Understanding NPA’s Termination of Intels’ Contract 

Following the dust raised by last week’s decision of the Federal Government to terminate the boats pilotage monitoring and supervision agreement that the Nigerian Ports Authority had with Intels Nigeria Limited, Eromosele Abiodun looks at the issues that led to the decision. Olaseni Durojaiye provides additional report

Shortly after the current Managing Director of the Nigerian Ports Authority (NPA), Ms. Hadiza Bala-Usman, was appointed by President Muhammadu Buhari, petitions began to flood her desk against Intels Nigeria Limited.  Some of them were written by Intels competitors who claimed Intels collaborated with officials of the NPA and Federal Ministry of Transportation to run them out of business. They accused Intels of being a monopoly and demanded that Bala-Usman review existing contracts so as to give all operators a level playing field. While the NPA under Bala-Usman was yet to meet the demand of Intels’ competitors, another challenge – finance – drove the Bala-Usman led management to begin to search for leakages to plug. Given the barrage of complaints against Intels, the NPA decided to investigate contracts with the company and at the end concluded that there were infractions. As a result, the NPA in early February this year wrote a letter to Intels, threatening to sanction the company  for failing to fully comply with the Treasury Single Account (TSA) while keeping $68,499, 838 (N20.892 billion) NPA money in its custody. In a bid to fight back, Intels wrote a letter to the Chairman Senate Committee on Marine Transport, claiming that the NPA owes it a whooping sum of $840 million out of the $1.29 billion (N395.20 billion) revenue it collected for the agency from January 2010 to September 30, 2016.

For those who don’t know, Intels is a terminal operator and concessionaire of Onne Port, Rivers State. To ensure  safe  passage of ships within Nigeria’s seaports, the NPA, through Intels as its agent, provides pilotage services to guide ships into and out of the ports. The rule of thumb in the maritime industry is that pilotage must be compulsory for all ships of 35 metres overall length or greater unless a valid Pilotage Exemption Certificate is held by the ship master.

In return for the service, ship owners/companies are required to pay a pilotage fee, which Intels collects on NPA’s behalf.

 

 More Allegations

In its reply to Intels letter to the House Committee, the NPA claimed that the jointly reconciled service boat revenue collected by Intels for the period from January 2010 to September 30, 2016 was $1.25 billion. In addition, it said the sum of $41.039 million being revenue for the period October to December 2016 had yet to be reconciled, bringing the total revenue for the period of January 2010 to December 2016 to $1.295 billion.

During the same period, it said Intels remitted a total sum of $343.35 million from service boats revenue collection to the NPA, representing 27 per cent of total service boats revenue collected by Intels on behalf of the NPA. 

The NPA added that the total agency commission to Intels computed in line with executed agreements was $353.066 million (N107.685 billion). This amount, it added, was deemed to have been deducted electronically from service boats revenue by Intels in accordance with subsisting agreement, still credit notes were issued to regularise the deductions.

The NPA claimed Intels was indebted to it in Onne and Warri Ports in respect to rents, lease and throughput fees.

The debt, the NPA revealed, was computed to the sum of $1.03 million (N316.60 million) for lease and throughput fees while debt owed by Intels in respect to rent at Onne was put at N3.343 billion.

NPA added that its only exposure to Intels was limited to the portion of projects costs not yet amortised which is the sum of $682.4 million. 

“This exposure, upon payment does not involve any cash outflow from the Nigerian Ports Authority, “ it stated.

Competent sources told THISDAY that the executed agreement between NPA and Intels provides that the contractor executing various projects shall source funds for the purpose of implementing the projects.

“It was on this recognition that the agreement provides for a finance cost computed at 180 days plus 6 per cent LIBOR and 180 days plus 6.5 per cent LIBOR for some of the projects, “a source told THISDAY.

THISDAY learnt that the NPA was not involved in the negotiation for loans/loan amounts by Intels with financial institutions to appreciate the portions liable to finance cost.

“The NPA pays interest to Intels on interim certificates submitted but not amortised, whereas Intels does not pay any interest on revenue collected which has not been applied for amortisation due to budget ceiling. These unutilised sums are held tenaciously by Intels which is believed to be utilised for construction of some projects for which the NPA suffers financial cost.

“Reconciliations between the NPA and Intels showed no clear distinction between the NPA’s revenue being held back by Intels and the purported loan being sourced privately towards project execution. The NPA suffer from two-edged financial sword of losing huge revenue that negatively affects its liquidity and paying for finance cost that ultimately increases the original contract price, “ a source stated.

 Over a year ago, the NPA, in a letter jointly signed by its former Executive Director, Finance and Administration, Mr Olumide Oduntan and General Manager, Finance, Mr Simon Anobi, and dated June 28, 2016, had  expressed reservations about the non-remittance of revenues collected on its behalf by Intels into the TSA account.

The letter with the title: “Transfer of service boats pilotage revenue accruing to Nigerian Ports Authority to its Treasury Single Account domiciled in Central Bank,” said: “it has been observed that revenue accruing to the Nigerian Ports Authority from service boats pilotage operations is not being remitted into the Authority’s Treasury Single Account domiciled with the Central Bank of Nigeria (CBN). Consequently, we hereby direct that all revenues accruing from Service Boats movement be paid directly to the Authority’s Treasury Single Account sub-account at the Central Bank of Nigeria”

There were series of correspondence between Intels and NPA after this 2016 letter from which culminated in a letter from Intels dated May 5, 2017 at which point  the NPA sought the legal advice of the Attorney General of the Federation (AGF) and Minister of Justice, Mallam Abubakar Malami (SAN).

The request to the AGF, which was through a May 31, 2017 letter signed by Bala Usman with the title: “Request for clarification of conflict between executed contract agreement and federal government Treasury Single Account (TSA) policy,” explained the situation that had transpired between the two organisations since 2010 and efforts made to ensure compliance with the TSA. It concluded by praying as follows: “arising from the observable conflict between the executed Managing Agent Contract Agreement on service boats pilotage operations and TSA policy implementation, the Authority is constrained to humbly seek the professional legal advice of the Attorney General and Minister of Justice on the refusal of Intels to comply with the Federal Government TSA policy”

Before this period, the parties had agreed that the NPA should draft a supplemental agreement. This agreement, presented to Intels through a letter on March 15, 2017, incorporated the TSA requirement and designed a standard operating procedure to guide the relationship between Intels and NPA thenceforth.

The agreement stated that revenue generated on behalf of the NPA in each of its pilotage districts must be paid directly into a TSA account. It explained that these accounts will be available to the NPA and Intels for online viewing only without withdrawals and that there would be monthly reconciliation meetings to determine the level of monthly revenue. The document also committed the NPA to paying interests on any payment made to Intels outside of an agreed seven-day window in answer to concerns the company had raised about delays that may result from operating a TSA account.

Intels however responded in a letter dated March 27, 2017. Addressed to Bala Usman and signed by Andrews Dawes, Intels Chief Executive Officer. In that letter, the company thanked the NPA for its “ongoing engagement and support in reaching a resolution regarding this matter” stating however that it would only accept that payment of 28% as agency commission on service boat revenues and the 30:70 per cent ratio split of the remaining 72 per cent of the collections as indicated in the SOP…subject to the resolution of four issues.

These issues include payments into the TSA account which Intels said would be difficult for it to comply with due to its loan commitments to some banks, the issue of interest rates on loans obtained from banks, reconciliation of outstanding payments on the development of Phase 4B and mechanism for loan repayment.

The inability to resolve these issues amicably forced the NPA management to seek clarification from the AGF.

 

Constitutionality of the Contract

The federal government in response to the NPA’s letter seeking clarification on the issue directed the NPA to terminate the boats pilotage monitoring and supervision agreement that the agency had with Intels, saying that the contract was void ab initio.

Conveying the decision of the federal government to NPA, the AGF,  in a letter dated September 27, 2017 to Bala-Usman, said that the agreement, which had allowed Intels to receive revenue on behalf of NPA for 17 years, violates the Nigerian Constitution, especially in view of the implementation of the Treasury Single Account (TSA) policy of government. 

Drawing the attention of Bala-Usman to the illegality of the agreement, Malami made it expressly clear that the agreement violates Sections 80(1) and 162(1) and (10) of the constitution, and wondered that the parties – NPA and Intels – did not avert their minds to the relevant provisions when they were negotiating the agreement in 2010.

Section 80(1) of the constitution states: “All revenues or other moneys raised or received by the Federation (not being revenues or other moneys payable under this Constitution or any Act of the National Assembly into any other public fund of the Federation established for a specific purpose) shall be paid into and form one Consolidated Revenue Fund of the Federation.”

Section 162(1) states: “The Federation shall maintain a special account to be called ‘the Federation Account’ into which shall be paid all revenues collected by the Government of the Federation, except the proceeds from the personal income tax of the personnel of the armed forces of the Federation, the Nigeria Police Force, the Ministry or department of government charged with responsibility for Foreign Affairs and the residents of the Federal Capital Territory, Abuja.”

While sub-section 10 of the same section states: “For the purpose of subsection (1) of this section, ‘revenue’ means any income or return accruing to or derived by the Government of the Federation from any source and includes: (a) any receipt, however described, arising from the operation of any law; (b) any return, however described, arising from or in respect of any property held by the Government of the Federation; (c) any return by way of interest on loans and dividends in respect of shares or interest held by the Government of the Federation in any company or statutory body.”

In the letter titled: “Request for Clarification of Conflict Between Executed Agreement and Federal Government Treasury Single Account Policy,” the attorney general said: “I refer to your letter dated 31st May 2017, ref: MD/17/MF/Vol.XX/583 in respect of the above subject matter wherein you sought clarification on the legal issues implicated by the continuous implementation of the Managing Agent Contract Agreement dated 11th February 2010 executed between the Nigerian Ports Authority (NPA) and Intels Nigeria Limited for the provision of boats pilotage operations, in the light of the Federal Government of Nigeria’s Treasury Single Account (TSA) policy.

“Upon my review of your letter under reference and the relevant agreements, I have been able to conclude inevitably that the terms of the agreement as agreed by parties and the dynamics of its implementation which permits Intels to receive revenue generated on behalf of NPA ab initio, clearly violates express provisions of Sections 80(1) and 162(1) and (10) of the 1999 Constitution of the Federal Republic of Nigeria, 1999 (as amended). It is thus curious that parties did not avert their minds to the above provisions of the constitution whilst negotiating the agreement.

“The inherent illegality of the agreement as formed has since been expounded by the TSA policy issued by the Head of Service of the Federation on behalf of the Federal Government of Nigeria directing all ministries, departments and agencies to collect payment of all revenues due to the federal government or any of her agencies through the TSA.

“The objective of the presidential directive (TSA policy) in exercise of the executive powers of the president under Section 5 of the 1999 Constitution (as amended) was in furtherance of the spirit and intent of Sections 80 and 162 of the constitution and to aid transparency in government revenue collection and management.

“NPA being an agency of the federal government is bound by the TSA policy and has not howsoever been exempt therefrom. Due to the constitutional nature of the TSA, where there is a conflict between the TSA and the terms of the agreement, the TSA shall prevail.

“Therefore all monies due to the NPA currently being collected by Intels and any other agents/third parties on behalf of NPA must henceforth be paid into the TSA or any of the sub-accounts linked thereto in the Central Bank of Nigeria (information of the account will be communicated in due course) in accordance with the TSA policy.

“For the avoidance of doubt, the agreement for the monitoring and supervision of pilotage districts in the Exclusive Economic Zone of Nigeria on terms inter alia that permits Intels to receive revenue generated in each pilotage district from service boat operations in consideration for 28 per cent of total revenue as commission to Intels is void, being a contract ex facie illegal as formed for permitting Intels to receive federal government revenue contrary to the express provisions of Sections 80(1) and 162(1) and (10) of the 1999 Constitution of the Federal Republic of Nigeria (as amended), which mandates that such revenue must be paid into the Federation Account/Consolidated Revenue Fund.

“In the premise of the above, the conflict between the agreement and the TSA policy presents a force majeure event under the agreement, and NPA should forthwith commence the process of issuing the relevant notices to Intels exiting the agreement which indeed was void ab initio.”

 

Intels Fights Back

In a swift reaction, Intels kicked against the termination of its Pilotage Agency Agreement by the NPA, describing the action as “preposterous” and highly injurious to Nigeria.

Intels, in a statement made available to THISDAY, disclosed that following the letter from the AGF, to the Managing Director of NPA, directing NPA to terminate the pilotage agreement, NPA promptly ended the contract on Tuesday, October 10, 2017, without inviting it as the other party to the agreement for negotiation or due recourse to the terms of the agreement that specify conditions precedent before a party can exit the contract.

In a strongly worded response, Intels said NPA’s action would force it to reconsider its multibillion dollar investment at the Badagry deep seaport in Lagos, adding that the investment would have created thousands of direct and indirect jobs for Nigerians.

It said it had invested too much in the country and if the Nigerian government was not prepared to respect the sanctity of its contract, it was ready to head to the courts to challenge NPA’s action.

Intels, which alleged that the NPA was indebted to it to the tune of hundreds of millions of dollars, gave the agency seven days, from last Wednesday, to reconsider the residual critical areas of their relationship and to agree, to the possible extent, on a common solution, failing which it would head to arbitration.

Though political motive is being alleged in some quarters, which is the usual narrative in in Nigeria, Intels has not suggested any extraneous intent to the termination of the contract, and had even assured NPA that it would invoke the arbitration clause in the agreement if the termination was not reversed.  With government insisting that its decision is in line with the constitution and in the interest of the nation’s economy, there are no indications that it would reverse its decision, thus setting the stage for arbitration as Intels’ seven-day ultimatum expires this week.