A review of three notable proposed amendments to the Coastal and Inland Shipping Act

1. Proposed Amendments
to
Nigeria's Cabotage Act
Copyright © 2017 Akabogu and Associates,
All rights reserved.

2. 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:
(a) the carriage of goods and services from one coastal point to another point in
Nigeria;
(b) the carriage of goods and passengers in the exploration, exploitation or
transportation of mineral or non-natural resources; and
(c) 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 restricts its applicability to:
(i) vessels wholly owned by Nigerian citizens;
(ii) vessels wholly manned by Nigerian citizens;
(iii) vessels registered by Nigerian citizens; and
(iv) vessels built by Nigerian shipbuilders.
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.

3. 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,
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
(eg, offloading platforms used for drilling).

4. 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".
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.

5. 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.

6. Author
Ngozi Medani (Miss)
Associate
ngozi@akabogulaw.com
Akabogu & Associates
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