Oil rig as vessel under the cabotage act 2003 and the cabotage amendment bill 2016

Over the years, the Nigerian maritime industry has witnessed an alarming increase in the rate of uncontrolled and illegal participation of foreign shipowners. This undesirable trend has been detrimental to the industry and necessitated the enactment of the Coastal and Inland Shipping (Cabotage) Act in 2003.

The Cabotage Act was enacted to restrict the participation of foreign vessels in the Nigerian Coastal Trade, to promote the development of local tonnage, to establish a Cabotage Vessel Financing Fund and most importantly to build up local skills and human capacity.

It is unfortunate that to date the Cabotage Act has not produced the desired effect due to the weak drafting as it is bedeviled with various shortcomings. One of such shortcomings of the Act is the failure to expressly include an oil rig as one of the vessels to be subject to the operation of the Act. This position has generated a lot of controversy which appears to have been taken advantage of by foreign shipowners.

Nigeria as a Maritime Nation stands the chance of losing about $2,000,000,000 (2 Billion Dollars) of revenue through complex taxes and rates that oil rigs and drilling operations are charged if urgent reform is not implemented and steps are not taken in the right direction.

Presently, there is a Bill pending before the National Assembly which has the aim of amending the Cabotage Act. This article will focus mainly on the Bill to Amend the Cabotage Act with emphasis on Section 13 (definition section) of the Bill to Amend the Act.

THE CABOTAGE ACT 2003

The Cabotage Act was enacted with the aim of enhancing the participation of indigenous shipowners in the domestic coastal trade and restricting the use of foreign vessels in engaging in the domestic carriage of goods and passengers within Nigerian coastal waters.

In seeking to enhance the promotion and development of indigenous tonnage in Nigeria’s cabotage trade, sections 3 – 6 of the Act provides that only vessels that are wholly built in

Nigeria, wholly owned by Nigerian, wholly crewed by Nigerians, and registered in Nigeria can engage in cabotage trade.

However, sections 15 – 20 of the Act stipulates that foreign vessels may be permitted to participate in cabotage trade, if the necessary application for a restricted license and waiver has been made to the relevant authority and approved. Section 30 of the Act empowers NIMASA to enforce and implement the provisions of the Act.

The Cabotage Act with all its positive intent and purposes has so far not achieved its objectives due to various drawbacks in the provisions of the Act. One of such drawbacks is the direct failure of the Act to include an oil rig/platform as one of the vessels specifically falling under the operation of the Act. This drawback has generated significant controversy and foreign shipowners have in recent times contested that oil rigs cannot be considered as vessels falling within the operation of the Act which is presently the subject of litigation.

DRAWBACK OF CABOTAGE ACT – FAILURE TO CLASSIFY OIL RIG AS A VESSEL

Section 2 of the Cabotage Act defined a vessel 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”

It is of important to note that section 2 of the Act as quoted above, did not expressly define a vessel as a specific thing. Rather, it simply identifies certain requirements for determining what could be regarded as a vessel for the purposes of the Act. Interestingly, foreign shipowners are aware of the failure of the Act to classify a particular thing as a vessel and have advanced this position for arguing that an oil rig is not a vessel under the Act.

However, it is posited that the argument of the foreign shipowners cannot be sustained. This is because a close scrutiny of section 2 of the Act reveals that a crucial requirement for determining that a thing can be regarded as a vessel under the Act is that such a thing must have been described as a vessel. In other words, any available description of a thing as a vessel will render

such a thing to be recognised as a vessel under the Act. Given this position, it is important to identify those laws that have expressly described an oil rig as a vessel which provides a premise for arguing that oil rigs are subject to the operation of the Act.

LEGISLATION CLASSIFYING OIL RIGS AS VESSELS.

It is of importance to note here that there is local legislation expressly describing an oil rig as a vessel/ship. These legislation are outlined below;

i. The MERCHANT SHIPPING ACT (MSA) 2007

The MSA 2007 expressly included oil rig/platform in its definition of a vessel. Section 337 of the Act provides that a “vessel” means “any ship, craft, machine, rig or platform whether capable of navigation or not which is involved in a collision”.

ii. ADMIRALTY JURISDICTION ACT (AJA)

The AJA defines a Ship to mean “a vessel of any kind used or constructed for use in Navigation by water, however it is propelled or moved and includes; A barge, lighter or floating vessel, including a drilling rig, a hovercraft, an offshore industry mobile unit, and a vessel that has sunk or is stranded and the remains of such vessel, but does not include a vessel under construction that has not been launched

iii. THE NIGERIAN MARITIME ADMINISTRATION AND SAFETY (NIMASA) ACT 2007

The NIMASA Act 2007, expressly described an oil rig as a vessel. Section 64 of the Act provides that a “vessel “ means “any kind of vessel that is used, or capable of being used, in navigation by water, however propelled or moved, and includes: a barge, lighter, floating platforms, restaurant or other floating vessel; and an air-collusion vehicle; or other similar craft that is used in navigation by water.

It must be noted that Nigeria is not a standalone jurisdiction in describing an oil rig as a vessel as it appears that other maritime countries have also described an oil rig as a vessel. Reference is made below to some countries that have expressly described an oil rig as a vessel.

INTERNATIONAL PRACTICES In the Netherlands, a ‘ships’ or “vessel” is defined as “all objects which, according to their construction, are destined to float and which float or have done so”. This means that all floating offshore structures (including oil rigs) are registered in the Netherlands and fall within Coastal trade.

In the United States of America, under the Jones Act, the following are classified as vessels: ocean-going ships, Tug boats, barges, dredgers, pile drivers, commercial fishing boats, offshore oil platform service boats, oil drilling rigs, Jack-up rigs, Semi-submersible rigs, Drilling ships, Tension leg platforms, and other types of maritime craft. This list practically covers all forms of structure.

In the case of Offshore Co. v. Robison, 266 F.2d 769 (5th Cir. 1959) it was held that a mobile drilling platform was a vessel and that “vessel” had a “wide range of meaning”.

In the United Kingdom, The Merchant Shipping Act defines a “ship” to include every description of vessel used in Navigation”. There is no specific type of vessel mentioned, thus covers all forms of structures. The author of Admiralty & Maritime Law (4th ed. 2004) further buttress this fact by stating emphatically that virtually every type of movable rig or structure qualified for vessel status.

Having established that the description of an oil rig as a vessel is not peculiar to Nigeria but is prevalent in other maritime countries, it is pertinent to consider the position of the Nigerian courts on the matter.

CURRENT CASE LAW ON OIL RIG AS A VESSEL UNDER THE CABOTAGE ACT

The controversy regarding whether an oil rig is to be regarded as a vessel that is subject to the operation of the Cabotage Act has been the subject of judicial consideration.

In the case of Noble Drilling (Nigeria) Limited v The Nigerian Maritime Administration and Safety Agency (“NIMASA”) and The Minister of Transportation – Suit No. FHC/L/CS/78/2008, the Federal High Court was presented with the opportunity of determining whether an oil rig could be regarded as a vessel for the purpose of the Cabotage Act.

The Plaintiff, Noble Drilling (Nigeria) Limited, an offshore drilling contractor, argued that its activities within Nigerian territorial waters (drilling operations) did not amount to “Coastal trade” or “Cabotage” as defined under the Cabotage Act.

The Defendants, NIMASA / FMOT argued that because drilling rigs carry oil, mud and other substances from the sea bed to the surface, they are vessels within the contemplation of Section 2 of the Cabotage Act and that the definition of the word “ship” or “vessel” includes a drilling rig under the Act thereby rendering the use of a drilling rig within the Nigerian Coastal Waters subject to the operation of the Act.

However, the Honourable Court held that the definition of the word “vessel” in the Cabotage Act did not include an Oil rig. The court further placed emphasis on the fact that oil rigs were not expressly mentioned in the Act as one of the vessels to be subject to the Cabotage Act.

It is respectfully argued that the position of the Honourable Court is flawed upon the premise that while the Cabotage Act failed to expressly include an oil rig as a vessel to be subject to the operation of the Act, the list of vessels expressly identified in the Act to be subject to the operation of the Act is neither exhaustive nor a closed list.

It is important to note that the case is presently on appeal and it will be interesting to see the decision which the appellate court will arrive at in its determination of the appeal.

In any event, it is crucial to note that the failure of the Cabotage Act in expressly classifying an oil rig as a vessel appears to have been addressed in the recent Cabotage Amendment Bill presently undergoing consideration at the House of Assembly.

A brief consideration of the Bill is undertaken below.

CABOTAGE AMENDMENT BILL – REMEDYING OIL RIG DEFINITION DRAWBACK

The Cabotage Amendment Bill seeks to make certain amendments to the Act. A notable amendment sought to be made to the Act is in respect of expressly classifying an oil rig as a vessel to be subject to the operation of the Act which will deal with the existing controversy concerning whether oil rigs are to be regarded as vessels.

Section 13 of the Bill provides that:

“Vessel” includes 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 and include rigs, floating, production, storage and offloading platforms (FPSOJ floating, storage and offloading platforms (FPSO);”

The importance of this section of the Bill cannot be overemphasized. The lack of inclusion of an Oil Rig as a vessel has resulted in a number of suits being instituted at the Federal High court. The failure of the Cabotage Act to expressly describe an oil rig as a vessel has also been used by foreign shipowners as an avenue for contesting the statutory powers of NIMASA to levy its statutory fees on the oil rigs employed by these foreign shipowners in their drilling operations. Against this position, a number of foreign shipowners trading within the Nigerian Coastal Waters are refusing to register their oil rigs as required by the NIMASA Act thus denying the Nigerian Government of the required taxes and rates.

It is important to reiterate that Nigeria as a Maritime Nation stands the chance of losing about $2,000,000,000 (2 Billion Dollars) if this is not tackled promptly and accordingly. This is no small sum. The provision of Section 13 of the Bill is therefore welcome as it provides a remedy to the existing drawback in the Cabotage Act represented by the failure to expressly describe an Oil rig/platform as a vessel.

CONCLUSION

The need to pass the Bill pending before the House cannot be overemphasized. The passing of the Bill will help generate lost revenue and further boost our maritime trade, and importantly, it will finally put an end to the unfair exploitation of the lacuna created as a result of the ambiguity of the definition of an oil rig/platform within the operation of the Cabotage Act.

Caroline Tokulah-Oshoma

Associate – Olisa Agbakoba Legal