Hope for Indigenous Players as House Moves to Amend Cabotage Act

The ongoing amendment of the Cabotage Act 2003 by the National Assembly will reposition the nation’s maritime industry and promises a world of opportunities for local industry players, writes Olaoluwakitan Babatunde

With nearly 900km coastal line and about 10,000km of inland waterways, matched with enormous potentials and opportunities, Nigerian maritime sector is capable of generating at least US$1.6 trillion or about 30 times the nation’s annual oil revenues. This is according to a research by the World Bank. Sadly, the nation has not been able to harness these potentials to adequately benefit from it.

In this light, the Coastal and Inland Shipping (Cabotage) Act 2003 was enacted to help grow indigenous participation and ownership in the shipping industry. The idea is to reserve commercial transportation within Nigerian coastal and inland waters to vessels flying the Nigerian flag, owned and crewed by Nigerian citizens, and built-in Nigeria.

Furthermore, the Act establishes a Cabotage Vessel Financing Fund (CVFF) to provide financial support to indigenous operators interested in ship acquisition. These, it was hoped, would stimulate coastal shipping business and local shipping capacity.

But nearly two decades since the Act came into force effectively in 2004, the expected gains are yet to be substantially realised. Despite slight increase in Nigerian participants since the implementation of the Act, the sector is heavily dominated by foreign operators, especially in the areas of vessel ownership and crewing.

The situation has been blamed, among others, on administrative bottlenecks and loose ends in the Act. The world has since moved on since the enactment of the Act and some provisions of the Cabotage Act no longer reflect present realities. These informed several efforts to identify and correct the shortcomings of the Cabotage regime.

Several committees have been set up with a view to reviewing the implementation of the Act in order to further reposition the sector for economic growth. Among them was the Ministerial Committee on the Review of the Cabotage Law set up in 2008.

The main shortcomings/challenges identified are: unknown number of vessels operating on our domestic waters due to refusal by operators to register their vessels in the special Cabotage Register which has resulted in improper planning, poor monitoring of operators and loss of revenue for the government; contrary to the intentions of Section 9, debit notes appear to have replaced the need for waivers – as foreign vessels are allowed to continue their operations on our waters without restrictions prior to obtaining waiver; inadequacy of the waiver review system as provided for under Sections 9–14, which can be linked to the highly centralised process of obtaining permits, have resulted in proliferation of foreign vessels on the waterways; inadequate penalty regime for non-compliance with provisions of the Act; and restrictive use of the Cabotage Vessel Financing Fund (CVFF).

Regrettably, effort by the 8th National Assembly to amend the Act to address the challenges was not consummated, for although it was passed, President Muhammadu Buhari, however did not sign it into law owing to certain concenrns.

Enter the 9th Assembly
Nonetheless, the 9th National Assembly, particularly the 9th House of Representatives, is not relenting on the quest to amend the Cabotage Act for national good. This informed the “Bill for an Act to Amend the Coastal and Inland Shipping (Cabotage) Act, No. 5, 2003 to Restrict the Use of Foreign Vessels in Domestic Coastal and Inland Commercial Activities, to Promote the Development of Indigenous Tonnage and Establish a Cabotage Vessel Financing Fund; and for Related Matters” sponsored by the Chairman, House Committee on Maritime Safety, Education and Administration, Hon. Lynda Ikpeazu.
Leading the debate on the Bill, the ranking lawmaker recapped the journey to a better cabotage regime.

“Today, we are presented with another opportunity to make significant stride in our shared vision for a maritime domain capable of driving economic growth.
“I say ‘another’ because this is not the first attempt at this all-important amendment. A bold attempt at this was done in the 8th Assembly. In fact, the amendment Bill was passed, but however failed to receive the assent of Mr. President, citing certain reservations as regards the Cabotage Vessel Financing funds.

“This has been addressed in the Bill, as the fund which is specifically set up to build capacity in the sector has been redirected for intended purpose and not to be distributed for the recurrent expenditure of various Government Agencies.

“The Coastal and Inland Shipping (Cabotage) Act (Amendment) Bill, 2020, therefore, aims to address the challenges of the current cabotage regime by adequately and effectively developing and protecting the rights of Nigerians to dominate in the area of commercial transportation of goods and services within Nigeria’s coastal and Inland waterways”, she said.

On specifics, she said: “The key objective of this Bill is to amend the Coastal and Inland Shipping (Cabotage) Act, No. 5, 2003, to promote effective administration of the cabotage regime through the delegation of specific powers of the Minister to the administering agency, i.e. the Nigeria Maritime Administration and Safety Agency; review the current waiver regime to actively limit the participation of foreign owned vessels; expanded coverage with regards to vessels that require registration under the Act; upwardly review of existing penalties for violators of the Act; expansion of the scope of the Cabotage Vessel Financing Fund; and enshrine clearer accountability channel and protection for funds and revenues generated”.

Highlights of proposed amendments
A critical analysis of the Bill shows that Clause 4 of the Bill introduces a new Section 3B. This new Section 3B (2) expressly provides for the delegation of the powers of the Minister to the administering agency to expedite efficient management of the day-to-day administration of the cabotage system.

Part III of the Principal Act, which provides guidance, to the Minister, for the application and issuance of waivers to foreign vessels, touches on the day-to-day administration of the cabotage regime. A delay in this area, which is unavoidable due to the extensive portfolio of the Minister generally translates to foreign vessels operating unchecked in the guise of waiting for approval and the Nigerian people being continuously edged out of operations on one hand; and on the other hand, loss of revenue for the government.

Still on the issue of waivers, Clause 6 introduces a new Section 12B, which provides a timeframe for the approval or refusal of an application for waiver. That way, a decision on a waiver application must be reached and communicated to the applicant between 7 and 14 days. This time limit is very critical to the effective administration of the Cabotage Act

Clause 7, on its part, effectively amends Section 22(5) of the Principal Act by expanding the Act’s coverage with regards to vessels that require registration. This is to ensure that specific vessels carrying out commercial activities within our maritime domain are adequately covered.
To this end, the Bill precisely requires the registration of drilling rigs, mobile off-shore drilling rigs, Seismic survey vessels, Floating production, storage and offloading platforms, amongst other. This will effectively improves the revenue generating capacity of the government.

Clauses 9, 10, 11 and 12 amends Sections 35, 36, 37 and 40 of the Principal Act by increasing the penalties for the contravention of specific provisions. A good example is the penalty for contravening Section 21 as stated in Section 35(1)(b) (operating without a licence), which has been increased from N15,000,000.00 (Fifteen Million Naira Only) to N250,000,000.00 (Two-Hundred and Fifty Million Naira Only). Furthermore, in the Principal Act, an infringement of Section 40 (contravention of any provision of this Act, where no specific amount has been previously stated) curently carries a fine of N500,000.00 (Five Hundred Thousand Naira Only). But the Bill proposes an upward review of the penalty sum to N5,000,000.00 (Five Million Naira Only). These upward reviews reflect prevailing realties and will importantly serve as strong deterrents to breach of the law.

Clause 13 amends Section 42 of the Principal Act by expanding the scope and purpose of the Cabotage Vessel and Financing Fund such that the purpose of the Fund, currently limited to ‘indigenous ship acquisition’, will now also cover ship building, ship repair, and capacity development, thereby opening up access to funding and more avenues for indigenous participation.

It is noteworthy that the Director-General of the Nigeria Maritime Administration and Safety Agency (NIMASA), Dr. Bashir Jamoh, alluded to this need for expansion in 2020 during a public hearing by the Senate Committees on Local Content, Petroleum Downstream, and Legislative Compliance investigating alleged breach of the Cabotage Act of 2003 and the Local Content Act 2010 leading to influx of foreign vessels into Nigeria downstream sector.

“Ship owners shouldn’t wait and be talking only about ship. We have not less 2,400 vessels coming to the Gulf of Guinea in a year. 70 per cent of these vessels are coming to the Nigerian shore. Where do they do bunkering? Certainly not in Nigeria. The bunkering is being taken out by foreign companies or our neighbouring countries. Secondly where do they repair their vessels? The ship maintenance industry is down. So, the ship owners have to look at that”, he argued.

Meanwhile, Clause 14 amends Section 44 of the Principal Act by directing that Funds be deposited with the Central Bank of Nigeria as opposed to the previous practice of depositing with commercial banks. This provision promotes probity and accountability, and safeguards the loss of funds, while effectively bringing the law in congruence with the Federal Government Treasury Single Account Policy.

Imperatives of Presidency’s, stakeholders’ cooperation
Having passed the Second Reading in the House, it is now up to the industry stakeholders, the Civil Society, and other interested Nigerians to step forward with more ideas to strengthen and prime up the Bill, and ultimately the cabotage regime, with a view to building a more virile, lucrative, and well harnessed maritime sector. And having addressed the concerns of the presidency that lead to the veto of the Cabotage Act Amendment Bill passed by the 8th National Assembly, it is expected that the Presidency not only participates actively in all the process, thereby sharing its concerns ab-initio, but also ultimately lends its signature to the Bill when eventually passed by the National Assembly.
As Hon. Lynda Ikpeazu puts it “A periodic review of the Cabotage Act to ensure that it is in tune with current realities, and above all, protects the rights of Nigerian operators, has become exceedingly imminent”.