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Coastal And Inland Shipping (Cabotage) Act (Alteration) Bill, 2021. (HB. 1575) – Marine/ Shipping



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The bill seeks to amend the Coastal and Inland Shipping
(Cabotage) Act 2003 (“the Principal Act”), to include oil
rigs as a vessel, within the meaning of a vessel under the Act, and
subject to every other provision of the Act relating to
vessels.

The major proposal contained in the bill is the insertion of the
words “oil rigs” in the definition of the word
“Vessel” in the Principal Act as including:

“any description of vessel, ship, boat, oil rigs,
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.” (Clause 2 of the bill).

In the Principal Act, a Rig is not specifically listed as a
Vessel eligible for registration1. However, the Schedule
of fees for Waivers, as contained in the Guidelines on the
Implementation of the Cabotage Act (the “Cabotage
Guidelines”)2 lists Rigs as part of the relevant
cabotage vessels.

It is worth mentioning that the Nigerian Maritime Administration
and Safety Agency (“NIMASA”) has always asserted that
Drilling Rigs should be subject to the Cabotage Guidelines.
However, this has been fiercely resisted by upstream operators in
Nigeria who on the other hand contend that Rigs cannot be regarded
as vessels, and to the extent that a Rig is not specifically listed
as a Vessel eligible for cabotage registration in the Cabotage Act,
the inclusion of same in the Cabotage Guidelines is wrongful and
untenable.

The Courts have also attempted to resolve the debate on whether
a Drilling Rig should be considered as a Cabotage Vessel.

In the Seadrill Case3, the
Federal High Court (the “FHC”), held that Rigs fall
within the scope of the definition of vessels under the Coastal and
Inland Shipping (Cabotage) Act, 2003 (the “Cabotage Act”)
and drilling operations constitute coastal trade and cabotage, as
defined under the Cabotage Act. Based on this judgment, the
provisions of the Cabotage Act will now be applicable to Rigs and
offshore drilling operations carried on within Nigerian territorial
waters.

Furthermore, the Court held4 that where drilling
operations are carried out offshore, such activities will fall
within the definition of ‘coastal trade’ and
‘cabotage’ under Section 2(d)5 of the Cabotage
Act. The Court added that the use of the word ‘include’ in
the list of vessels eligible for cabotage registration, as
contained in Section 22(5) of the Cabotage Act, implies that
“similar crafts within the category listed can be allowed
in” and therefore Rigs can be included in the list of Vessels
under the Cabotage Act.

However, a contrary decision was subsequently delivered by the
FHC in the Noble Drilling
Case
6 and the Court of Appeal in the
Transocean case, where it was held that
Drilling Rigs do not fall within the scope of definition of a
Vessel under the Cabotage Act.

Therefore, the bill proposes to settle the contentious issue
surrounding the question of whether drilling rigs should be
regarded as Cabotage Vessels.

Should this bill be passed into law, it would significantly
impact on drilling operations in the oil and gas industry,
especially for the Upstream operators as oil rigs operating on
Nigerian waters will now be subject to the provisions of the
Cabotage Act.

In this regard, some of the critical requirements would include
specific registration of Rigs for cabotage trade at NIMASA;
compliance with the cabotage requirements for Rigs to be wholly
owned and wholly manned by Nigerian citizens, as well as built and
registered in Nigeria; procurement of waivers of the relevant
cabotage requirements where same cannot be satisfied by the
relevant operator; and payment of 2% of the contract sum performed
by Rigs engaged in coastal trade.

Consequently, this bill has significant administrative and cost
implications for offshore drilling operations in Nigeria. In
addition, this would imply that workers injured on an oil rig will
be afforded certain rights and benefits under maritime law.

The bill went through first reading on 15th September 2021.

Footnotes

1. In this regard, Section 22(5) of the
Principal Act provides that vessels which are eligible for
registration include ‘passenger vessels, crew boats, bunkering
vessels, fishing trawlers, barges, offshore service vessels, tugs,
anchor handling tugs and supply vessels, floating petroleum
storage, dredgers, tankers, carriers, and any other craft or vessel
used for carriage on, through or underwater of persons, property or
any substance whatsoever.’

2. The Guidelines, first issued in 2003
and subsequently revised in 2007, was issued by the Minister of
Transport pursuant to his powers under Section 46 of the Cabotage
Act.

3. Seadrill Mobile Units Nigeria Limited
v The Honourable Minister for Transportation & 2 Others, Suit
No. FHC/L/CS/607/2016. Judgment in this matter was delivered on
June 14, 2019.

4. In arriving at its decision, the court
sought to answer the following questions:

  1. Whether on a proper interpretation of the Cabotage Act –
    particularly Sections 2, 5 and 22(5) – drilling rigs fall
    within the definition of ‘vessels’ under the Coastal and
    Inland Shipping (Cabotage) Act, 2003; and

  2. Whether on a proper interpretation of the Cabotage Act,
    particularly Sections 2, 5, 22(5), drilling rigs fall within the
    definition of ‘vessel’ under the Cabotage Act.

5. Section 2(d) of the Cabotage Act
provides that ‘coastal trade’ or ‘cabotage’ means
the ‘engaging, by vessel, in any other marine transportation
activity of a commercial nature in Nigerian waters and, the
carriage of any goods or substances whether or not of commercial
nature within the waters of Nigeria.’

6. In the 2008 case of Noble Drilling
(Nigeria) Limited v NIMASA & The Minister of Transportation
(FHC/L/CS/78/2008) the FHC held that a Rig cannot be regarded as a
Vessel considering that it is incapable of marine navigation as
required in the definition of a Vessel under the Cabotage Act.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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