Category: General News

In 2022, Benson Akunya, our litigation partner of considerable years, recorded a number of milestones in our core practice areas and we have the pleasure of announcing his appointment into the firm’s Regional Litigation Projects Group (RLPG). Benson Akunya continues to make substantial inroads in expanding the firm’s core practice areas of litigation, arbitration and dispute resolution, demonstrating the firm’s renewed focus on the firm’s strategic growth priorities in Nigeria and the African region.

This appointment has been characterised by his hard work, commitment and professionalism.

THE DECADE OF GAS

On 29 March 2021, the Nigeria International Petroleum Summit (N.I.P.S) Pre-Summit Conference, marked the official launch of the “The Decade of Gas in Nigeria Initiative” in furtherance of the Federal Government initiative that declared January 1, 2021 to December 31, 2030 as “The Decade of Gas Development for Nigeria”.

 At a time of rising global demand for cleaner energy sources this has been viewed as a bold statement that gas development and utilization should be a national priority to stimulate economic growth, further improve Nigeria’s energy mix, drive investments, and provide the much-needed jobs for Nigerian citizens and eliminating energy poverty, currently affecting about 40% of the population.

The commitment to developing the gas value chain by reviewing and gazetting policies and regulations to enhance operations in the sector had been commenced under the National Gas Policy (2017).

RECENT GAS DEVELOPMENTS

Developments have been made in recent years in gas infrastructure development.

The Nigerian National Petroleum Company Ltd is currently deepening natural gas utilization to reduce energy poverty through the National Gas Expansion Programme and intensifying the use of petrochemicals.

The NNPC has also upscaled efforts in the gas sector through various projects like the Nigerian Liquefied Natural Gas NLNG Train 7, Ajaokuta–Kaduna–Kano Natural Gas Pipeline (AKK), OB3 and ELPS among others. The (NLNG) project since delivering its 1st LNG cargo in October 1999 continues to be the Federal Government’s arrowhead in the reduction of gas flaring in Nigeria and contributes about one per cent to Nigerian GDP, having generated $114 billion in revenues over the years, $9 billion in taxes, $18 billion in dividends to the Federal Government and $15 billion in Feed gas Purchase.

The NNPC is also expanding and integrating both domestic and regional power grids and growing the domestic gas markets through Autogas/Compressed Natural Gas/Liquified Petroleum Gas to power vehicles.

On Wednesday, February 2, at the 2022 Nigeria International Energy Summit (NIES) held in Abuja, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) newly created under the Petroleum Industry Act (2021) revealed that Nigeria’s proven natural gas reserve had risen to 209.5 Trillion Cubic Feet (TCF) as of January 1, 2022. The new figure represents a major increase of 2.97 TCF in proven natural gas reserves, which, of itself, represented a 1.42 percentage increase from the 206.53 TCF recorded on January 1, 2021.

Such growth, together with the prospects for continued increase, come at the most auspicious moment, given the possibility of buying into the current European need for alternative sourcing of gas.

In January 2002, the idea of a Trans-Saharan Natural Gas Pipeline that was first mooted in the 1970s, came alive when the Nigerian National Petroleum Corporation (NNPC) and the Algerian national oil and gas company, Sonatrach, signed a Memorandum of Understanding for preparations of the project. Aimed at enabling Europe to tap into West Africa’s abundant natural gas supplies, the pipeline included the northernmost Nigerian neighbouring country of the Republic of the Niger for two excellent rationales. The pipeline was going to link through its borders to get from Nigeria to Algeria and it was expected to boost exploration in Niger and expand its energy industry. The 4,128-kilometre pipeline, with 1,037 kilometres in Nigeria, 841 kilometres in Niger, and 2,310 kilometres in Algeria, and a capacity of 30 billion cubic metres of natural gas per year, will connect the Warri region in southern Nigeria, through the length of Niger to the town of Hassi R’Mel in northern Algeria, where it will connect to existing Trans-Mediterranean, Maghreb-Europe, Medgaz, and Galsi Pipelines, allowing Europe to tap into West Africa’s abundant natural gas reserves and diversifying its supply.

RUSSIA-UKRAINE CONFLICT

Russia’s invasion of Ukraine has opened up opportunities for gas rich nations in Africa to tap from the multi-billion-dollar market.

 Russia which accounted for about 45 per cent of the Europe’s gas imports and 40 per cent of its entire gas consumption is facing huge economic sanctions as Europe seeks to reduce dependence on their gas by 80 per cent by the end of 2022.

Nigeria has been described as a gas nation with 206.53 trillion cubic feet of proven gas deposit and hopes to use the energy source as its transition fuel.

The scramble for African gas has begun as Italy’s Prime Minister Mario Draghi on Monday, visited Algeria over diversifying gas supply mix. Italy depends on Russia for 40 per cent of gas imports.

Nigeria has Africa’s biggest proven gas reserves and ninth in the world, according to the United States Energy Information Administration.

The Chief Executive Officer of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) newly created under the Petroleum Industry Act (2021), Mr Gbenga Komolafe said, “The situation in Ukraine has actually presented a huge opportunity for Nigeria to occupy the market space in terms of the gas supply. I believe that is possible and as a regulator, we are doing everything possible to ensure that Nigeria is able to fulfil that obligation”.

Nigeria’s Suppression of Piracy and Other Maritime Offences Act, 2019  and the Deep Blue Project aim to ‘prevent and suppress piracy, armed robbery’ and any other unlawful act against a ship, aircraft and any other maritime craft, including fixed and floating platforms.

As Nigeria gets set to deploy the Deep Blue Project to protect its coastal waters, the Nigerian Maritime Administration and Safety Agency (NIMASA) says “piracy will no longer be allowed to thrive”.

The combined effect of these two initiatives is to halt the rising trend of piracy and other illegal acts against maritime traffic. The objective being to enhance the flow of maritime activity in Nigerian waters and the Gulf of Guinea.

 

Nigeria’s Suppression of Piracy and Other Maritime Offences Act, 2019

The Suppression of Piracy and Other Maritime Offences Act 2019 (SPOMO) gives effect to the relevant provisions of the Convention for the Suppression of Unlawful Acts Against the Safety of Maritime Navigation, Protocol for the Suppression of Unlawful Acts Against the Safety of Fixed Platforms Located on the Continental Shelf (SUA) The SUA convention was adopted on 10 March 1988 and entered into force on 1 March 1992. Nigeria ratified his convention.

SPOMO has ended the controversy around whether the crime of sea piracy is defined in any local legislation. The Federal High Court has exclusive jurisdiction to determine matters of armed robbery and other unlawful acts at sea.

Without clear domestic statutes, the prosecution of parties suspected of sea piracy, prior to the law’s enactment, was problematic in Nigeria.

Notwithstanding the purported domestication of the SUA Convention (and its protocol) by section 215(h) of the Merchant Shipping Act 2007 there were doubts about the proper domestication of SUA as required by the Nigerian Constitution.

Section 3 of SPOMO has clarified the position by defining ‘piracy’ as any:

(a) illegal act of violence, act of detention. or any act of depredation, committed for private ends by the crew or any passenger of a private ship or private aircraft and directed

(i) in International Waters against another ship or aircraft or against a person or property on board the ship or aircraft, or

(ii) against a ship, aircraft, person or property in a place outside the jurisdiction of any state;

(b) act of voluntary participation in the operation of a ship or of an aircraft with knowledge of facts making it a pirate ship or aircraft; and

(c) act of inciting or of intentionally facilitating an act described in subparagraph (a) or (b) of this section.

SPOMO is a further illustration of the fact that Contracting states are empowered in accordance with their municipal laws to arrest and prosecute persons, ships or aircraft suspected of committing piracy regardless of whether the pirate or attacked ship flies a foreign flag or has a foreign crew. The definition also covers violent acts committed against property other than ships, such as aircraft and floating and fixed platforms in the Nigerian Exclusive Economic Zone.

Section 4 of SUA lists 18 maritime offences and unlawful acts at sea, which include armed robbery at sea and acts other than piracy committed within Nigeria or its maritime zone. Such acts include:

• the hijacking of a ship, aircraft or fixed or floating platform.
• the destruction or vandalism of a ship, installation, or navigation facility; or
• interference with the operation of a ship, installation, or navigation facility.

Jurisdiction of the Federal High Court of Nigeria

Section 5(2) of SUA the Federal High Court, to the exclusion of all other courts, has jurisdiction to hear and determine any matter under the act.

Some Key SPOMO Provisions

Such provisions include those relating to restitution to owners of violated maritime assets and the forfeiture of proceeds of piracy or maritime offences.

The act also provides that the right of prosecution shall reside in the Attorney General of the Federation of Nigeria; any officer so designated by the attorney General; or the Nigerian Maritime Administration and Safety Agency (NIMASA), with the Attorney General’s consent. These provisions have given rise to genuine concerns about the potential for delays or outright vetoes, due to bureaucratic process or political reasons in the grant by the Attorney General of consent to commence proceedings, which may be very urgent.

 

Deep Blue Project – 2021

Nigeria is investing much of its maritime safety and security hopes in the Deep Blue Project. Initiated by the Federal Ministry of Transportation and Federal Ministry of Defence, it is being implemented by the Nigerian Maritime Administration and Safety Agency (NIMASA), with participation from the Nigerian Navy, Nigerian Army, Nigerian Air Force, Nigeria Police, and Department of State Services.

The Deep Blue Project aims to prevent illegal activities in the Nigerian Exclusive Economic Zone (EEZ), enforce maritime regulations, enhance safety of lives at sea, and prevent illegal activities in the inland waterways. In February, the Federal Government added the Secure Anchorage Area (SAA), off the coast of Lagos, to the areas under the protection of the Deep Blue Project.

The project is designed with three categories of platforms to tackle maritime security issues on land, sea, and air. The land assets comprise the Command, Control, Communication, Computer, and Intelligence Centre (C4i) for intelligence gathering and data collection; 16 armoured vehicles for coastal patrol; and about 600 specially trained troops for interdiction, known as Maritime Security Unit. On air, there are two Special Mission Aircraft for surveillance of the EEZ, one of which was received May 12, with the second expected to arrive soon; three Special Mission Helicopters for search and rescue; and four Unmanned Aerial Vehicles. The sea assets consist of two Special Mission Vessels and 17 Fast Interceptor Boats.

All the assets have been delivered, except one Special Mission Aircraft.

The Deep Blue Project assets would be deployed to prevent pipeline vandalism, oil theft, illegal bunkering, arms smuggling, drug trafficking, human trafficking, and illegal fishing. They would also be deployed for pollution prevention and control in the Nigerian maritime environment.

The project is in line with the country’s total spectrum maritime security strategy, anchored on four pillars, namely, situational awareness, response capability, law enforcement and local partnerships, and regional cooperation.

With crude oil prices remaining robust throughout 2017 and now reaching trading highs of $ 64-$65 per barrel, the international Oil Companies (IOCs) namely ExxonMobil and Royal Dutch Shell Plc (the latter being slightly ahead of the former) are leading other IOCs in global operational profitability and flourishing under current global oil prices.
In the same vein, the Nigerian oil industry seeks to re-position itself, having recovered from the low crude oil price volatility in 2016 punctuated by interruptions to key production sources arising from militant activity in the Niger Delta. The Nigerian government now seeks to attract more investment in the oil & gas sector, improve production activity, currently 1.85 million barrels per day (mbpd) and ensure that the oil sector continues to perform its traditional role of supporting the Nigerian economy.

The 2018 budget was presented to the Nigerian federal legislature on 7 November 2017. The budget proposal presented by the Minister of Budget and National Planning Mr. Udoma Udo Udoma provides that the government plans to fund the budget with N6.6 trillion (approx. $ 18.3 billion) in revenues from various sources particularly the oil and gas sector amongst which signature bonuses (funds paid by oil companies to the Federal Government upon their successful bid for oil blocks in the oil sector) will contribute 1.7% amounting to N112 billion (approx. $ 311m). Such signature bonuses arise from the planned marginal field bid round, in respect of which guidelines were released in September 2017. With 46 acreages on offer. No specific date has yet been fixed for this bid round and it is hoped that a process which has suffered several setbacks in recent years will finally be concluded in late 2017 or early 2018. The outcome of this bid round shall be an important litmus test of the current indigenous appetite for investment in the upstream oil and gas sector.

Further encouraging signs have come from the Nigerian National Petroleum Corporation (NNPC). The NNPC has stated, in endorsement of the 2018 budgetary projection, that the 2018 crude oil national production projection (for Joint Ventures, Modified Carry Arrangement or External Financing, Production Sharing Contracts, Independents, Marginal Fields and Service Contracts) that about 2,298,000 barrels per day is achievable and realistic in view of the renewed security in the Niger Delta. Such projections are based on price scenarios of $35 (low), $45 (medium – the benchmark used for the 2018 budget) and $55 (high)

This outlook is reassuring given the positive global economic growth and the improved compliance with the Organization of the Petroleum Exporting Countries’ (OPEC) current production cuts for 2017, which cap Nigeria’s crude oil production (excluding condensates) to 1.8mbpd. It however remains to be seen, how much of an impact, OPEC’s production caps on Nigeria will have on Nigeria’s 2018 budget projections.

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, has on the back of the budgetary projections and highlighted key aspects of the roadmap policy unveiled in 2016 by President Muhammadu Buhari titled ‘7 Big Wins’ in the oil and gas sector said that the government would begin the implementation of some fiscal policies to generate about $2 billion yearly in the short term and $9 billion in the long term.

The other big wins have been the delivery of zero fuel availability since 2015/2016; exiting the cash call system giving the multinational oil firms more belief in the need to invest in the country (investments which could be in excess of $ 15 billion). Examples of such investments are Agip and Shell’s Zabazaba Deepwater project and Shell’s Bonga extension project. Other big wins are the improved transparency in NNPC’s operations and deeper engagement and resultant stability in the Niger Delta region through the office of the Vice President, the Niger Delta Ministry, the security forces and the Presidency.

In 2018/2019, the government plans to rehabilitate the refineries and end or severely diminish the importation of refined petroleum products and reveal a package of fiscal policies, which will be subject to the Federal Executive Council approval and thereafter transmitted to the federal legislature for requisite legislative backing. The Minister of State for Petroleum Resources has predicted that this will expand federal government income in the short-term by over $2 billion a year and then on to over $9 billion in the long-term.

The federal legislature continues its work, commenced at the beginning of this year (2017) as regards ensure the passage into law of the entire aspects of the Petroleum Industry Governance Bill PIGB (a bill for the establishment of the institutions that will govern the Nigerian oil and gas sector). It is widely understood that the PIGB will need the strong support of the executive arm of the federal government to make it functional for the long-term stability of the oil industry.

The major trend witnessed in the Nigerian Energy and Utilities sector over the last 12- 18 months is increased government intervention through policy and regulation. There has been a focus on strong market regulation and a cost reflective tariff system, as evidenced in the Nigerian Electricity Regulatory Commission’s (“NERC”) new electricity tariff, called the Multi-Year Tariff Order (MYTO 2015) effective from February 1, 2016. The MYTO 2015 eliminates fixed charges and prescribes a robust mechanism which ensures that electricity distribution companies fully meter their consumers and eliminate baseless billing within one year.

Improvements in the performance of the Nigerian power sector in the past 2 years have dramatically increased power delivery by 35% and have bought breathing space for major reforms required to attract the investment needed to transform Nigeria’s power sector. Nigerian national power supply has reached new peaks with a daily average of 4,000 MW being achieved with a significant decrease in major blackouts. The improved service delivery in power has produced savings to Nigeria estimated by industry and infrastructure experts as worth over $1.2bn in a full year.

Nevertheless, the 4,000MW now being generated for Nigeria’s population of 180 million is grossly inadequate. In contrast, Brazil generates 100,000MW of grid-based power for 201 million and South Africa generates 40,000MW for 50 million.

Annual public sector investment averaging US$2bn between 2006-2009 leading to only moderate increases in power supply resulted in the Nigerian Government taking the logical decision to privatise the bulk of its power. This culminated in the execution of Share Sale Agreements and Concession Agreements, signifying the hand-over of power sector assets to 14 Preferred Bidders for 15 of the 17 Companies created out of the Power Holding Company of Nigeria on 21 February, 2013.

The current benefits are the outcome of the establishment in 2010 by the Nigerian government of a Power Programme Support Unit (PPSU) in collaboration with and management by the DFID-funded Nigeria Infrastructure Advisory Facility (NIAF), which is managed by Adam Smith International. The PPSU’s mandate was the rehabilitation of under-performing assets, adding more generating and transmission capacity to the grid, as well as stabilising the network by reducing the alarming number of system collapses. This resulted in the development of a comprehensive rehabilitation plan, with over 10,000 lines of activity, involving repairs and upgrades on plant and equipment across Nigeria, some of which had not been adequately maintained for decades.

However, with average annual per capita power consumption at only 155 kWh, Nigeria ranks amongst the lowest in the world. In contrast to its status as a leading global oil producer. Nigeria’s per capita electricity consumption is 7% of Brazil’s and 3% of South Africa’s. At the same time, at least 50% of Nigerian households have no connection whatsoever to the grid. Self-generation (diesel or petrol generators) in Nigeria is estimated to be 6,000MW.

According to DFID-NIAF estimates, Nigerians and the Nigerian economy pay unduly for the power gap in demand and supply. The poor currently pay more than N80 ($0.38)/kWh burning candles and kerosene, whereas manufacturers pay in excess of N60 ($0.28)/kWh on diesel generation. Meanwhile, everyone else who can afford it pays around N50-70 ($0.24-0.33)/kWh for self-generation. By contrast, grid power, if available, costs between N18 and N23/kWh.

The absence of adequate power is the most significant barrier to economic growth in Nigeria. If the current power situation continues as is until 2020, the Nigerian government estimates that some $97 bn (US dollars) in GDP would be lost every year.

In the wake of Nigeria’s economic recession and the need to provide energy and infrastructure for its teeming population, the Nigerian Government has decided to look past its traditional Western trading partners and look East, more specifically China for trade and investment. This also coincides with China’s commitment to establish a strong trade and economic presence in Africa and invest heavily in the continent.

Nigeria is reported to require US$166 billion to provide energy and infrastructure for its growing population. According to the African Development Bank, Nigeria has an infrastructure deficit of US$300 billion. In fact, overall infrastructure spending (and in turn demand for financing) in Nigeria is expected to grow from US$23 billion in 2013 to US$77 billion in 2025.

With this is view, and the reluctance of Nigeria to increase its’ debt profile to Western Institutions like the International Monetary Fund (IMF) and the World Bank, economic, technical, trade and investment partnerships with other economic giants like China have become imperative. Infrastructure funding from China is hoped will bridge the funding gap (caused by dwindling oil prices and dollar scarcity) and support businesses which now need competitive, cheaper and longer term financing to fund infrastructure and other related projects in Nigeria.

Chinese Infrastructure Investments

Nigeria has secured a US$6 billion loan commitment from China to fund infrastructure projects in Nigeria. The Nigerian government can access this credit facility by identifying and putting forward the relevant projects to the Chinese presumably through a series of tranches in respect of each identified project.

Furthermore, it was reported in April this year that Nigeria and China have entered a currency swap deal. The swap deal is designed to facilitate the settlement of Nigeria-China trade by removing the dollar from transactions and trading instead in yuan, whilst also boosting imports from China, whose exports represent some 80 per cent of the total bilateral trade volume. This deal will also enable Nigeria to diversify its foreign reserves It is hoped that this in turn should reduce the demand for dollars on the Central Bank of Nigeria and improve the value of the Naira.

There have also been various agreements on infrastructure agreements between Nigeria and China. They include:

a. North South Power Company Limited and Sino Hydro Corporation Limited (“SCL”) signing an agreement valued at US$478 million dollars for the construction of a 300MW solar power in Niger State;

b. Granite and Marble Nigeria Limited and Shanghai Shibang signing an agreement valued at US$55 million for the construction and equipping of a granite mining plant;

c. Infrastructure Bank of Nigeria and SCL signing an agreement for the construction of a greenfield expressway for Abuja-Ibadan-Lagos valued at US$1 billion;

d. the signing of a US$2.5 billion agreement for the development of the Lagos Metro Rail Transit Red Line project in Lagos State;

e. the signing of a US$1 billion facility for the establishment of a hi-tech industrial park in Ogun-Guangdong Free Trade Zone in Ogun State.

There are also significant investments in the energy sector as well. In June 2016, the Nigerian National Petroleum Corporation (NNPC) arranged a road show in China to source for investments in the Oil and Gas sector resulting in the signing of a Memorandum of Understanding between NNPC and several Chinese counterparties worth approximately US$80 billion.

Chinese Infrastructure Investment is being driven by “cheaper financing models”. The Chinese through their financial institutions such as the ICBC export credit agencies (like China Exim Bank) and development finance institutions like China Development Bank and China-Africa Development Fund part finance these specified infrastructural projects on the condition that the contractor services are Chinese (mostly state-owned companies). The contract binding the Chinese Contractor and the borrower government is the Engineering, Procurement and Construction Contract (EPC Contract). These loans like most other external loans are guaranteed by a Sovereign Guarantee provided by the Nigerian Ministry of Finance and security is taken, where applicable, over the commodity offtake arrangements.

The implication of this arrangement is that the Nigerian government is bound to execute the contract to which the loan was obtained for. This will go a long way to curb “white elephant” projects and corruption which has long plagued Nigeria. However, the Chinese government benefits massively as Chinese labour, machinery and expertise is exported to other developing countries thereby improving their Gross Domestic Product(GDP).