Category: Legal Services

REGULATORY COMPLIANCE ENFORCEMENT – IS IMPOSITION OF FINE HARMFUL?

 

The current government of President Muhammad Buhari rode into power on the mantra of change. Given the record of the president when he was a military head of state, many indeed anticipated change immediately APC was declared the winner of the last presidential election. Right before the new government set any policy direction or appointed new ministers, change was being felt all over the country; in anticipation of what actions the government would take. For example, there were sudden improvements in the performance and accountability in some sectors such as power, Petroleum, among others in what was attributed to the reading of the President’s body language. It was not therefore totally unexpected that there would be improvement in enforcement of regulatory compliance by various regulating agencies and their personnel. What came as a surprise is the gusto with which these agencies are now performing their roles and the extent of penalties they are willing to impose on violators? This is especially so, given the era of impunity that was the hallmark of the immediate past administration.

Recently, Telecom giant MTN Nigeria was fined a record $5.2bn (approximately N1.04 trillion) by Nigerian Communications Commission (NCC). According to NCC, MTN was fined for non-compliance with a deadline set by the NCC for all GSM operators to disconnect all non-registered sim cards. Also recently, a fine of US$5million was imposed on Guinness by National Agency for Food and Drug Administration and Control (NAFDAC) over expired raw materials allegedly found in its warehouse. Also, in line with its threat to sanction commercial banks that failed to comply with the federal government’s directive on the remittance of government revenue to the treasury single account (TSA), the Central Bank of Nigeria (CBN) fined some of the county’s first generation banks – First Bank of Nigeria Limited and United Bank for Africa Plc. reportedly in the sum of about N4.8billion in total.

This new mood of regulatory compliance enforcement has somewhat become controversial and subject for debate on its desirability or otherwise.

MTN’s $5.2 billion fine adds up to nearly a quarter of Nigeria’s national budget for 2015 and it has come at a time when the country needs it most, thanks to the fall in oil prices. Therefore some have argued that the motive for imposition of fines, especially such huge fine imposed on MTN, is more about fund-raising rather than to sanitise the sectors concerned. There were therefore calls on government to reduce the fines or cancel them outrightly. The counter-argument is that the imposition of fines are necessary to send the message that laws and regulations are meant to be obeyed and complied with. Regulators should demonstrate that they could also bite.

Some are also concerned that imposition of huge fines may discourage foreign investors thereby reducing Foreign Direct Investment (FDI). They argue that it will increase the cost of doing business in the country. Some even argue that such imposition casts Nigeria as being desperate. One of those opposed to huge fine is a popular Senator, Ben Murray- Bruce. According to him “ the extent of the fine by the Nigerian Communications Commission is such that it sends a very wrong signal to foreign investors and gives them the impression that Nigeria is in a desperate financial situation due to the sudden drop in crude oil prices and wants to get alternative revenue by any means necessary”.

To my mind, imposition of fines and any other sanction prescribed by any enactment are logical consequences of non-compliance with the law. What is important is for the regulation to be clear on what an infringement is and the consequence of that infringement. Where a fine is to be imposed, the regulation should be sufficiently clear on how the fine is to be computed. Once, the regulation is clear on these aspects, it will be manifestly fair on all concerned when a fine is imposed, even if huge. What is imposed should therefore be paid, unless reversed in line with the law. Everyone should be seen as equal before the law, the weak and the strong, the big multinational and the artisan.

However, despite the availability of clear and fair justification for fine imposition, other overriding factors may compel a second look at what is being imposed. For example, issues such as national security, economic impact, sectorial distabilisation, national interest may warrant a need to outrightly cancel or reduce fine imposed. Indeed, the NCC went on to reduce the fine imposed on MTN by 25%.

Some were aggrieved about the NCC’s decision to reduce the fine and have described it as a violation of a fundamental human right and a breach of some sections of the Nigerian constitution. However, the NCC has defended itself by stating it had had cases in the past where organisations pleaded for leniency on their sanctions and the commission took this into consideration. In the case of reducing MTN’s fine, the commission stated it weighed the pros and cons, focusing heavily on the need to ensure stability in the telecommunication sector. “After considering the operator’s admission of guilt, noting their huge investment in the country, the large subscriber base it holds and Nigeria being its largest market, the decision to arrive at the reduction was not too difficult”, said the Director of Public Affairs for the NCC, Mr Tony Ojobo.

To avert a situation where such cancellation or reduction could be seen as being against the law, the relevant enactment should have a provision that gives the regulator discretionary power to reduce or cancel fines. This will allay the suspicion of arbitrariness on the part regulators and those in power.

 

 

 

ENFORCEMENT OF INTERNATIONAL ARBITRATION

 

International commercial arbitration as defined in chapter 1, Sections1 (3), 1(4)UNCITRAL Model Law as :

“(3) An arbitration is international if:

  • The parties to an arbitration agreement have, at the time of conclusion of

That agreement, their places of business in different states; or

  • One of the following places is situated outside the state in which the parties their places of business…
  • The parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.

It could also arise from a legal relationship which must be considered commercial where either of the parties is a foreign national or resident or a foreign body corporate, company, association or body of individuals whose central management or control is in foreign hands. Thus, under the Nigerian law, arbitration with a seat in Nigeria but involving a foreign party will also be regarded as international commercial arbitration.

The willingness of Nigerian courts to enforce foreign arbitration awards and the ease or difficulty of doing so and the likely timescale of the process of enforcement are issues of immense concern to any foreign person wishing to enforce an arbitral award in Nigeria. This is the focus of this article.

Foreign arbitral awards can be enforced in Nigeria through five principal ways, namely:

(a) By an Action upon the award

In Toepher Inc. of New York v. Edokpolor (trading as John Edokpolor & Sons) [1965] All N.L.R. 307, the Nigerian Supreme Court held that a foreign arbitral award could be enforced in Nigeria by suing upon the award, even where there is no reciprocal treatment in the country where the award was obtained. To succeed in the action, the plaintiff must prove the existence of the arbitration agreement, the proper conduct of the arbitration in accordance with the agreement, and the validity of the award.

The defendant may, however, resist the enforcement of the award by challenging the award, the conduct of the arbitration or the jurisdiction of the arbitral tribunal. However, the defendant cannot rely on misconduct or impartiality on the part of the arbitral tribunal, for those points can only be taken on an application to set aside the award. In Nigeria, this procedure could take about a year or more to conclude.

(b) By registration under the Foreign Judgment (Reciprocal Enforcement) Act 1990
Under the Foreign Judgment (Reciprocal Enforcement) Act 1990, a judgment or award obtained in a foreign country may be enforced in Nigeria within six years of the judgment or award.

The judgment or award would have to be registered first in a Nigeria court with jurisdiction to hear the dispute. The judgment must be final and conclusive as between the parties and there must be payable sum of money, not being a sum payable in respect of a fine or other penalty. However, only countries, which accord reciprocal treatment to Nigeria, as designated by the Minister of Justice, would be recognized. Under Section 6 of the Act, the registered award or judgment may be set aside on the application of the defendant if the court is satisfied that:

• the Act has not been complied with, or
• the original court had no jurisdiction, or
• the judgment was obtained by fraud, or
• that the enforcement would be contrary to public policy, or
• on grounds of res judicata, or
• that the rights under the judgment are not vested in the person by whom the application for registration was made.

Ordinarily this is a fast process but of limited application due to the requirement that the award must be for the payment of a sum of money and the judgment must have become enforceable as judgment of a court according to the law of the place where it is made. If the registration is challenged, the process may become prolonged up to a year or more.

(c) Under Section 51 of the Arbitration & Conciliation Act, 1990

Section 51 of the Arbitration and
Conciliation Act, 1990 provides that:

“(1) An arbitral award shall, irrespective of the country in which it is made be recognized as binding and subject to this section and section 32 of this Act, shall, upon application in writing to the Court, be enforced by the Court.
(2) The party relying on an award or applying for its enforcement shall supply (a) the duly authenticated original award or a duly certified copy thereof; (b) the original arbitration agreement or a duly certified copy thereof (c) where the award or arbitration agreement is not made in the English language, a duly certified translation thereof into the English language.”

Section 52 provides a list of grounds for refusing recognition or enforcement which are similar to the ones mentioned in (b) above. These grounds could also be a hindrance to an otherwise very expeditious method of enforcement.

(d) Enforcement under the New York Convention 1958

The New York Convention on the Recognition and Enforcement of Foreign Arbitral Award 1958 applies in Nigeria by virtue of section 54 of the Arbitration and Conciliation Act 1990. Nigeria has made reciprocity reservation and so only awards made in contracting states that undertake to recognize and enforce awards made in other contracting states, including Nigeria, will be recognized and enforced in Nigeria.

(e) Enforcement under the International Centre for Settlement of Investment Disputes (ICSID)

Nigeria ratified the ICSID Convention on 23 August 1965. In pursuance of its commitment to domesticate the ICSID Convention, the convention was re-enacted as a local legislation vide the International Centre for Settlement of Investment Dispute (Enforcement of Awards) Act, cap 19 Laws of the Federation of Nigeria 1990. The Act provides that an ICSID award shall be enforced in Nigeria as if it were an award contained in a final judgment of the Supreme Court if a copy of such an award, duly certified by the Secretary General of the Centre is filed in the Supreme Court by the party seeking its recognition and enforcement. This is perhaps the fastest procedure in Nigeria for enforcing an arbitral award as there is little or no room for objections to the enforcement of the award.

 

The Nigerian Gas Conundrum

Nigeria is a well-known leading oil producer and a key member of the Organisation of Oil Producing and Exporting Countries (OPEC). It is the highest oil producer in Africa and the sixth in OPEC. Nigeria currently produces about of 2.5 million barrels per day. While Nigeria is well known for its abundant oil resources, Nigeria is not as well known for its gas potential. Ironically, Nigeria appears to be more endowed in gas than oil. It is therefore not surprising that the gas sector has recently been receiving increased attention, especially with the dwindling fortunes of the oil business.

Nigeria’s gas reserve is put at around 180 trillion standard cubic feet (SCF). It in the top-10 bracket of the world in terms of its gas reserves and it is the leader in Africa. If its enormous gas potential is properly harnessed, Nigeria is capable of experiencing great developmental strides and growth that should naturally accrue to a country as blessed with so much abundant resources as Nigeria is. To achieve its potential, however, Nigeria has to overcome some critical challenges.

One of the ways of realizing income from gas sales is via Liquified Natural Gas (LNG). As stated in its website, “NNPC’s vision is to make Nigeria the leading Liquified & Natural Gas (LNG) producing nation in the world and to promote sufficiency in the domestic power supply.

“We intend to achieve this goal by monitoring the commercialization of Nigeria’s abundant natural gas reserves, reducing gas flaring, promoting viable LNG projects, power plants and associated gas projects”. This vision is far from being realized.

 

According to the website, The Federal Government has set the following objectives for NNPC as regards Gas production:

  • To monitor and expedite the commercialization and the development of Natural Gas for Domestic and Export markets
  • To protect the Federal Government interest in LNG & IPP ventures
  • To monitor and support all LNG and Independent Power Plants (IPP) ventures
  • To support NNPC Human Resource capacity building
  • To work towards achieving and sustaining “zero” flaring of Associated Gas
  • Promote the Nigerian Content.

Nigeria’s initial foray into the LNG market started with the establishment of the Nigeria Liquified Natural Gas (NLNG) plant. The facility is located in Bonny Island and  currently has six liquefaction trains with a seventh train planned to increase its capacity to more than 30 million tons per year (1,440 Bcf/y). It has enjoyed relative success, in terms of earning revenue for the nation and meeting the objectives of its establishment. However, other planned LNGs such as the Olokola LNG and the Brass LNG Limited are yet to take off and key members have divested, despite initial enthusiasm generated at conception..

Nigeria exports some of its natural gas via the West African Gas Pipeline (WAGP), which began commercial operations in 2011. The pipeline is operated by the West African Gas Pipeline Company Limited (WAPCo), which is owned by a consortium of Chevron, Shell and representatives of interests of Nigeria, Ghana, Benin and Togo. All has not been smooth in this axis too as gas off-takers, have not been meeting their payment obligations. Also, due to the need to satisfy the domestic market and disruption in operational areas in Nigeria, gas demand by the off-takers have sometimes not been met.

In 2009, NNPC signed a memorandum of understanding (MoU) with Sonatrach, the Algerian national oil company, to proceed with plans to develop a 2,500-mile pipeline – the Trans-Saharan Gas Pipeline (TSGP) which would carry natural gas from oil fields in Nigeria’s Delta region to Algeria’s Beni Saf export terminal on the Mediterranean Sea and is designed to supply gas to Europe. Due to various factors, including lack of political will, security concerns along the pipeline route, increasing costs, and ongoing regulatory and political uncertainty, this project is yet to take off.

The development of the Nigerian natural gas sector has been hampered by lack of infrastructure to monetize natural gas. Some associated gas (gas that are produced with oil) is currently flared. The inability of the Nigerian government (represented by NNPC) to meet its cash call obligations to its Joint Venture partners has contributed in large measure to this. Several flare-out targets have been set by the industry, but these have never been met due to non-availability of fund to develop the much-needed gas processing plants and gas pipelines.

The militancy in the Niger Delta area, where Nigeria’s oil and natural gas are produced from has also affected adversely the growth of the gas sector. Constant conflicts between local groups and attack on oil companies by locals seeking a share of the national wealth often lead to field shut-down and declaration of force majure in existing contracts and projects. This has made Nigeria a non-attractive sector for potential investors. Cost of operation due to insecurity has skyrocketed and making investment unattractive.

Uncertainty around legal and regulatory framework has also been the bane of development of the gas sector. In 2008, the government of Nigeria initiated The Petroleum Industry Bill (PIB), to re-organise the oil and gas industry, re-structure the Nigeria National Petroleum Corporation (NNPC) and codify new fiscal terms governing the oil and natural gas industry. Up to this moment, the Bill is yet to be passed into law due to various objections to its provisions by various interest groups. The IOCs are concerned that proposed changes to fiscal terms may make some projects commercially unviable, particularly deep-water projects that involve greater capital spending. The uncertainty created by the non-passing of the Bill into law has dampened enthusiasm and interest in investment in the gas sector.

In the last few years, because of the need to increase its power supply capability, the Nigerian government began to pay attention to the supply of gas for domestic use, especially to power generating plants operating within the country. This has led to imposition of what is termed “domestic gas supply obligation” on gas producers, as part of the new National Gas Master Plan (NGMP). By this, the gas producers are required to reserve certain proportion of their gas produce, for the domestic market. However, due to the very unattractive tariff structure for domestic gas (when compared with international gas prices), producers are very reluctant, to supply gas for domestic needs. Government has seen need to address this disparity between domestic and international gas prices and have started gradual increases of domestic gas prices with the ultimate objective of bringing it at par with the international ones.

With a new government in place, it is hoped that proper focus would be placed on re-positioning of the gas sector as a lever for development of the Nigerian economy. Natural gas and its by-products have the capability of aiding the growth of the other sectors of the economy particularly the power, manufacturing and the agricultural sectors. The new government should re-position the gas sector by tackling the challenges discussed above, as the sector has tremendous potential of facilitating rapid growth of the Nigerian economy.