By Yusufu Abdullahi, Director of SIMCO.
The Snake Island Integrated Free Zone made some far reaching submission for the amendment to the oil and gas export free zone authority Act.
The submission was presented at the forum organised to amend Oil and Gas Export Free Zone Authority Act by federal ministry of industry, trade and investment in Abuja.
SUBMISSION AT FEDERAL MINISTRY OF INDUSTRY, TRADE AND INVESTMENT STAKEHOLDERS’ FORUM TO AMEND ONNE/IKPOKIRI OIL AND GAS EXPORT FREE ZONE AUTHORITY ACT on the 16th and 17th March, 2020.
The goals and objectives of free trade zones are:-
• To attract Foreign Direct Investment into Nigeria
• To generate employment opportunities for Nigerians
• To enhance trade/industrialization
• To promote production for export
• To enhance foreign exchange earnings
• To encourage transfer of know how to Nigerians
• To contribute to economic growth and development of Nigeria.
Free Zones concept is veritable tool for economic development used by the ASIAN TIGERS, Europe and recently the Middle East to transform their economies. Where this success has been recorded is that they have adopted it to suit their peculiar circumstances, as well as employing their strengths. Nigerian case is that oil and gas accounted for 90 per cent of revenue and 70 per cent of Gross Domestic Product. NNPC expends between $10 – $12 billion annually on exploration and exploitation of oil and gas (more than 70 per cent of what is expended on all other services put together).
The objective of free trade zone in Nigeria is to take advantage and utilize our comparative and competitive edge in the oil and gas sector of the economy and also seize the opportunity of NIGERIAN OIL and GAS INDUSTRY CONTENT DEVELOPMENT ACT and PETROLEUM INDUSTRY BILL (PIB Bill) to attract oil and gas foreign enterprises into the Free trade zones in Nigeria, to use Nigerians and its resources within the Nigerian environment to add value to its raw resources especially in oil and gas commodities and related products. Consequently, in Nigeria, the philosophy of setting up free trade zones are namely:-
(a). To attract manufacturers, fabricators, refineries, products assembling plants, housing estates and logistic service providers instead of exporting the commodity in its raw form and importing the end products for merchandising;
(b). To create quality employment opportunities in engineering, technical, and scientific fields;
(c). To adopt technology through manufacturing, fabrication and assembling of products; to make, create and innovate;
(d). To provide enabling environment for capacity building in
liaison with domestic universities and college of technologies;
(e). To provide for domestic empowerment through backward integration and linkages with domestic enterprises;
(f). To attract Foreign Direct Investment;
(g). To create wealth;
The strategies in attaining these goals are that free trade zones are specifically delineated duty free enclave and deem to be foreign territory for the purpose of manufacturing, fabrication, construction, refinery, banking, logistic services and free trade operations.
The most important tread in this phenomena is the rapid economic and human development where free trade zone is fully accepted as a tool. Irish youth were migrating to USA in great number to find opportunities but the development of free trade zone and Silicon Valley in California has opened more opportunities for the youth in Ireland. Computer chips are developed shipped to Silicon Valley from Shannon Free Trade Zone. This development helped to slow down the massive migration of the youth.
In the United Emirate, the activities of free trade zones have rapidly expanded economic and human development to the extent that the Emirate is importing labour, technical and strategic staffing. Most important is the rising of per capital income to its citizens leading to high standard of living. The Asian Tigers have also seen the rapid capital, human and economic development within a short time.
The modern city of Dubai grabbed the free trade zone concept in 1985 when the Emirate realized that its source of revenue, crude oil, would soon diminished and dried up, consequently it decided to go back to its traditional services in mercantilism. Jabel Ali Free Trade Zone was developed by the port of Dubai and came into being in 1985.
Dubai became an extended warehouse for the Asian Tigers including Japan, as a market. The other members of the Emirate have been using the same concept with determination to transform the economies of their various countries. Today, it is a success story across the Emirate. They are not totally dependent on crude oil revenue for development. They have moved into a sophisticated modern commercial countries where the newly rich entrepreneurs are looking for further opportunities ventures.
Nigerian Government tried also to grab the free zone concept in the late 1980s. It consulted UNIDO to carry out survey and viability of the provisions of the free zone concept in Nigeria. UNIDO report conclusion was on EPZ which indicated that “the general agreement amongst all those interviewed during its research, both domestic and overseas, show that Nigeria offers one of the best chances for industrial investment in Africa because of its large domestic market, central location, low wage structure, availability of raw materials, membership of ECOWAS and the fact that it is English speaking country.”
In 1999, civilian administration came into power with free trade concept dormant. The Administration realized that success of any free trade zone EPZ depends on its location, development and management; it should also be operated on cost-recovery rather than subsidy; it should be market oriented, customer focused and friendly; and finally realized that Zone is more effective when development and operation are in private sector hands.
Federal Ministry of Commerce engaged International Development Management Services (DMS) for the Strategic Restructuring of Calabar and Kano Export Processing Zones. The locations of both zones were not ideal because physical challenges inhibited them where the Calabar estuary requires yearly dredging while Kano EPZ was placed 25 kilometers away from exit point, the airport. Free trade zone cargoes should not transact customs territory especially Kano, Commercial Center. The Ministry approached Kano State Government which obliged it with the current location congruent with Kano International Airport as an exit point.
For development and management, DMS recommended a Private Sector Management Structure. It believes that the zones should be operated on cost-recovery rather than on subsidy; it should be market oriented, customer focused and friendly; and only private management structure can offer such benefits.
DMS also recommended a single free zones authority for the country and it provided the structural legal instrument in line with the White Paper on Rationalization of Federal Agencies and Parastatals where it was recommended in the White Paper and was accepted by Federal Executive Council Conclusion on 30th Meeting of 2000, Section 5.2.2, item No. 101 that NEPZA with OOGEFZA should be merged as a single authority.
DMS also advised on change of concept from epz to free trade zone which is consistent with eligibility for national certificates of origin and participate in trade and market access agreement as defined in Revised Kyoto Convention and design incentive framework, WTO compliant by removing export obligation and allowing full access to domestic market on duty paid basis.
Further decision of the Council was its Conclusion 6 of EC (2000) 32nd Meeting of 30th August, 2000 which amends the NEPZA Act 63 of 1992 and it also replaced export processing zone (EPZ) strategy with free trade zone strategy;
The Council also released its instrument in approving the Nigeria Free Zones Authority (NIFZA) as amended, to be enacted into law to replace the Nigeria Export Processing Zones Authority Act No. 63 of 1992;
The Council directed the Federal Ministry of Justice “to prepare the relevant instrument for the enactment of NIFZA Bill into law by the National Assembly” in its FEC Conclusion 4, EC (2002) 27th Meeting;
In furtherance of Government effort in Strategic Restructuring, the Presidential Committee on Free Zones report as approved by Mr. President was sent to Federal Ministry of Commerce vides ECD/P/338/11/526 of 17th October, 2006 for implementation.
The President states that “there shall be only (1) Free Zone Authority to regulate and harmonize the operations of other zones. To be known as the Nigeria Free Zones Authority, it will be responsible for policy formulation for and general supervision of free zones in the country (including oil and gas free zones activities), set general standards of operation and arbitrate disputes between the free zones where they occur.”
The role of “the new Free Zones Authority is consistent with the Council Conclusion on the Harmonization and Rationalization of Parastatals which reduced the Free Zones Authority to only a regulatory and monitoring to allow for the participation of the private sector in the free trade zone development.” FEC (2000) 27th Meeting, Conclusion 4.
Finally, the framework on Free Trade Zone in Nigeria shall be tailored around single Free Zones Authority as approved by Federal Government to be named NIGERIA FREE ZONES AUTHORITY (NIFZA). The followings are the authorities for a single regime regulatory free trade zones in the country.
(a Federal Executive Council Conclusion 6 of EC (2000) 32nd Meeting of 30th August, 2000 which amends Act 63 of 1992 to replace export processing zone (EPZ) strategy with free trade zone strategy;
(b) Federal Executive Council Approval for the Nigeria Free Zones Authority (NIFZA) as amended, to be enacted into law to replace the Nigeria Export Processing Zones Authority Act No. 63 of 1992;
(c) Federal Ministry of Justice was directed by FEC “to prepare the relevant instrument for the enactment of NIFZA Bill into law by the National Assembly” in FEC Conclusion 4, EC (2002) 27th Meeting;
(d) Presidential Committee on Free Zones in Nigeria report as approved by Mr. President sent to Federal Ministry of Commerce vides ECD/P/338/11/526 of 17th October, 2006 for implementation. The President states that “there shall be only (1) Free Zone Authority to regulate and harmonize the operations of other zones. To be known as the Nigeria Free Zones Authority, it will be responsible for policy formulation for and general supervision of free zones in the country (including oil and gas free zones activities), set general standards of operation and arbitrate disputes between the free zones where they occur.”
(e) The role of “the new Free Zones Authority is consistent with the Council Conclusion on the Harmonization and Rationalization of Parastatals which reduces the Free Zones Authority to only a regulatory and monitoring to allow for the participation of the private sector in the free trade zone development.” FEC (2000) 27th Meeting, Conclusion 4.
The departure of the Administration in 2007 opened an opportunity for those against the restructuring exercise with cherry picking and sabotage of the efforts. They picked what they thought would be suitable for them, expunging “export” to “free” whereas the expunging of export was meant for Calabar, Kano and subsequent free trade zones declared by NEPZA. The change did not affect NEPZA or any other Authority like OOGEFZA which required National Assembly procedure to amend the laws. However in its eagerness to expand its operation beyond its enabling law OOGEFZA went into self help in changing its name and title contrary to its enabling Act.
OOGEFZA also went to Federal Ministry of Transport to undo the previous Federal Government policy in that In a nutshell, the policy decisions thrust taken by Obasanjo Administration between 2005 and 2006, namely declaration of Private Sector Free Zones to operator in oil and gas logistics sector and the second policy that “importers of oil and gas cargos should be free to choose port of preference” to open up competition, triggered tsunami of attacks from INTELS Nigeria Limited in the media, Government Offices and National Assembly as follows.
a) Enforcing a self-help made policy that only Onne, Warri and Calabar Ports should receive and load oil and gas cargoes in Nigeria.
b) Minister of State for Transportation reversed Obasanjo Administration policy with a Circular that importers of oil and gas cargoes should only use Onne, Warri and Calabar ports in discharging and loading cargoes.
c) The Minister caused Bureau of Public Enterprises, the umpire to Port Concessions to pad the Port Concessions Index to include concept of oil and gas cargoes as part of the index.
d) President YarAdua Administration disagreed and made the Minister to reversed and reinstated the policy in the freedom of importers of oil and gas cargos to choose port of preference in national interest. Later he dismissed the Minister, deployed the Permanent Secretary and the Director Maritime Services.
e) President Jonathan, at the wee hours of his departure, took the position of INTELS that Onne, Warri and Calabar ports were the only dedicated ports of discharge in the loading and discharge of oil and gas e. cargoes activities.
f) Jonathan Administration also went a step further in accepting the amendment of the Onne Oil and Gas Export Free Zone Act to insert Onne, Warri and Calabar as being the only ports where importers of oil and gas cargo should make the choice in the country to receive oil and gas cargoes.
Stakeholders, after the Senate had passed the bill twenty four hours to the end of Legislative term, objected and went to Federal High Court and secured court injunction to stop House of Representatives from reading the Bill and President Jonathan from signing the Bill into law.
g) Jonathan Administration had allowed OGEFZA to overreach its legal jurisdiction in expanding its operations into Warri, Calabar and now Apapa ports by approving its operations while the enabling law did not give OGEFZA such power of designating an area in Nigeria as an Oil and Gas Free Zone but the enabling law limits the OGEFZA operations to Onne/Ikpopiri area of Rivers State only.
h) INTELS used its surrogate OGEFZA to reopen the bid to amend the OGEFZA Act to achieve two objectives:- to absorb the stubborn Private Sector Free Zones operators in oil and gas logistics services into its fold and its regulatory framework of OGEFZA and secondly to make Onne, Warri and Calabar ports as being the only ports importers of oil and gas cargos can choose in discharging and loading cargoes. Stakeholders sniffed the attempt to amend the Bill with good arguments and positions at Senate Public Hearings at National Assembly.
i) OGFZA brazenly with INTELS facilitation usurped the legislative powers of National Assembly in altering its Corporate title to Oil and Gas Free Zones Authority. “EXPORT” was deliberately deleted and the word “Zone” was deliberately pluralized in direct contravention of an extant Act of the National Assembly without a formal amendment of same.
j) OGEFZA constituted itself into an extra arm of the Nigerian Legislature and by a stroke of pen unilaterally amended an Act of the National Assembly which is not only unconstitutional but also illegal. OGEFZA’s actions are manifestly ultra vires as it has acted in excess of its express statutory authority. All its purported actions to “create” new Free Zones, “take over” privately funded Free Zones, and to oversee oil and gas logistics operations within Free Zones that are outside of its statutory mandate.
Stakeholders are recommending to the Forum that’s the Committee can easily achieve its core objective by harmonizing the proposed NEPZA Bill 2019, OOGEFZA Bill 2020 and Nigeria FreeZones Authority (NIFZA) Executive Bill 2006. Consequently the NEPZA and OOGEFZA Acts are destined to repeal in creating a single regulatory Free Zones Authority (NIFZA) as approved and concluded by the Federal Executive Council.
Yusufu Abdullahi is a retired Director, Planning. Research and Statistic
Defunct Federal Ministry of Commerce. Now Director, SIMCO, Snake Island Integrated Free Zone, Lagos.