The  establishment of the  Coastal and Inland Shipping(Cabotage) Act
2003 (the Act)  to restrict the use of
foreign vessels in inland and coastal shipping trade and promote the
development of Indigenous man power in the Nigerian maritime industry. Under the
Cabotage Act, only Nigerian-built vessels wholly owned and manned by Nigerian
citizens may engage in coastal trade or cabotage within Nigerian waters.
Foreign vessels or tugs cannot tow within Nigerian waters except when rendering
assistance to persons, vessels or aircraft in danger or distress. Nigerian
waters include coastal, territorial and inland waters, and islands or waters
within the Nigerian Exclusive Economic Zone of Nigeria.

Hon, Emeka Ihcdioha and Hon.
Ifcanyi Ugwuanyi of the Federal House of Representative sponsored a bill to the
legislative house for the amendment of the Act. This bill is an obvious
reaction to the pronouncement of the Nigerian Federal High Court; Lagos
Division recently issued its decision in “Noble Drilling Nigeria Limited v
Nigerian Maritime Administration and Safety Agency”. 

Fact Of the Case

The Plaintiff, Noble Drilling
(Nigeria) Limited, an offshore drilling contractor operating in the Nigerian
oil and gas industry, was of the opinion that its activities within Nigerian
territorial waters (drilling operations) did not amount to “coastal trade” or
“cabotage” as defined under the Cabotage Act. The Plaintiff sought a
determination from the court on the questions of whether drilling operations
fall within the definition of the “coastal trade” or “cabotage” under Section 2
of the Cabotage Act; whether, upon a proper interpretation of the Cabotage Act,
drillings rigs fall within the definition of the ”vessel”; and whether the
Minister of Transportation acted ultra vires his powers under the Cabotage Act
to make regulations by including “Rigs” under the classification of vessels to
be subject to waiver fees in the Guidelines on Implementation of Coastal and
Inland Shipping (Cabotage) Act 2003; revised and issued in April 2007 (the
Guidelines). The Defendants on the other hand contended inter alia that the
definition of the word “ship” or “vessel” includes a drilling rig and so the
use of a drilling rig in the coastal trade or cabotage is as defined in Section
2 of the Cabotage Act. They also contended that since drilling rigs carry oil,
mud and other substances from the sea bed to the surface, they are vessels
within the contemplation of Section 2(a) and 2(d) of the Cabotage Act. The
decision of the court was greatly influenced by the definition given to the
word “vessel” in the Cabotage Act. Under Section 2 of the Cabotage Act, a
vessel is said to include “any description of vessel, 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;” In this case, the court stated that
the Defendant failed to show that a drilling rig is “designed, used or capable
of being used solely or partly for marine navigation for the carriage of
persons or property through, on and under the water” and so a drilling rig
could not be a vessel.

Furthermore, the court was quick
to point out that drilling rigs were not expressly mentioned as one of the
vessels eligible for registration under Section 22(5) of the Cabotage Act and
that the phrase “marine navigation” is crucial to the definition of a vessel
under Section 2 of the Cabotage Act. In reaching it conclusion, the learned
judge went on to state that the process of navigation was a horizontal movement
and so a drilling rig that exist solely to move crude oil from the oil well to
the surface of the sea cannot be termed a vessel within the purview of the
Cabotage Act as its operation amounts to a vertical movement of goods (crude
oil). In addition, the court held that the listing of rigs under the caption
“Foreign vessels” in clause 9.1.1 of the Guidelines issued by the Minister of
Transportation in April 2007 was wrongful on the ground that a drilling rig did
not fall within the definition of a “vessel” under Section 2 of the Cabotage
Act. The court however held that the Minister of Transportation did not act
outside his powers to make regulations under Section 46 of the Cabotage Act
with regards to the provisions on “Rigs” in the Guidelines.

Proposed Amendments to the
Cabotage Act

The proposed amendments include:

1)            Section 2(a) of the Act is replaced with “The carriage of
persons or goods by vessels from any place in Nigeria to any place above or
under Nigerian waters to any place in Nigeria, or from any place above Nigerian
waters to the same place or to any other place above or under Nigerian waters
where the carriage of the persons or goods is in relation to the exploration
and or exploitation of the mineral or nonliving resources in or under Nigerian
waters.”

2)            An alteration to Section 2b of the Act i.e the
definition of cabotage that replaces “persons” with “passengers” .

3)            Section 2(c ) of the Act is to be replaced with “The
carriage of persons or goods by vessels from any place in Nigeria to any place
in Nigeria or from a place above Nigerian waters whose carriage of persons or
goods is in relation to the exploration and, or exploitation of the Mineral or
non-living resources in or under Nigeria.”

4)            “Transportation” from the definition of Cabotage in
Section2 (d) of the Act.

5)            An alteration to extend the definition of “place above
Nigerian waters” under the Act to include “pipe rigs”, “FPSOs” and “floating,
storage and offloading platforms(FSO).” Also to expand the meaning of “vessel”
under the Act to include “rigs”, “FPSO” and “FSO”. Furthermore to expand the
list of vessels eligible for registration to include: “rigs”, “FPSO” and“FSO”.

Implications of the proposed
Amendment

It is important to note that the
Cabotage Act provides that vessels must be:

(I) wholly owned by Nigerian
Citizens

(ii) Registered in Nigeria

(iii) Manned by Nigerian citizen;
and

(iv) Built in Nigerian shipyards

Also, a surcharge of 2% of the contract sum performed by any vessel
engaged in cabotage is Payable. The application of cabotage to drilling rigs
and the like will trigger the need for the operators of such vessels to pay the
surcharge together with the 1% Nigerian Content Development Levy and ensure
compliance with the provisions of the Act. This will definitely increase the
cost of doing business for those companies. It is therefore important for the
oil producing companies involved in
drilling operations in Nigeria to proactively evaluate the l implications of
the proposed Amendments.The proposed amendment provides that the utilisation of any vessel in
any marine activity of a commercial nature will be subject to the Cabotage Act
and specifically lists rigs and similar vessels as cabotage vessels.

– See more at: http://legalnaija.blogspot.co.uk/2014/07/the-new-pension-act-hope-for-nigerian.html#sthash.GWMPQtkD.dpuf

Sogo Akinola 

sogoakinola@gbc-law.com 

08166205499

– See more at: http://legalnaija.blogspot.co.uk/2014/07/the-new-pension-act-hope-for-nigerian.html#sthash.GWMPQtkD.dpuf

– See more at: http://legalnaija.blogspot.co.uk/2014/07/the-new-pension-act-hope-for-nigerian.html#sthash.GWMPQtkD.dpuf

– See more at: http://legalnaija.blogspot.co.uk/2014/07/the-new-pension-act-hope-for-nigerian.html#sthash.GWMPQtkD.dpuf