in Nigerian shipping.

Shortfalls and proposed amendments

Despite its commendable provisions targeted at developing Nigerian tonnage, the act has shortcomings, which may prevent the achievement of its long-term aims and, as such, the need to review the law has become imperative. Accordingly, the legislature recently proposed the Coastal and Inland Shipping (Cabotage Act) (Amendment) Bill, (7) which significantly amends the existing law.

Grant of waivers by minister

Section 9 of the existing law empowers the minister of transport to waive the requirement of Nigerian ownership of a vessel where he or she is satisfied that “there is no wholly Nigerian owned vessel that is suitable… to provide the services… described in the application”. There is no provision for the minister’s liaison with the relevant maritime agencies (eg, NIMASA) for verification as to the availability of domestic alternatives where there is an application for waiver. Ultimately, this provision encourages the abuse of power and compromises the existing law’s aims.

Section 19 of the bill proposes to resolve this issue, providing that:

“On the receipt of an application for the grant of a waiver to a duly registered vessel on the requirement for a vessel under this act to be wholly owned by Nigerian citizens, the Minister shall within 7 days forward such application to NIMASA, who shall within 30 days of receipt, review the application to ascertain if it fulfils the requirements of this Act and its guidelines and advise the Minister to issue the waiver or otherwise.”

The bill draws NIMASA into the decision-making process of granting a waiver, requiring the agency to review such applications in line with the proposed bill within a defined period. This curtails the wide powers that the minister enjoys at present and creates a role for NIMASA in the decision-making process, which is in line with the cabotage act’s objective.

Definition of ‘vessel’

Section 2(d) of the existing law defines a ‘vessel’ as a:

“ship, boat, hovercraft or craft, including air cushion vehicles and dynamically supported craft, designed, used or capable of being used solely or partly for marine navigation and used for the carriage on through or under water of persons or property without regard to method or lack of propulsion.”

This definition is limited, as several crafts and platforms used at sea are not included (e.g., offloading platforms used for drilling). The constraints of this definition were evident in Noble Drilling (Nigeria) Limited v NIMASA, (8) in which the Federal High Court noted that drilling rigs did not fall under the definition of a ‘vessel’ provided under Section 2 of the existing law.

The court held that the defendant had failed to show that a drilling rig is “marine navigation and used for the carriage on through or under water of persons or property without regard to method or lack of propulsion”. (9)

Section 13 of the proposed bill revises the definition contained in Section 2(d) of the existing law to include “rigs, floating, production, storage and offloading platforms (FPSOs)”. This revision expands the scope of vessels eligible for registration to include floating storage and offloading platforms (FSOs), FPSOs, rigs and any other craft that can be used for the carriage of persons, property or any other substance on, through or under water. As such, it brings structures used in hydrocarbon exploration under the application of the proposed cabotage act.

Maritime security Section 15(f) of the existing law sets a precondition for granting a licence to a foreign vessel by the minister. It provides that:

“Upon application for a licence by a person resident in Nigeria acting on behalf of a foreign owned vessel, the Minister may issue a restricted license for the foreign owned vessel to be registered for participation in the Coastal Trade, where the Minister is satisfied that… the foreign vessel meets all safety and pollution requirements imposed by Nigerian law and any international conventions in force.”

Section 25 of the bill goes a step further, stating that a licence may be issued where “the foreign vessel meets all safety and pollution (and) security requirements imposed by Nigerian law and any international conventions in force” (emphasis added). The effect is that while environmental protection continues to be facilitated, there is now a security obligation to tackle the commission of marine environmental crimes in view of increasing global security concerns.

Comment

The broadening of the scope of a ‘vessel’ is a welcome development in view of the extent of activity in Nigerian waters, especially offshore oil exploration, which is increasing.

Additionally, amending the preconditions for waivers creates a useful level of accountability given that NIMASA has a well-kept database of registered vessels. However, this revision is arguably cosmetic since the agency falls under the ambit of the minister of transport and, as such, this database should ordinarily be accessible and referred to by the minister.

Perhaps a more useful amendment would have been the inclusion of the specific database and industry references that NIMASA must make in ascertaining the availability of such vessels in Nigeria, in addition to provisions which oblige the minister to act in accordance with such NIMASA advice or provide justifiable reasons if acting otherwise.

The proposed bill does not mention the CVFF, despite the fact that it is pivotal to indigenous vessel acquisition. At present, the fund is managed by NIMASA and disbursement entails cooperation with designated primary lending institutions to ensure that accessibility is limited to citizens interested in vessel acquisition.

 To date, the application of the fund remains opaque, with the minister possessing discretion on disbursement after due diligence by the primary lending institutions. The proposed bill should have conferred final decision-making authority on primary lending institutions for the disbursement of loans.

Overall, the amendments are positive. However, they may need further expansion in the course of legislative hearings before the bill’s final passage into law.

For further information on this topic please contact Ngozi Medani at Akabogu & Associates by telephone (+234 1460 55550) or email (ngozi@akabogulaw.com). The Akabogu & Associates website can be accessed at www.akabogulaw.com.

Endnotes

(1) Coastal and Inland Shipping (Cabotage) Act (5/2003), Laws of the Federation of Nigeria.

(2) The abovementioned requirements do not apply to tugs (Section 4), vessels engaged in salvage adventures (Section 8) or vessels saving life at sea (Section 8(2)).

(3) Supra [1], Section 6.

(4) Supra [1], Section 3.

(5) Ibid.

(6) Ibid.

(7) HB529 Coastal and Inland Shipping (Cabotage Act) (Amendment) Bill 2016.

(8) Suit FHC/L/CS/78/2008.

(9) Supra [1], Section 2(d).

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