Shipping Crude Oil to and Petroleum Products from Dangote Refinery: Matters Arising

The two articles by Learned Senior Advocate, Mike Igbokwe, bring us up to speed on the recent developments in the Nigerian Maritime space. The first article places emphasis on the need for NIMASA to do the needful, and ensure that the 2% surcharge mandated by the Cabotage Act  is collected from foreign ship owners that carry this domestic cargo, now that cargoes have started to be delivered to the Dangote Refinery, in order to promote the development of indigenous ship acquisition capacity by providing financial assistance to Nigerian operators in the domestic coastal shipping, while the second article highlights the advantages of Order 2 of the newly enacted Admiralty Jurisdiction Procedure Rules 2023

Background

Arise News online reported on 10 January, 2024, that the Nigerian National Petroleum Company Limited (NNPCL) supplied Six million barrels of crude oil to the $20 billion Dangote Petroleum Refinery since December 2023, and will supply it four crude oil cargoes from its February 2024 programme. I commend and congratulate Alhaji Aliko Dangote, GCON, on the successful completion of Dangote Refinery (DR) and the NNPCL for supporting it. DR will have multiplier effects on the Nigerian economy, especially its shipping sector.

Matters Arising 

However, some matters arising, like the compliance with the Cabotage Act 2003 (“the Act”) and NNPCL’s and Dangote’s engagements of ships owned, crewed solely by Nigerians, built and registered in Nigeria, or bare-boat chartered to, or in 60/40% joint venture with Nigerians, in the carriage of the crude oil to, and petroleum products from DR should be addressed. Pursuant to the Act, only vessels wholly owned and manned by Nigerian citizens, built and registered in Nigeria can engage in the transportation of the mineral resources (“coastal trade”) within the exclusive economic zone (EEZ) of Nigeria, which is 200 nautical miles from the baselines. Since the Agbami FPSO from where the crude oil supplied to DR was transported to DR is 70 nautical miles offshore Nigeria and within its EEZ, then the crude oil is cabotage within the meaning of that word in the Act. 

It has been reported that the large ‘Suez Max’ ships engaged in shipping the crude oil to DR are foreign-owned, because no Nigerian owns similar ships. Every foreigner must comply with the laws of the country, in which they does business. So, did the foreign owners of those ships meet the conditions for Ministerial waivers and priority for obtaining, or obtain such waivers, from the Honourable Minister of Marine and Blue Economy, before transporting the cargo to DR as stipulated in the Act? Did the ships meet the conditions to be registered for participation in coastal trade, or were they issued restricted licence by the Minister to participate in coastal trade? Under the Act, a surcharge of 2% of the contract sum performed by a vessel engaged in coastal trade is payable to the Nigerian Maritime Administration and Safety Agency (“NIMASA”), to promote the development of indigenous ship acquisition capacity by providing financial assistance to Nigerian operators in the domestic coastal shipping. Did the shipowners pay to NIMASA, the 2% surcharge? If the vessels and their owners did not comply with these provisions of the Act, should the vessels and their owners not be prosecuted under the Act, and if found guilty, be penalised as any foreign country would have done to any Nigerian ship or owner that violates its laws? 

Some Intentions of the Cabotage Act

These are questions worth investigating by NIMASA and the Economic and Financial Crimes Commission, and prosecuted by the Chief Law officer of the Federation, if proven. The lack of political will and determination to enforce the Act that, for years, had deprived Nigerian ship owners and operators of the Lawmakers’ intended benefits of the Act, to the detriment of the Nigerian economy and shipping sector, should now be stopped under the President Tinubu Government. It will save the Nigerian shipowners from extinction, and have multiplier effects on the Nigerian economy. 

The Renewed Hope Agenda of President Tinubu recognises that, because of its size, Nigeria should be a significant maritime player and that its under-utilised waterways should be better used. The Act sees the local shipping industry as a strategic industry, which, being in its ‘infant’ stage of development and not dominating indigenous shipping operations, seafaring, and ship ownership; in the interest of Nigeria’s economy and national security, requires some guidance, conducive environment, and protection from foreign competition to be nurtured into maturity, and develop through its acquisition and building of necessary capacities to become sufficiently commercially viable. Thus, the industry will first become very strong in and dominate domestic shipping, before venturing into regional or international shipping where it can then withstand competition from the highly subsidised foreign ships.

Other effects of the Act intended by the legislature include cargo support, increased domestic tonnage, financial assistance for ship acquisition, capacity building in the manning, building and ownership of ships by Nigerians, protection of national interest during economic crisis, national emergency, defence and security, increased revenue and conservation of foreign earnings, economic boom, safe shipping and clean marine environment.

The availability of cabotage cargo, is essential to the acquisition and survival of ships by Nigerians. Nigerian shipping companies, will invest in the types of ships that available cabotage will require for its transportation. If their ‘Suez Max’ sized ships will be assured of being engaged to carry the crude and petroleum products to and from DR, Nigerian shipowners can either alone or in joint venture with foreigners on 60/40% basis as allowed by the Act, acquire such large ships. If they lack the capital to acquire such Suez Max ships, Nigerian shipping companies that have the NNPCL/DR crude and petroleum products contracts, can charter them on bareboat basis. The Cabotage Vessel Financing Fund created by the Act should be immediately disbursed to indigenous shipping companies, to enable them acquire ships. The Minister should not wait until the twilight of the Tinubu Administration before attempting to disburse the Fund, as was done in 2023 during the Buhari Administration. As charity begins at home, NNPCL as the crude supplier, and DR, as the products supplier, should encourage and support Nigerian shipowners by engaging them to carry such cabotage cargo, so they can grow. It is not enough to say that, Nigerians do not have the capacity to own or run such large ships. They can build such capacity, if given the opportunity to carry the cargo.

Related to the above matters is the old argument that Nigerian shipowners and their ships are not allowed to transport NNPCL’s crude oil to foreign nations, because of the trade terms of lifting NNPCL’s crude oil and P & I coverage. In my opinion, NNPCL and Nigerian shipowners and their associations, can negotiate and agree on mutually beneficial terms of carrying the crude oil within our coasts in the interest of Nigerian economy, its shipping industry and in support of the Renewed Hope Agenda.

Admiralty Jurisdiction Procedure Rules 2023: Innovation

Order 23 rule 3 of the Admiralty Jurisdiction Procedure Rules (“AJPR”) 2011 provided that, the Chief Judge shall designate the Divisions of the Court where the Registry shall be located. However, Order 2 rule 1 of the recent AJPR 2023, made by the Chief Judge of the Federal High Court (“the CJ”) states that the CJ shall establish Admiralty Divisions for the Court. Order 2 rule 2 of AJPR 2023, stipulates that the CJ shall designate Judges as Admiralty Judges, while rule 3 of the same Order provides that the CJ shall issue directions to establish the Admiralty Registry of the Admiralty Division of the Court.

In interpreting statutes, where the word ‘shall’, has been used in a statute by a Lawmaker, it is regarded that the Lawmaker intends the power or duty to be mandatory and not discretionary. This is the first time since the first AJPR was enacted in Nigeria in 1993, that by the AJPR, the CJ will go beyond merely designating the Divisions of the Federal High Court (“FHC”) where Admiralty Registry shall be located, and make it mandatory for the CJ to establish Admiralty Divisions, designate Judges as Admiralty Judges, and establish the Admiralty Registry for the FHC.

Advantages of the New Order 2 AJPR 2023 

The Nigerian Maritime Law Association that prepared a draft copy of the AJPR 2023 for consideration and use by the CJ and Admiralty Practitioners, had for a long time been clamouring for the establishment of such Admiralty Divisions with Judges that are trained and/or experienced in Admiralty law as Admiralty Judges, to hear and determine Admiralty matters, and a strictly separate Admiralty Registry to serve them. This is to ensure quick and fair hearing and determination of Admiralty matters which universally require expeditious hearing and determination, due to the huge commercial claims and assets (ship, cargo freight etc) they involve. It will also prevent designated Admiralty Judges from being seconded to Election Petition Tribunals as has often been the case, thereby stalling the quick and urgent conclusion of Admiralty matters that have been creating losses to parties and reducing resort to FHC for the determination of Admiralty matters. 

With the use of the word ‘shall’ in Order 2 AJPR, 2023, the CJ has made it compulsory for him to establish Admiralty Divisions, designate Admiralty Judges and create a separate Admiralty Registry for the FHC, failing which he can be sued by any stakeholder to compel him to do so. 

Kudos to the CJ, FHC

I give kudos to the CJ for this great innovation, which will quicken Admiralty justice delivery in Nigeria. I believe that it will send good signals to foreign investors and foreigners, that Nigeria, (or indeed the FHC), is ready to expedite the resolution of maritime disputes, and that it is needless for them to be resorting to foreign jurisdiction clauses and anti-suit injunctions to prevent admiralty disputes/claims from being resolved/entertained by the FHC in Nigeria.

I also hope the Chief Justice of Nigeria as the Head of the Judiciary, will respect the rules and discourage the appointment as members of Election Petition Tribunals, any designated Admiralty Judge. Since the AJPR 2023 commenced on 18 May, 2023, I urge the CJ to quickly implement Order 2 of AJPR 2023.

Mike Igbokwe, SAN