INFRASTRUCTURE FINANCE MODELS IN NIGERIA: A COMPARATIVE ANALYSIS OF TRADITIONAL, MODERN AND EMERGING TRENDS

Overview

Nigeria, widely regarded as Africa's most populous country, is rapidly urbanizing and expanding its infrastructure. Recognizing the importance of strong infrastructure in driving economic growth and attracting foreign investment, the country has established various infrastructure financing models.  This article will look at Nigeria's various infrastructure financing models, including their advantages, disadvantages, and overall impact on the country's development.

Conventional Infrastructure Financing Models

Government Funding

Nigeria has traditionally relied on public funds to finance infrastructure projects such as roads, bridges, airports, and power plants. Government funding was critical in the early stages of Nigeria's infrastructure development; however, progress was hampered by budget constraints and inefficiencies in project implementation. Among the most notable projects are the Lagos-Ibadan Expressway, the Second Niger Bridge, and the Abuja-Kano Road; the Lagos-Kano railway, which is currently under construction; the construction of a new terminal at the Murtala Muhammed International Airport in Lagos; the renovation of the Nnamdi Azikiwe International Airport in Abuja; the construction of new dams and the rehabilitation of existing water treatment plants; the construction of new power plants; and the construction of new power plants

Bilateral and Multilateral Funding

To supplement government funding, Nigeria sought financial assistance from multilateral institutions and bilateral partners. Organizations such as the World Bank, the African Development Bank, and the International Monetary Fund provided loans and grants for infrastructure projects.  These funds bridged the financing gap and brought in technical expertise and international best practices.

New Approaches to Infrastructure Financing in Nigeria

Given constraints such as bureaucratic bottlenecks, population explosions, and a lack of industry and technical expertise within government bodies, which typically limited countries' capacity to provide sufficient infrastructure to meet the ever-expanding needs of their citizens, new solutions were required, leading to the introduction of Infrastructure financing models that aimed to meet the identified needs. Among these are:

Public-Private Partnerships (PPPs)

Public-private partnerships involve collaboration between a government agency and a private-sector company that can be used to finance, build, and operate projects such as public transportation networks, parks, and convention centres.

The Kaduna Polytechnic Student Hostel Renovation Project was Nigeria's first public-private partnership project. Kaduna Polytechnic and the concessionaire, Mark Point Limited, signed off on the project in August 2020. The project is a Rehabilitate, Operate, and Transfer (ROT) PPP arrangement for a concession period of sixteen (16) years.

Because of their ability to leverage private sector resources, expertise, and efficiency, public-private partnerships (PPPs) have emerged as a preferred infrastructure finance model in Nigeria. PPPs involve the collaboration of the public and private sectors to design, finance, build, and operate infrastructure projects.  This model promotes risk-sharing and innovation while reducing the burden on government finances. Let us consider the common types of PPPs available for infrastructure development in Nigeria:

• Build-Operate-Transfer (BOT): A private entity designs, finances, builds, and operates the infrastructure project for a specified period.  Ownership is eventually reverted to the government.

• Build-Own-Operate (BOO): In a BOO model, the private entity not only constructs and operates the infrastructure but also owns it for the duration of the project.

• Build-Transfer-Operate (BTO): Similar to BOT, the private entity builds the infrastructure and then transfers ownership to the government. However, the private entity is responsible for running the project for a set period before handing over control to the government.

• Rehabilitate-Operate-Transfer (ROT): A private company is hired to repair an existing infrastructure asset, operate it for a set period, and then return it to the public sector at the end of the concession period.

Benefits of PPPs

• Enhanced Efficiency: Private sector involvement brings efficiency to project management, construction, and operation, ensuring timely completion and improved quality.

• Access to Capital: PPPs attract private sector investments, allowing the government to leverage additional funds without straining public finances.

• Risk Sharing: The private sector shares financial and operational risks, alleviating the burden on the government and taxpayers.

Challenges of PPPs

• Complex Legal Framework: Establishing a robust legal and regulatory framework for PPPs requires expertise and time.

• Revenue Generation: Sustaining revenue streams to repay private partners and ensure project viability can be challenging, especially for projects in remote areas.

• Political and Regulatory Risks: Changes in government policies, regulations, or political instability may impact project continuity and profitability.

Blended Finance

Blended finance refers to an approach where public and private funds are combined to support projects that aim to achieve both financial returns and social or environmental benefits. In simple terms, it is a way to blend money from different sources, like governments, philanthropic organizations, and private investors, to support projects that have a positive impact on society or the environment. Blended finance is often used to attract private capital to projects that are not financially viable or attractive to investors alone.

Benefits of Blended Finance

• It can help attract private investment to projects that would otherwise be too risky or unprofitable.

• It can help achieve social and environmental goals.

• It can help to build partnerships between the public, private, and nonprofit sectors.

  Challenges of Blended Finance

• It can be complex and time-consuming to structure blended finance deals.

• There is a lack of standardized terms and definitions for blended finance, which can make it difficult to track and compare deals.

• There is a risk that blended finance could be used to greenwash projects that are not actually sustainable.

Sovereign Wealth Funds (SWFs)

Sovereign Wealth Funds (SWFs) have gained popularity in Nigeria as long-term investment vehicles for infrastructure development. SWFs are state-owned investment funds that manage surplus funds and invest them in various assets, including infrastructure projects. Nigeria's Sovereign Investment Authority (NSIA) manages the country's SWFs, with a specific focus on infrastructure, agriculture, and healthcare investments.

Infrastructure Investment by SWFs

The NSIA's infrastructure investment strategy concentrates on transportation, infrastructure, energy, water, and telecommunications sectors. By partnering with private investors and international financial institutions, the NSIA aims to attract foreign direct investment and boost infrastructure development in Nigeria.

Benefits of SWFs

• Long-Term Stability: SWFs provide a stable source of funding for infrastructure projects, reducing dependency on short-term financing.

• Diversification: Investments in infrastructure diversify the country's revenue streams, reducing reliance on oil and gas revenues.

  Challenges of SWFs

• Low Returns: Infrastructure projects often have long gestation periods and may not yield high immediate returns, requiring patient capital.

• Accountability and Transparency: Ensuring accountability and transparency in SWF operations is crucial to preventing corruption and mismanagement of funds.

Infrastructure Bonds

Infrastructure bonds are another type of financing used in Nigeria to fund infrastructure projects. The government or private entities issue these bonds to raise capital from investors, with the proceeds used to fund infrastructure development. Projects funded by infrastructure bonds in Nigeria include:

• The Lagos-Ibadan Expressway: The Lagos-Ibadan Expressway is a major highway that connects the two largest cities in Nigeria. The expressway was partially funded by a N100 billion infrastructure bond that was issued in 2013.

• The Abuja Light Rail: The Abuja Light Rail is a light rail system that is currently under construction in the capital city of Nigeria. The light rail is being funded by a N250 billion infrastructure bond that was issued in 2018.

• The Mambilla Hydroelectric Power Project: The Mambilla Hydroelectric Power Project is a hydroelectric power project that is currently under construction in the northeastern part of Nigeria. The project is being funded by a N620 billion infrastructure bond that was issued in 2020.

  Benefits of Infrastructure Bonds

• Access to Capital Markets: Infrastructure bonds provide institutional and retail investors with a broader range of options.

• Fixed Income Investment: Infrastructure bonds offer consistent returns to investors, making them an appealing investment option.

  Challenges of Infrastructure Bonds

• Interest Rate Risk: Interest rate fluctuations can affect borrowing costs and the attractiveness of infrastructure bonds.

• Market Perception: Market confidence in the project's viability and the creditworthiness of the issuer usually determine the success of infrastructure bond issuances. 

Commodity-linked Bonds 

Commodity-linked bonds are a type of bond that is linked to the price of a commodity, such as oil or gas. These bonds can be a way to attract investors who are looking for exposure to the infrastructure sector but who are also concerned about the risks of inflation.

Benefits of Commodity-linked Bonds

• Hedging against inflation: Commodity-linked bonds can be used to hedge against inflation, as the price of commodities tends to rise with inflation. This can be beneficial for investors who are concerned about the impact of inflation on their portfolios.

• Diversification: Commodity-linked bonds can help diversify a portfolio, as they offer exposure to a different asset class than stocks or bonds. This can help reduce risk and improve returns.

• Potential for higher returns: If commodity prices rise, investors in commodity-linked bonds can potentially earn higher returns than they would from traditional bonds. However, it is important to note that commodity prices can also fall, which means that there is also the potential for losses.

• Longer maturities: Commodity-linked bonds can have longer maturities than traditional bonds, which can be beneficial for investors who are looking for a steady stream of income.

  Challenges of Commodity-linked Bonds

• Volatility: The price of commodities can be volatile, which means that the value of commodity-linked bonds can also be volatile. This can make them a risky investment for some investors.

• Complexity: Commodity-linked bonds can be complex, and it is important to understand the terms and conditions of the bond before investing.

• Limited liquidity: Commodity-linked bonds may have limited liquidity, which means that it may be difficult to sell them if you need to cash out.

Infrastructure investment funds

Infrastructure investment funds are a type of pooled investment vehicle that invests in infrastructure projects. These funds can be a way for investors to access the infrastructure sector without having to invest in individual projects.

Advantages of Infrastructure Investment Funds

• Stable cash flows: Infrastructure assets tend to generate stable cash flows, which can provide a reliable source of income for investors. This is because infrastructure assets are often essential services that are in high demand, even during economic downturns.

• Low correlation to other asset classes: Infrastructure assets tend to have a low correlation to other asset classes, such as stocks and bonds. This means that they can help reduce the volatility of a portfolio.

• Long-term growth potential: Infrastructure assets have the potential to generate long-term growth as they are essential to the functioning of the economy. This is in contrast to other asset classes, such as stocks, which can be more volatile in the short term.

• Tax benefits: In some cases, infrastructure investments can offer tax benefits, such as depreciation allowances.

  Challenges of Infrastructure Investment Funds

• Illiquidity: Infrastructure assets can be illiquid, meaning that they can be difficult to sell quickly. This is because they are often large and complex assets.

• Regulation: Infrastructure assets are often subject to regulation, which can increase the cost of investing in them.

• Political risk: Infrastructure assets can be subject to political risks, such as changes in government policy.

Emerging Infrastructure Financing Options

In addition to the previously mentioned traditional methods, new infrastructure financing options have emerged to bridge the gap and provide innovative solutions. These options leverage new approaches and advancements in information and communication technology and alternative financing mechanisms to mobilize capital for infrastructure development.

Green Bonds

Green bonds are a type of debt security specifically designed to finance environmentally sustainable projects. Green bonds can be used to finance a wide range of infrastructure projects, including renewable energy projects, energy efficiency projects, and water conservation projects.

The Nigerian government issued the first sovereign green bond in Africa in December 2017 under the aegis of the Ministry of Environment and Finance and the Green Bond Advisory Group (GBAG). The bond raised NGN 10.69 billion (US$28 million) and was used to finance energy efficiency and renewable energy projects.

Since then, there have been a number of other green bonds issued in Nigeria, including corporate green bonds and green project bonds. These bonds have raised a total of over NGN 50 billion (US$120 million) for a variety of green projects.

Advantages of Green Bonds as an Infrastructure Financing Model

• Attracting new sources of capital: Green bonds are attractive investments with potential financial and environmental returns. They can attract new investors to infrastructure projects, reducing financing costs.

• Improving transparency: Green bonds require detailed information about the use of proceeds, enhancing transparency and accountability.

• Benefits investors and the public, ensuring infrastructure projects are financed for the right reasons.

• Promoting sustainable development: Green bonds finance environmentally beneficial projects like renewable energy and water conservation.

• Contributes to sustainable development and reduces the environmental impact of infrastructure projects.

• Enhancing credit rating: Issuing green bonds signals a commitment to sustainability, improving the issuer's credit rating.

• Reducing borrowing costs: Green bonds can lead to lower interest rates as investors value their environmental impact.

• Building a reputation for sustainability: Issuing green bonds establishes a reputation for sustainability, benefiting both issuers and stakeholders

  Challenges of Green Bonds as an Infrastructure Financing Model

• Greenwashing: This is the practice of making misleading or deceptive claims about the environmental benefits of a project. Greenwashing can be a problem with green bonds, as there is no one standard definition of what constitutes a "green" project. This can make it difficult for investors to assess the true environmental impact of a bond.

• Lack of liquidity: The green bond market is still relatively small, which means that there is not as much liquidity as there is in other bond markets. This can make it difficult for investors to buy and sell green bonds, reducing their attractiveness as an investment.

• Cost: There are some additional costs associated with issuing green bonds, such as the cost of third-party verification and reporting. These costs can make green bonds less attractive to some issuers.

• Project risk: Green projects often have longer payback periods and higher risks than traditional infrastructure projects. This can make it more difficult for investors to assess the risk-return profile of green bonds.

Infrastructure-as-a-service (IaaS)

IaaS is a cloud-based model in which infrastructure assets are provisioned and managed as a service. IaaS can be a cost-effective way to access infrastructure capacity, and it can also help reduce the risk of stranded assets.

The IaaS market in Nigeria is on the rise. According to a report by International Data Corporation (IDC), the market can grow at a Compound Annual Growth Rate (CAGR) of 25% over the next five years. This growth is being driven by several factors, including the increasing adoption of cloud computing by businesses in Nigeria, the growing availability of high-speed internet, and the government's support for the cloud computing industry.

Some IaaS providers operating in Nigeria include global brands like Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform, as well as Nigerian-owned IaaS providers such as Rack Centre and Cloudflex. These providers offer many services, including virtual machines, storage, networking, and disaster recovery.

Benefits of Infrastructure-as-a-service (IaaS) as an Infrastructure Financing Model

• Cost savings: IaaS can help businesses save money on infrastructure costs by eliminating the need to purchase and maintain their hardware and software. Businesses can simply pay for the resources they need as they need them, which can lead to significant cost savings over time.

• Scalability: IaaS can help businesses scale their infrastructure up or down as needed, which can be beneficial for businesses that experience fluctuations in demand. This can help businesses avoid overprovisioning their infrastructure, which can lead to unnecessary costs.

• Flexibility: IaaS can help businesses be more flexible in their IT deployments. Businesses can easily move their workloads to different cloud providers or regions, which can be beneficial for businesses that need to be able to quickly adapt to changes in their business environment.

• Security: IaaS providers typically offer a high level of security for their infrastructure. This can help businesses reduce their risk of data breaches and other security incidents.

  Challenges of Infrastructure-as-a-service (IaaS) as an Infrastructure Financing Model

• Cost: IaaS can be a more expensive financing model than traditional methods, such as debt financing. This is because IaaS providers charge businesses for the resources they use, even if they are not fully utilized.

• Risk: IaaS providers are responsible for the security and reliability of their infrastructure. However, businesses that use IaaS are still exposed to some risks, such as data breaches and service outages.

• Complexity: IaaS can be a complex financing model to manage. Businesses need to understand the different pricing options available and how to optimize their usage of resources.

• Vendor lock-in: Businesses that use IaaS may become locked into a particular vendor. This can be a problem if the vendor's prices increase or if the vendor's service is not reliable.

Infrastructure debt securitization

Infrastructure debt securitization is the process of pooling together infrastructure debt obligations and issuing securities backed by those obligations. Infrastructure debt securitization can help reduce the cost of infrastructure financing and make it more accessible to investors.

Benefits of Infrastructure debt securitization as an Infrastructure Financing Model

• Increased access to capital: Securitization can help increase the pool of capital available for infrastructure projects by providing investors with a more liquid and diversified investment. This can be especially important for large or complex infrastructure projects that may not be able to obtain financing from traditional sources.

• Lower borrowing costs: Securitization can help lower borrowing costs for infrastructure projects by spreading the risk of default across a wider pool of investors. This can make it easier for projects to obtain financing at lower interest rates.

• More efficient use of capital: Securitization can help make more efficient use of capital by freeing up the originator to fund new projects. This is because the originator does not need to retain the debt obligations on its balance sheet, which can free up capital for other purposes.

• Increased transparency: Securitization can help increase transparency in the infrastructure financing market by providing investors with more information about the underlying assets. This can help reduce the risk of default and make it easier for investors to make informed investment decisions.

  Challenges of Infrastructure debt securitization as an Infrastructure Financing Model

• Large loan sizes and investor attraction: Difficulty pooling enough loans to create attractive securitizations for investors

• The size of infrastructure loans can pose a challenge.  

• Lack of transparency and complexity: Infrastructure projects often lack transparency, making the assessment of associated risks difficult for investors.

• Complexity and opacity hinder investor understanding.

• High illiquidity of infrastructure debt: Investors may face challenges selling their investments due to the high illiquidity of infrastructure debt.

• Lack of market liquidity adds to investment difficulties.

• Varying regulatory environments: Regulatory frameworks for infrastructure debt securitization differ across countries.

• Structural and marketing challenges arise due to regulatory variations.

Infrastructure Crowdfunding

Infrastructure crowdfunding is the process of raising capital for infrastructure projects through small investments from a large number of people. Infrastructure crowdfunding can be a way to tap into a new source of capital for infrastructure projects, and it can also help build public support for those projects. Below are instances of Infrastructure crowdfunding in Nigeria:

• In 2017, a group of Nigerians raised $1.2 million to build a solar-powered water pump in a rural community. The project was funded through the crowdfunding platform, Crowdfund.ng.

• In 2018, a group of Nigerians raised $200,000 to build a community library in Lagos. The project was funded through the crowdfunding platform, Gofundme.

• In 2019, a group of Nigerians raised $500,000 to build a community playground in Abuja. The project was funded through the crowdfunding platform, Fundly.

  Advantages of Infrastructure Crowdfunding

• Reaching a wider audience: Crowdfunding platforms allow project creators to reach a wider audience of potential investors than they would through traditional fundraising methods. This can be especially helpful for projects that are located in rural areas or that are focused on serving a specific community.

• Building community support: Crowdfunding can help build community support for infrastructure projects. When people invest in a project, they are not just investing their money; they are also investing their time and energy. This can help to create a sense of ownership and responsibility among the community members, which can be essential for the success of the project.

• Attracting small investors Infrastructure projects can be expensive, and traditional financing methods may not be available to small investors. Crowdfunding can help attract small investors who may not be able to afford to invest in a project on their own. This can help diversify the pool of investors and reduce the risk for the project creator.

• Building awareness: Crowdfunding can help build awareness about infrastructure projects. When people see a project on a crowdfunding platform, they are learning about the project and the need for it. This can help raise awareness of the project and the importance of infrastructure investment

  Challenges of Infrastructure Crowdfunding

• High cost of infrastructure projects: Infrastructure projects are typically very expensive, and this can make it difficult to raise the necessary funds through crowdfunding.

• Lack of awareness: Many people are not aware of the potential of crowdfunding for infrastructure projects. This can make it difficult to attract investors and generate the necessary support.

• Regulatory hurdles: In some countries, regulatory hurdles need to be overcome to launch an infrastructure crowdfunding campaign. This can be a time-consuming and complex process.

• Risk: Infrastructure projects are often associated with a high degree of risk. This can make investors hesitant to participate in crowdfunding campaigns for these projects.

Conclusion

Nigeria's infrastructure finance models have evolved in response to the challenges posed by traditional financing methods. Infrastructure Bonds, PPPs, and Sovereign Wealth Funds have emerged as effective mechanisms for funding infrastructure projects, while newer models such as Green bonds, Infrastructure-as-a-service (IaaS), Infrastructure debt securitization, and Infrastructure crowdfunding offer environmentally sustainable avenues for achieving Infrastructure development goals. 

While each model has benefits and drawbacks specific to the industry, their combined implementation is critical to meeting Nigeria's growing infrastructure needs and propelling economic development. By embracing innovative financing models, Nigeria can establish a sustainable infrastructure ecosystem that attracts investments and supports long-term growth.

HARNESSING NIGERIA’S CLIMATE SUPERPOWER: EXPLORING THE POTENTIAL OF CARBON SEQUESTRATION AND OFFSET PROJECT.

Introduction

Climate change is a global crisis that demands urgent and collective action. As its impact continues to intensify, countries worldwide are grappling with the need to reduce greenhouse gas emissions and mitigate the effects of a warming planet. In this context, Nigeria, as one of the most populous and ecologically diverse countries in Africa, holds a unique position to contribute significantly to global climate action.

Nigeria, often called the "Giant of Africa," boasts of abundant natural resources and a rich biodiversity encompassing expansive forests, wetlands, grasslands, and coastlines. These diverse ecosystems play a crucial role in the global carbon cycle and have the potential to act as powerful carbon sinks, helping to mitigate the impacts of climate change.

In recent years, there has been growing recognition of the importance of carbon sequestration and offset projects in addressing the climate crisis. Nigeria's vast and diverse landscapes present a wealth of opportunities for carbon sequestration and offset initiatives. Reforestation and afforestation programs, which involve the planting of trees or restoring degraded forests, can enhance carbon sequestration capacity while simultaneously preserving biodiversity and ecosystem services. Likewise, sustainable agricultural practices, such as agroforestry, can contribute to carbon sequestration and offset goals, while improving soil health and promoting food security.

CARBON SEQUESTRATION

Carbon sequestration refers to the process of capturing and storing carbon dioxide, preventing it from entering the atmosphere and contributing to the greenhouse effect. This can be achieved through natural processes or technological advancements.

Natural Carbon Sequestration:

Natural carbon sequestration occurs through biological processes in ecosystems such as forests, wetlands, and oceans. Trees and plants absorb CO2 through photosynthesis, converting it into organic matter and releasing oxygen. Forests, in particular, are highly effective at sequestering carbon due to their large biomass. Wetlands, including marshes and mangroves, also sequester significant amounts of carbon through the accumulation of organic matter in their soils. Oceans act as carbon sinks by absorbing CO2 from the atmosphere and through the formation of calcium carbonate shells by marine organisms.

Technological Carbon Sequestration:

Technological carbon sequestration involves capturing CO2 from industrial processes and power generation and storing it underground or in other long-term storage solutions. Carbon capture and storage (CCS) technologies capture CO2 emissions at the source, compressing and transporting it to storage sites, such as depleted oil and gas fields or deep saline aquifers.

CARBON OFFSET PROJECTS

Carbon offset projects aim to compensate for greenhouse gas emissions by investing in activities that reduce emissions or remove CO2 from the atmosphere elsewhere. These projects help achieve carbon neutrality by balancing emissions with equivalent reductions or removals.

Renewable Energy Projects:

Investing in renewable energy projects, such as wind farms, solar power installations, or hydroelectric plants, can displace fossil fuel-based electricity generation and reduce CO2 emissions. These projects help transition to cleaner energy sources and contribute to sustainable development.

Afforestation and Reforestation:

Afforestation involves establishing forests in areas that previously lacked trees, while reforestation refers to restoring forests in areas that were previously deforested. Both activities enhance carbon sequestration by increasing the total biomass of trees and plants. They also provide additional benefits such as habitat preservation and watershed protection.

Energy Efficiency Initiatives:

Energy efficiency projects focus on reducing energy consumption and emissions in buildings, industries, and transportation. Examples include upgrading insulation, adopting energy-efficient technologies, and promoting public transport systems. These projects help decrease overall energy demand and associated carbon emissions.

Methane Capture and Destruction:

Methane is a potent greenhouse gas with a higher warming potential than CO2. Methane capture and destruction projects involve capturing methane emissions from sources such as landfills, wastewater treatment plants, and agricultural operations. These projects mitigate the release of methane into the atmosphere, reducing its impact on global warming.

Improved Agricultural Practices:

Certain agricultural practices, such as conservation tillage, precision farming, and the use of organic fertilizers, can help reduce greenhouse gas emissions from the sector. These practices enhance soil health, sequester carbon in soils, and minimize the release of other potent greenhouse gasses like nitrous oxide.

SIGNIFICANCE OF CARBON SEQUESTRATION AND OFFSET PROJECTS

Carbon sequestration and offset projects play a crucial role in addressing climate change and achieving global climate goals for several reasons:

• Promoting Sustainable Development: Many carbon sequestrations and offset projects align with sustainable development goals, offering social, economic, and environmental benefits. These projects create employment opportunities, stimulate economic growth, enhance energy security, and improve air and water quality.

• Encouraging Innovation and Technology Deployment: Carbon sequestration and offset projects drive the development and deployment of innovative technologies and practices. This includes advancements in carbon capture and storage, renewable energy systems, and sustainable land management techniques.

• Supporting Biodiversity and Ecosystem Conservation: Many carbon sequestration projects, such as afforestation and restoration initiatives, contribute to the conservation of ecosystems and the protection of biodiversity. They provide habitat for wildlife, enhance ecosystem services, and support the resilience of natural systems.

• Facilitating Climate Finance: Carbon offset projects create financial mechanisms that allow entities to invest in emission reduction activities, providing a market-based approach to climate action. This mobilizes climate finance, both public and private, to support sustainable development and the transition to a low-carbon economy.

NIGERIA’S UNIQUE CLIMATE SUPERPOWER

Nigeria possesses a unique climate superpower due to its geographical location, diverse ecosystems, and potential for climate action. Let's explore the key aspects that make Nigeria a climate superpower in its own right.

Geographical Location:

Nigeria is situated in West Africa, a region that is highly vulnerable to the impacts of climate change. Its location provides Nigeria with the opportunity to showcase leadership and resilience in the face of climate challenges. As a populous and influential country in the region, Nigeria can inspire and drive climate action among its neighbouring countries, promoting a collective response to climate change. Nigeria's geographical location and diverse ecosystems give it a unique advantage in harnessing carbon sequestration and offset projects. The country is home to the second-largest tropical rainforest in the world, the Niger Delta wetlands, and vast grasslands. These ecosystems have significant carbon storage potential and can serve as a crucial buffer against climate change.

Rich Biodiversity and Ecosystems:

Nigeria is blessed with diverse ecosystems, including tropical rainforests, wetlands, savannah grasslands, mangroves, and coastal areas. These ecosystems not only provide habitats for unique and diverse species but also play a vital role in climate regulation and carbon sequestration. Nigeria's rainforests, for example, are the second-largest in the world and are capable of storing substantial amounts of carbon dioxide. Tropical rainforests are known for their ability to absorb and store vast amounts of carbon dioxide. Nigeria's rainforests alone store an estimated 2.6 billion metric tons of carbon. However, deforestation and unsustainable land-use practices have led to the degradation of these forests, releasing large amounts of CO2 into the atmosphere. By implementing forest conservation and restoration initiatives, Nigeria can preserve its forests' carbon storage capacity and enhance their resilience to climate change.

POLICY AND INSTITUTIONAL FRAMEWORK

The Nigerian Climate Change Act 2021

The Climate Change Act establishes a robust framework that effectively addresses Nigeria's climate mitigation and adaptation objectives in the short, medium, and long terms. Of particular significance are the provisions that mandate public and private entities to actively promote a low-carbon economy and sustainable livelihoods. Additionally, the Act places responsibility on the Council and its Secretariat to collaborate closely with pertinent stakeholders, particularly civil society organizations. These measures establish a strong legal basis for potential climate litigation. The Act enables legal action to be taken in cases where the Council fails to regulate offences and penalties resulting from non-compliance with climate obligations imposed by the law.

The Act establishes the National Council on Climate Change (the "Council") which is vested with the powers to develop policies and make decisions on all matters concerning climate change in Nigeria. The Council is required to administer the climate change fund which was established by the CCA, collaborate with the Federal Inland Revenue Service ("FIRS") to develop a mechanism for imposing a carbon tax, and coordinate the implementation of sectoral targets and guidelines for the regulation of Green House Gas ("GHG") emissions and other anthropogenic causes of climate change. The membership of the Council includes members of the various ministries and departments of the Federal Government of Nigeria. The Council will also include a representative of the private sector on climate change, or environment-related matters, as well as representatives of women, youth and persons with disabilities, who will be nominated by the most representative registered national umbrella association.

The Act also provides that the Federal Ministries of Environment and National Planning are saddled with the responsibility of setting the carbon budget (which means the approved quantity of GHG emission that is acceptable over a specified time) and the budgetary period for Nigeria, and periodically revise the carbon budget in line with Nigeria's Nationally Determined Contributions in order to comply with international obligations. The goal of the carbon budget is to keep the average increase in global temperature within 2 degrees Celsius and make a concerted effort to limit the temperature increase to 1.5 degrees Celsius above pre-industrial levels.

The National Climate Change Action Plan

The National Policy on Climate Change is a strategic policy response to climate change that aims to foster a low-carbon, high-growth economic development path and build a climate-resilient society through the attainment of set targets. The plan explicitly identifies climate change as one of the major threats to economic development goals and food security. The National Action Plan serves as a basis for establishing national goals, objectives and priorities on climate adaptation and for identifying activities to ensure that the national emissions profile is consistent with the carbon budget goals. It prescribes measures and mechanisms for identifying actions for adaptation and mitigation against climate change; identifying strategic areas of national infrastructure requiring climate proofing; enhancing energy conservation, efficiency and use of renewable energy in industrial, commercial, transport, domestic and other uses; and achieving Nigeria's climate change goals.

The Climate Change Act also provides some components of the Action Plan, some of which include an articulated carbon budget for the five-year cycle and for each of the years in the five-year cycle, details on the level of compliance with international climate commitments, past, current and projected GHG emission profile of GHG emission sectors of the economy, and incentives for private and public entities that achieve GHG emission reduction.

To unlock the full potential of carbon sequestration and offset projects, Nigeria needs a robust policy and institutional framework that supports climate action and promotes sustainability. The government can develop and enforce regulations that incentivize carbon sequestration initiatives, such as tax credits for companies investing in offset projects or financial incentives for farmers adopting sustainable land management practices. It is also crucial to strengthen the institutional capacity for monitoring, reporting, and verification (MRV) of emissions and carbon sequestration. Accurate data and measurement systems are essential for tracking progress, evaluating the effectiveness of projects, and ensuring accountability. 

Let's explore key elements that should be considered in developing Nigeria's policy and institutional framework for carbon sequestration and offset projects.

• Policy Alignment: Nigeria should align its policy framework with international agreements and commitments, such as the Paris Agreement and the Sustainable Development Goals (SDGs). This involves integrating climate change considerations into national development plans, sectoral policies, and strategies. The policy framework should emphasize the importance of carbon sequestration, emissions reduction, and sustainable land and resource management.

• Incentives and Support Mechanisms: The government can establish incentives to encourage participation in carbon sequestration and offset projects. These incentives can include tax credits, grants, subsidies, and favourable loan conditions for individuals, communities, and businesses investing in climate projects. Additionally, providing technical and financial support to project developers, particularly in the early stages, can help overcome barriers and facilitate project implementation.

• National Carbon Market: Establishing an operative national carbon market can create a platform for companies to trade carbon credits, promote emission reductions and finance carbon sequestration projects. Nigeria can develop a cap-and-trade system or implement other market-based mechanisms to set a price on carbon and create incentives for emission reductions. The carbon market should be transparent, regulated, and accessible to various sectors, promoting a market-driven approach to climate action.

• Capacity Building: Strengthening the institutional capacity for carbon sequestration and offset projects is crucial. This includes training and equipping government agencies, research institutions, and private sector entities with the necessary technical expertise, tools, and knowledge to support project development, MRV, and policy implementation. Building local capacity ensures sustainability and facilitates effective management and governance of carbon sequestration initiatives.

• Stakeholder Engagement and Participation: It is essential to engage and involve relevant stakeholders in the development and implementation of the policy framework. This includes representatives from local communities, indigenous groups, civil society organizations, private sector actors, and academia. Stakeholder engagement ensures that the policy framework reflects the diverse perspectives and interests of different actors, fosters social acceptance, and enhances the effectiveness of climate initiatives.

• International Cooperation and Partnerships: Nigeria should explore collaborations with international organizations, research institutions, and private sector entities to leverage expertise, access technology, and mobilize climate finance. Engaging in international partnerships can facilitate knowledge exchange, capacity-building, and the transfer of best practices, enabling Nigeria to implement world-class carbon sequestration and offset projects.

Additionally, Nigeria's wetlands, such as the Niger Delta, serve as important carbon sinks and biodiversity hotspots. They provide crucial ecosystem services, including flood regulation, water purification, and shoreline protection. Preserving and restoring these ecosystems is crucial for mitigating climate change, enhancing resilience, and ensuring the sustainability of Nigeria's natural resources.

CONCLUSION

Carbon sequestration and offset projects in Nigeria have the potential to make significant contributions to climate change mitigation and sustainable development. Nigeria, with its abundant natural resources and significant carbon footprint, can harness its potential as a climate superpower by implementing these projects. These initiatives involve capturing and storing carbon dioxide (CO2) from the atmosphere or offsetting emissions through investment in emission reduction activities elsewhere. One important aspect of carbon sequestration and offset projects is the utilization of natural carbon sinks. Nigeria is blessed with diverse ecosystems, including forests, wetlands, and grasslands, which have the capacity to sequester substantial amounts of carbon. By protecting and restoring these ecosystems, Nigeria can enhance their ability to absorb and store CO2. Initiatives such as sustainable forest management, afforestation, reforestation, and wetland conservation can significantly increase carbon sequestration and preserve biodiversity. Participating in Reducing Emissions from Deforestation and Forest Degradation (REDD+) initiatives is another avenue for Nigeria to explore. REDD+ is an international mechanism that provides financial incentives to developing countries for reducing deforestation and investing in sustainable forest management. Nigeria can engage in projects that measure and monitor forest carbon stocks, implement sustainable land-use practices, and receive financial rewards for verified emission reductions. This can not only sequester carbon but also promote sustainable development and community livelihoods. Carbon capture and storage (CCS) projects offer another promising approach. Nigeria's industrial sectors, including oil and gas, emit significant amounts of CO2. CCS involves capturing CO2 emissions from industrial processes, transporting them, and safely storing them underground in geological formations. Implementing CCS projects can help Nigeria reduce greenhouse gas emissions, particularly from its energy-intensive industries, while also creating opportunities for technological advancements and economic growth. In addition to sequestration projects, Nigeria can engage in offsetting activities by investing in renewable energy projects. By increasing the share of renewable energy in its energy mix, Nigeria can offset emissions from fossil fuel-based energy sources. This can involve developing wind or solar farms, which generate clean energy and contribute to emission reduction targets.

The Firma Advisory and its sister organization, Africa Policy Conversations, offer professional guidance and collaborative partnerships to stakeholders and policymakers, aiming to explore alternative avenues through which Nigeria can effectively leverage its climate strengths and make significant contributions to sustainable development. Kindly send an email to us at hello@thefirmaadvisory.com or africapolicyconversations@gmail.com.

NAVIGATING THE INVESTORS & EXPORTERS FX WINDOW: ESSENTIAL KNOWLEDGE FOR PROFITABLE VENTURES

The Investors' & Exporters' FX Window, also known as the I&E FX Window, is a special trading segment introduced by the Central Bank of Nigeria (CBN) to enhance liquidity and facilitate foreign exchange (FX) transactions for investors, exporters, and end-users. This window aims to deepen the FX market and ensure efficient price discovery based on prevailing market conditions. By providing a dedicated platform for FX trades, the CBN aims to accommodate all FX obligations and promote a competitive marketplace.

Purpose of the I&E Window

The primary goal of the Investors' & Exporters' FX Window is to enhance liquidity in the Nigerian FX market. It serves as a market trading segment for investors, exporters, and end-users, allowing FX trades to be made at exchange rates determined based on prevailing market circumstances. This ensures efficient and effective price discovery in the Nigerian FX market.

Eligible Transactions

The I&E Window allows for various types of transactions, including invisible transactions, bills for collection, and trade-related payment obligations. Invisible transactions cover a wide range of activities such as loan repayments, dividends/income remittances, capital repatriation, consultancy fees, technology transfer agreements, personal home remittances, and other eligible invisible transactions outlined in the CB Foreign Exchange Manual.

Bills for collection, which involve the collection of payments on behalf of customers, are also eligible to access the I&E Window. Additionally, any other payment obligations arising from trade activities can be processed through the I&E Window at the customer's discretion.

It's important to note that for the above permitted invisible transactions and bills for collection, only US dollars sourced from the CBN FX Window (limited to Secondary Market Intervention Sales - SMIS) Wholesale (Spot and Forwards) are eligible for purchase. Any other trade-related payment obligations can be executed through the I&E FX Window at the customer's request.

Participants

The supply of foreign currency to the I&E FX Window comes from various entities, including portfolio investors, exporters, Authorized Dealers (such as banks), and the Central Bank of Nigeria (CBN). Portfolio investors engaged in the Nigerian market who possess foreign currency that they want to exchange for the Naira can participate in this window. Exporters, businesses involved in export activities, can convert their foreign currency earnings into the local currency through the I&E Window.

Authorized Dealers, CBN-licensed entities such as banks, act as intermediaries in FX transactions and facilitate the buying and selling of foreign currency for their customers. The CBN also actively participates in this window as a major provider of liquidity and ensures professional market conduct.

Price Discovery Mechanism

To facilitate price discovery in the Nigerian FX market, participants at the I&E Window currently trade via telephone. However, the CBN encourages corporates to onboard the FMDQ Thomson Reuters FX Trading & Auction Systems to enhance market transparency. FMDQ, as the designated platform, polls buying and selling rates from major participants and provides indicative market depth information, contributing to the price discovery process.

Role of FMDQ

FMDQ Securities Exchange (FMDQ) plays a crucial role in the I&E Window by providing market information and transparency. The organization publishes information on its corporate website and data subscription portal daily, including details about the activities in the I&E FX Window. The Nigerian Autonomous Foreign Exchange Fixing (NAFEX) rate, which serves as the reference rate for spot FX operations in various recognized FX trading segments, is also available on the FMDQ platform.

Difference between NAFEX and I&E Window Rates

It's common for people to confuse the NAFEX rates and I&E Window rates. However, there is a significant difference between the two rates and how they are applied. NAFEX rates refer to the Nigerian Autonomous Foreign Exchange Fixing, which is a reference rate used for spot foreign exchange operations in recognized FX trading segments, including the I&E Window, interbank market, and other approved trading segments.

On the other hand, I&E Window rates are the exchange rates at which foreign currency trades are executed within the Investors' & Exporters' FX Window. These rates are determined based on prevailing market circumstances and serve as benchmarks for transactions conducted in the I&E Window.

Conclusion

The Investors' & Exporters' FX Window plays a crucial role in enhancing liquidity, transparency, and price discovery in the Nigerian FX market. By providing a dedicated platform for investors, exporters, and end-users, the CBN ensures efficient and effective price discovery based on prevailing market conditions. The participation of various entities, such as portfolio investors, exporters, and Authorized Dealers, contributes to a competitive marketplace.

Market participants can rely on the I&E FX Window and the supporting infrastructure provided by organizations like FMDQ to engage in FX trading with confidence and efficiency. The I&E Window is a significant step towards deepening the Nigerian FX market and accommodating the FX obligations of investors, exporters, and end-users. Through this window, the CBN aims to foster a vibrant and diverse FX market that supports economic growth and stability in Nigeria.

The Firma Advisory is always available to provide advisory services to investors and exporters on ways to navigate their foreign exchange transactions. Kindly reach out to us at hello@thefirmaadvisory.com for more information.

 

IMPLICATIONS OF THE FUEL SUBSIDY REMOVAL

What is fuel Subsidy?:

Simply put, fuel subsidy, within the Nigerian context, is an attempt by the Nigerian government to cushion the high prices of purchasing PMS (premium motor spirit) and HHK (household kerosene) by its citizens. The government achieves this by selling the oil products to marketers at a rate lower than the market price, which in turn sets a cap on the pump prices they can sell to the public through the government petroleum agencies and regulatory bodies.

What are the positive impacts of the fuel Subsidy?:

1. Affordable and Access to Fuel: The subsidy makes the petroleum products available at affordable prices to the general populace but more especially to the lower-income groups.

2. Poverty alleviation: Subsidies are intended to alleviate the financial burden of low-income earning households, allowing them enough room to reallocate their resources to other needs within the home. 

3. Social Stability: A sharp rise in oil prices within an economy heavily reliant on oil for its revenue can lead to social instability and unrest within the State; as prices of other commodities begin to rise due to the sharp rise in global oil prices.

4. Economic Boost: Subsidised fuel prices can stimulate economic activity within sectors reliant on petroleum like the transportation sector. Lower fuel prices can reduce the cost of transportation expenses, enabling businesses to operate more efficiently.

5. Industrial Development: Subsidies can help support the growth and development of domestic industries, particularly those that depend on affordable energy sources. Lower energy costs incentivize investment and promote the competitiveness of industries, potentially leading to economic diversification and industrialization.

What are the negative impacts of fuel subsidy?;

1. It places an economic burden on the government who have to divest large monies from development to pay for the subsidies.

2. Subsidies distort the market dynamics and discourages local oil refining while encouraging importation, leaving the country open to the volatile fluctuations to international oil prices.

3. The subsidy regime is susceptible to mismanagement, inefficiency, and corruption; the regime has been associated with smuggling and diversion of subsidised petroleum products to other markets outside Nigeria. There have also been reports of ghost marketers and fraudulent claims, which continue to hamper the benefits of the subsidy program.

4. Fuel subsidies have often contributed to fiscal imbalances, leading to strained government resources and leaving the government with no option but to borrow to sustain the program. This has been shown to have long-lasting negative consequences for the nation.

5. Lowered cost of purchasing petroleum products lead to high consumption and inefficient use of energy resources. In an age where we are pursuing green energy transitions, subsidy leads to cushioned or reduced cost of petroleum products, which in turn results in inefficient use and higher consumption of those resources, leading to increased carbon emissions.

SHOULD NIGERIA REMOVE FUEL SUBSIDIES?

Removal of fuel subsidies in Nigeria has been an ongoing conversation for over a decade, and successive governments have continued to find ways to put a complete end to the scourge that comes with the subsidies. The discussion on the removal of subsidies led to the development of the SURE-P (Subsidy Reinvestment and Empowerment Program) program, which was targeted at reinvesting funds recuperated from removing subsidies into other developmental projects.

The group managing director of the NNPC ltd, Mr. Mele Kyari stated in a recent interview with Arise TV that despite the provision of the Petroleum Industry Act (PIA) 2021 terminating subsidy as of February 2022, the federal government continued to intervene with the provision of subsidy up until 2023. He further stated that the federal government has not been able to pay the monies for subsidy for the last couple of months, which means that the NNPC has had to shoulder the responsibility of subsidy and therefore has not been able to make any remittances to the federation account (this is why the fuel prices changed as soon as the new administration announced the end of the subsidy regime).

Removal of the subsidy should usher in a regime of new players in the market space, which should lead to competition; these market forces will eventually force the pump prices of petroleum and other products to become cheaper than they are now. Already, we are beginning to see movements within the industry as new players apply for and receive permits from the NMDPRA.

Going forward, the decision to discontinue fuel subsidies, completely, in Nigeria should be thoroughly reviewed, with a balanced assessment of the benefits and negatives. While the elimination of subsidies can result in fiscal sustainability, efficient resource allocation, economic diversification, improved governance, and environmental sustainability, it can also result in higher living costs, inflationary pressures, social unrest, and disproportionate impacts on vulnerable populations. Policymakers must carefully manage the transition, put mitigation measures in place, and ensure that alternative social safety nets are in place to safeguard society's most vulnerable sectors while we wait for the market to stabilize. Finally, while it may appear like the hardship of the removal of the fuel subsidy is biting hard on every Nigerian, it is a welcome relief that the regime is finally over. It seems like the era of fuel queues due to the unavailability of petroleum is at an end, and we are hopeful that if managed properly, the current hardship will abate soon enough while the expected positive economic impact of the subsidy removal will bring lasting prosperity. In the end, Nigerians should be the real winners in the long run, if the right things are done.

Chijioke Odu ESQ.

Associate

Energy and Corporate Finance Law Practice

ACCESS TO OPPORTUNITIES IN THE NIGERIAN POWER SECTOR : THE SUB-FRANCHISING MODEL

INTRODUCTION

Over the years, Nigeria's power sector has experienced numerous issues, including insufficient generation capacity, inadequate transmission and distribution facilities, and limited access to electricity. To address these issues, the Nigerian Electricity Regulation Commission (“NERC”) has put in place a number of regulations and initiatives, including sub-franchising.

Sub-franchising is a business concept in which a company (the sub-franchisee) invests in and administers the distribution network of another company (the franchise holder). This technique has been utilized to improve electricity supply in various countries, and the collaboration between Connexa Energy and Kano Electricity Distribution Company (“KEDCO”) in Nigeria is a good example of sub-franchising in action.

This article will attempt to discuss the business model of “Sub-Franchising” as a tool to improving electricity distribution in Nigeria.

UNDERSTANDING SUB-FRANCHISING IN THE NIGERIAN POWER SECTOR

• Sub-Franchise Definition

Sub-franchising is a business strategy in which a franchisee is given the right to open and operate the business model of the Sub-franchisor in a defined geographical area. Sub-franchising in the Nigerian power industry entails awarding a third-party operator the right to facilitate the distribution of electricity in a certain area or zone. The facilitation could include metering, billing, distribution, maintaining distribution lines etc. This strategy is an efficient method of increasing private sector participation in the power sector and improving electricity delivery.

• The Legal Framework for Sub-Franchising in Nigeria 

In 2020, NERC released guidelines for sub-franchising in the power sector. The guidelines outline the procedures for licensing and regulating sub-franchise operators, as well as the roles and responsibilities of all parties involved in the sub-franchising agreement. These guidelines provide a legal framework for sub-franchising in the power sector, which helps to ensure transparency and accountability in the sub-franchising process.

• Benefits of Sub-franchising in Nigeria

Sub-franchising has various advantages for the Nigerian power sector, including the following:

1. Sub-franchising permits private sector operators to participate in the power industry, which can help to raise investment and enhance service delivery.

2. Sub-franchising can lead to increased electricity supply by enhancing competition and fostering service delivery innovation.

3. Enhanced accountability: The sub-franchising agreement defines the roles and obligations of all parties involved, which contributes to increased accountability and transparency in power distribution.

4. Job creation: Because sub-franchise operators frequently hire local workers and contractors, sub-franchising can offer job possibilities in local communities.

5. Increased revenue: Because sub-franchise operators are required to pay licensing fees and other costs, sub-franchise operators can raise revenue for the government and other stakeholders.

THE COLLABORATION BETWEEN KONEXA AND KAEDCO AS A CASE STUDY

• Background Information on Konexa and KAEDCO

Konexa is an energy company that partnered with the Kaduna Electricity Distribution Company (KAEDCO) using the sub-franchising model to create the relationship. The ECOF Kaduna Ltd is the special purpose vehicle created for the purpose of delivering on the sub-franchise agreement. The project consists of the generation, distribution, and marketing of electricity in the Zaria road and Kudenda areas (Konexa’s sub-franchise area) of Kaduna City.

• Details of the Two Companies' Sub-Franchise Agreement

Konexa was granted the right to distribute power to some parts of Kaduna State as part of the sub-franchise deal. Konexa was in charge of providing metering, billing, and collection services in the sub-franchise areas together with the construction of 2.5 MWp solar photovoltaic plant, 8 mini-grids and approximately 285 solar home systems (SHS) as well as upgrading, replacing and installing of network distribution equipment, the rollout of smart metering infrastructure, and the implementation of an integrated cutting-edge information and operations technology platform. and had to pay a franchise fee to KAEDCO. The agreement also defined each party's tasks and obligations, including Konexa's technical and commercial responsibilities and KAEDCO's regulatory and supervisory function.

• The Sub-Franchise Agreement's Outcomes

The sub-franchise deal between Konexa and KAEDCO has improved Kaduna State's energy supply. According to reports, the sub-franchise model has enhanced revenue collection by increasing metering and billing accuracy, reducing technical and commercial losses, Customers' happiness has also increased as a result of the strategy, as they experienced greater service delivery and shorter outage times. The success of the Kaduna State sub-franchise concept has prompted calls for its replication in other parts of Nigeria.

Why are more DISCOs choosing the Sub-franchising model over the standard PPAs (Power Purchase Agreements)

For a variety of reasons, Nigerian Distribution Companies (Discos) may prefer sub-franchising to a regular Power Purchase Agreement (PPA). Some of the reasons are outlined below;

• Sub-franchising allows Discos to delegate some technical and economic obligations to the sub-franchisee, resulting in more efficient distribution network management. This can assist in addressing the issues of technical losses, low collection rates, and poor customer service that have plagued the Nigerian power sector, as well as improving electricity supply in unserved and underserved areas.

• Sub-franchising permits the private sector to participate in the electricity industry, potentially leading to higher investment and innovation. Private sector participation can help to introduce fresh cash and experience into the sector, as well as enhance competition and efficiency.

• Through the collection of franchise fees from the sub-franchisee, sub-franchising provides Discos with an additional revenue source. This can aid the Disco's financial viability and support its ongoing operations and distribution network investments.

• Sub-franchising allows for modification of the franchise price, performance standards, and other essential aspects, therefore sub-franchising can be more flexible than PPAs. This can assist in guaranteeing that the sub-franchisee has enough incentives to perform well and that the distribution network is handled in a way that maximizes efficiency and customer happiness.

Overall, sub-franchising has several advantages over normal PPAs for Nigerian Discos. While PPAs can offer power generators a long-term revenue stream, they may not be able to motivate the kind of investment in distribution infrastructure that is required to improve overall dependability and quality of energy supply, which is the Discos' primary role. Furthermore, sub-franchising can encourage private sector participation and innovation in the electricity industry, while also providing Discos with an extra revenue stream and allowing them to better manage their distribution networks.

IMPORTANT CLAUSES IN A SUB-FRANCHISE AGREEMENT

Sub-franchising is a legal agreement between a primary franchisor (in this case, a Disco) and a secondary franchisor (the sub-franchisee) in which the primary franchisor grants the sub-franchisee the right to operate a business in a specific geographical area using the primary franchisor's brand name, trademarks, and business systems. The sub-franchisee must pay franchise fees, follow operating requirements, and meet the parent franchisor's performance goals. The legal instrument that controls the connection between the primary franchisor and the sub-franchisee is known as a sub-franchise agreement.

Some of the important clauses that are often included in a sub-franchise agreement are as follows:

• Territorial Rights Clause: This clause defines the geographical area, in which the sub-franchisee may operate, as well as the rights and restrictions associated with that territory. It is critical that the territory be precisely defined, with no overlaps or disputes with other franchisees or the primary franchisor.

• Duration and Extension Clause: This clause specifies the length of the sub-franchise agreement as well as the criteria for renewing or terminating it. To avoid disagreements or misunderstandings, it is critical to have a clear understanding of the duration of the agreement, as well as the criteria for renewal or termination.

• Franchise Fees and Royalties Clause: This clause stipulates the amount and frequency with which the sub-franchisee must pay franchise fees and royalties to the primary franchisor. It is critical to ensure that the fees and royalties are reasonable and competitive, and that both parties understand the payment schedule.

• Training and Support section: This section specifies the training and support that the primary franchisor will provide to the sub-franchisee, such as initial training, on-going support, and access to marketing and promotional materials. It is critical to ensure that the sub-franchisee receives adequate training and support in order to run the business properly and uphold the standards established by the primary franchisor.

• Performance Standards Clause: This clause details the performance standards that the sub-franchisee must satisfy, such as service quality, customer satisfaction, and financial performance. It is critical to ensure that the performance requirements are realistic and attainable and that suitable incentives and sanctions are in place to encourage compliance.

• Intellectual Property Rights Clause: This clause protects the major franchisor's intellectual property rights, such as trademarks, copyrights, and trade secrets. To minimize legal problems and safeguard the brand's reputation, it is critical to ensure that the sub-franchisee understands and complies with the original franchisor's intellectual property rights.

IMPROVING SUB-FRANCHISING AND ELECTRICITY SUPPLY IN NIGERIA

Sub-franchising has been highlighted as a feasible solution to some of the Nigerian power sector's difficulties; however, the model is not without its difficulties. This sub-heading is going to attempt solutions to some of the difficulties.

• Addressing regulatory problems: The absence of a clear regulatory framework is one of the primary challenges confronting sub-franchising in Nigeria. The regulatory framework for sub-franchising must be examined and revised to suit the unique issues confronting Nigeria's electricity sector. This will offer investors with clarity and stimulate additional investment in the sector.

• Increasing investment: Successful sub-franchising necessitates a large investment. As a result, it is critical to foster an enabling climate that supports investment in the electricity sector. This can be accomplished by offering tax breaks, lowering regulatory barriers, and providing investor guarantees.

• Improving infrastructure: The status of infrastructure in Nigeria's power industry is a major impediment to sub-franchising success. The government must invest directly and indirectly in infrastructure improvements such as transmission lines, distribution networks, and electricity-producing facilities. This will improve power supply dependability and attract more investors to enter the power industry.

• Improving governance: Corruption and inefficiency have long plagued Nigeria's power sector. To improve sub-franchising and energy supply in Nigeria, governance must be strengthened and the sector must be transparent, responsible, and efficient. This will encourage more investors to enter the market and improve service delivery quality.

• Improved Security: There is a need to improve and ensure the security of electricity infrastructures and installations to curb and/or reduce the incidences of vandalism. This will encourage more investors to come on board and incentivize existing ones within the sector, as well as generally improve the quality and consistency of power supply to end-users. 

• Raising awareness: There is a need to raise investor, policymaker, and general public awareness of sub-franchising and its potential benefits. Workshops, seminars, and other forms of stakeholder engagement can help with this. Increased knowledge will encourage more investors to enter the sub-franchise sector, which will increase Nigeria's electricity supply.

CONCLUSION

Finally, sub-franchising is a potential concept for enhancing electricity delivery in Nigeria. Konexa and KAEDCO's collaboration has proved that sub-franchising can increase the efficiency and reliability of power distribution in Nigeria. Enhanced investment, improved infrastructure, and enhanced competition are all advantages of sub-franchising in the Nigerian power sector.

While sub-franchising has numerous advantages over regular power purchase agreements, it is not without its drawbacks. Regulatory difficulties, financial constraints, and infrastructure limitations are some of the challenges that may be encountered in sub-franchising.

These issues must be addressed in order to improve sub-franchising and energy supply in Nigeria. Addressing regulatory barriers, increasing investment, enhancing infrastructure, improving security, and raising awareness of the benefits of sub-franchising are all ways to do this.

We anticipate additional sub-franchise agreements in Nigeria's power industry in the future as the government pursues its objective of expanding access to dependable and affordable electricity through programmes like Solar Power Naija. Sub-franchising has the ability to improve Nigeria's electricity sector and promote economic growth and development in the country with the appropriate policies and investments.

The Firma Advisory (currently providing consultation and legal services to developers in an ongoing SPN programme) is available to provide legal assistance and collaborate with individuals and organizations who are interested in leveraging the opportunities available in the Power Sector. Kindly reach out to us through our social media channels or email us at hello@thefirmaadvisory.com.

Written By:

CHIJIOKE ODU

Associate, Department of Energy Law, Corporate Commercial and Public Private Partnership.

The Firma Advisory

PARTNERSHIP ANNOUNCEMENT

We are thrilled to announce that we have entered into a global strategic partnership with Access Partnership Limited, the world's leading public policy firm dedicated to opening markets for technology.

This partnership aims to enhance service delivery, policy effectiveness and promote technological advancement in Africa's dynamic technology sector. The services that will be provided through this partnership will be tailored to meet the unique needs of various stakeholders, including Government ministries, Global tech companies, Startups, Venture capital firms, Private equity firms and companies operating across Africa.

Our partnership is built on a shared vision to drive positive change and foster sustainable development by focusing on the following key areas:

Policy Development: Our partnership will actively support the formulation of robust and effective technology policies. We will work closely with policymakers, government institutions, and industry stakeholders to foster innovation and digital inclusion and address emerging technological challenges.

Stakeholder Engagement: Inclusive policy development is at the core of this partnership. We aim to foster communication and teamwork among various stakeholders, such as government entities, private sector organizations, civil society groups, and academic institutions.

Advocacy: We are dedicated to supporting policies that encourage technological progress, protect digital rights, and foster innovation. Our advocacy efforts aim to promote policies that promote economic growth and social development in West Africa.

Business Development: Our partnership aims to discover and pursue promising collaboration and business development prospects within the technology industry. We will utilize our networks and expertise to establish partnerships and investments, thereby cultivating a prosperous environment for technology companies in Western Africa.

"Our partnership with Access Partnership Limited presents a tremendous opportunity to enhance policy effectiveness and promote technological advancement in Africa. By combining our expertise and resources, we can address the challenges faced by the region's technology sector and create a thriving ecosystem for innovation and growth." Chinenye Uwanaka, Managing Partner, The Firma Advisory.

This strategic partnership represents a significant step towards enhancing policy effectiveness and promoting technological advancement across Africa. Join us in shaping the future of technology in Africa!

For more information, please contact us at hello@thefirmaadvisory.com

WHO OWNS YOUR SOFTWARE CODE? A GUIDE FOR STARTUPS AND BUSINESSES

Brooke is the founder of Bruqs, a fashion tech startup. With a pre-money valuation of ₦10,000,000, Brooke is working tirelessly to raise initial capital to bring her vision to life. And it seems her efforts are paying off, as an angel investor has expressed interest in providing the much-needed funds to kickstart Bruqs.

But when the investor asked a seemingly simple question - "Do you own this software?" - Brooke found herself pausing to consider her response. She had outsourced the development of her product to ZY Codes Ltd., and while she was thrilled with the outcome, she wasn't quite sure about the ownership of the software.

Thankfully, Brooke had entered into a software development agreement with ZY Codes Ltd., which included a clause transferring the intellectual property of the product to herself. With this clause in place, Brooke assumes the investor's question is a resounding "Yes!" But she has her doubts.

Let us dissect this and determine whether the question is a necessary one.

As technology continues to evolve and shape the business landscape, it is important for businesses to understand the legal complexities that come with developing software.

Developing an app involves a unique mix of software code and creative content like text and graphics, which are protected by copyright. However, copyright ownership only applies to original works that have been expressed in a permanent medium.  This means that a work, such as software, will only enjoy copyright if it has original character and has been expressed in a manner that can be accessed. (See Sections 2 and 3 of the Copyright Act 2020.) 

Businesses that commission the development of software must carefully navigate the legal intricacies of copyright ownership. When software code is written, the author immediately owns the copyright (see Section 28 of the Copyright Act). In practice, businesses often demand ownership through a software development agreement or IP transfer agreement. 

Ownership gets complicated when it comes to using code from various sources, like open-source or third-party libraries. This is because outsourcing development firms typically use a variety of code, including new code, free open-source code, third-party code, and proprietary code from their code bank. Each type of code has its own legal implications that businesses must consider. For example, if a developer uses open-source code, the software may be subject to certain licensing requirements.

To navigate these legal complexities, a well-crafted software development agreement should differentiate between "background rights" and "foreground rights." Foreground rights are specific to the app and can include graphics and proprietary code that give the app unique functionality. These are typically assigned or transferred to the business. Background rights, on the other hand, are not specific to the app and can include open-source or third-party code. These are often licensed to the business rather than assigned.

To protect their rights, businesses must negotiate for a license of the background rights (open source code, third-party source etc.,) that grants worldwide rights, allows for modification of the software, and permits sub-licensing to other developers or agencies. It is also important to ensure that the licence does not have a time limit and that the business can pursue claims against third parties who infringe on their copyright.

Now, we can appreciate the purport of the question posed to Brooke by the angel investor. Business owners like Brooke must be mindful of the different types of code used in their software and clarify ownership and licensing terms in their software development agreements. This ensures that they understand their foreground and background rights and have the appropriate license to use the codes in the background rights. By understanding the legal complexities of software development, businesses can develop apps with confidence and truly own their intellectual property. The upside to this is that lawsuits that may come up in the future regarding copyright infringement are averted. 

SEXUAL ASSAULT AWARENESS MONTH, APRIL 2023

THEME: DRAWING CONNECTIONS, PREVENTION DEMANDS EQUITY

Sexual assault is a pervasive and deeply troubling problem affecting millions of people in modern society. It is a traumatic experience that can cause long-term emotional and psychological harm to victims. Despite the fact that it is a widespread problem, it is still a topic that is often avoided or not talked about openly. As such, it is vital to raise awareness about this issue and promote prevention strategies that demand equity. In this article, we will explore the importance of equity in sexual assault prevention and the various efforts being made to make the world a safer and more equitable place for everyone.

Sexual assault is a complex issue that cannot be fully understood without examining the intersectional nature of the problem. It is an act of violence that can be experienced by anyone, regardless of gender, race, age, or socio-economic status. While sexual assault affects people of all genders, sexual orientations, and backgrounds, certain groups are disproportionately impacted by this issue. They include children, individuals with disabilities, and people living in poverty. This is due to the intersection of various forms of oppression, such as racism, sexism, homophobia, ableism, and others. The intersectional nature of sexual assault means that we must take a multi-faceted approach to address the issue. 

Drawing connections between sexual assault prevention and equity means acknowledging that everyone should have equal rights and opportunities. It means understanding that individuals who are marginalized or oppressed are more vulnerable to sexual violence. Therefore, preventing sexual assault requires addressing systemic inequalities and discrimination that exist in our society.

Forms of sexual violence include rape, sexual harassment, unwanted sexual contact, sexual exploitation and trafficking, exposing one’s genitals or naked body to others without consent, nonconsensual image sharing, as well as words and actions of a sexual nature against a person’s will. 

Preventing sexual assault requires addressing the root causes of the problem. This means addressing the societal inequalities that make certain groups more vulnerable to sexual assault than others. We must recognize that sexual assault is not an isolated event, but rather, a symptom of broader social injustice. Addressing these injustices requires the demand for equity in all aspects of our society. 

One of the main factors that contribute to sexual assault is inequality. Inequality in terms of power, resources, and access to opportunities can create an environment where some individuals feel entitled to dominate and control others. This can lead to sexual violence and assault.

• One way to prevent sexual assault is by promoting a culture of consent. This means ensuring that all sexual encounters are consensual and that everyone involved has given their full and enthusiastic consent. We must teach people about the importance of affirmative consent and encourage open and honest communication in sexual encounters.  It also means recognizing that consent can be withdrawn at any time and respecting that decision. Educating people about the importance of consent and how to practice it in their relationships is also an important step in preventing sexual assault. 

• Another way is by empowering marginalized communities by giving them a voice and a seat at the table. This means supporting the leadership of survivors, promoting diversity and inclusion in all areas of society, and creating safe spaces for marginalized groups.

• Challenging harmful gender norms and stereotypes is another way to tackle sexual assault. These norms and stereotypes can contribute to an environment where sexual assault is normalized or excused. For example, the belief that men should be dominant and aggressive, or that women should be submissive and passive, can lead to a culture where sexual violence is seen as acceptable or expected. By promoting gender equality and challenging harmful gender stereotypes, we can create a society where sexual assault is less likely to occur.

• We must also educate people about the various ways they can support survivors and promote prevention. We must hold perpetrators of sexual assault accountable for their actions by supporting survivors in reporting their assaults, prosecuting perpetrators, and promoting restorative justice practices.

As we work towards a future without sexual violence, we call on all individuals, communities, organizations, and institutions to change the systems surrounding them in order to build racial equity and respect. We must change the culture and attitudes which allows sexual assault proliferate. It will only take ending all forms of oppression to end sexual harassment. Take action today!

#SAAM2023

THE FIRMA 2022 NEWSLETTER

A lot happened in our Firm in the year 2022 and we did a recap of that in our special end-of-year newsletter. In this newsletter, we just want to tell you a bit more about us, what we achieved in 2022, and our hopes for the new year.

Kindly click on the box above to access it. We wish you a prosperous new year.

CLIMATE JUSTICE: PRESERVING HUMAN RIGHTS IN A WARMING EARTH

The atmosphere is the essential physical and chemical environment for life, and changes to the physical and chemical properties of the atmosphere have the potential of affecting directly the quality of life and even the very existence of some forms of life. These changes and effects bring to the fore the very concept of climate change.

The United Nations defines Climate change as the long-term shifts in temperatures and weather patterns. These shifts may be natural, such as through variations in the solar cycle, but since the 1800s, human activities have been the main driver of climate change, primarily due to burning fossil fuels like coal, oil and gas, as well as the greenhouse gas emissions which has resulted in diverse effects ranging from sea level rise, coastal erosion, food shortage, devastating storm, extinction, increased health issues, poverty and forced migration.

Climate change, an inherently social issue, can upset everyone’s daily life, but not all climate impacts are created equal nor distributed equally. This differential impact which has greatly influenced human rights, gave room for the emergence of the movement on climate justice. Climate justice is therefore a concept that addresses the just division, fair sharing, and equitable distribution of the benefits and burdens of climate change, and the responsibilities to deal with same. It requires that climate action be consistent with existing human rights agreements, obligations, standards and principles. Those who have contributed the least to climate change have been made to unjustly and disproportionately suffer its harms and so they must be made meaningful participants and primary beneficiaries of climate action, and must also have access to effective remedies.

Climate Justice

Some of the rights in which climate change poses serious threats to, includes right to life, right to self determination, right to development, right to food, right to water and sanitation, right to health, right to housing, right to education, right to meaningful and informed participation. The Office of the High Commissioner for Human Rights (OHCHR), which is the leading United Nations entity on human rights, highlights the essential obligations and responsibilities of States and other duty-bearers for climate change-related agreements, policies, and actions in order to foster policy coherence and help ensure that climate change mitigation and adaptation efforts are adequate, sufficiently ambitious, non-discriminatory and otherwise compliant with human rights obligations. These highlights includes;

● To mitigate climate change and to prevent its negative human rights impacts, States have an obligation to respect, protect, fulfil and promote all human rights for all persons without discrimination. Failure to take affirmative measures to prevent human rights harms caused by climate change, including foreseeable long-term harms, breaches this obligation.

● To ensure that all persons have the necessary capacity to adapt to climate change, States must ensure that appropriate adaptation measures are taken to protect and fulfil the rights of all persons, particularly those most endangered by the negative impacts of climate change such as those living in vulnerable areas.

● To ensure accountability and effective remedy for human rights harms caused by climate change, the Universal Declaration of Human Rights, the International Covenant on Civil and Political Rights, and other human rights instruments require States to guarantee effective remedies for human rights violations. Those affected, now and in the future, must have access to meaningful remedies including judicial and other redress mechanisms.

● The UN Charter imposes upon States the duty to cooperate to ensure the realization of all human rights. Climate change is a human rights threat with causes and consequences that cross borders; thus, it requires a global response, underpinned by international solidarity. States should share resources, knowledge and technology in order to address climate change issues.

● The UN Framework Convention on Climate Change calls for States to protect future generations and to take action on climate change on the basis of equity and in accordance with their common but differentiated responsibilities and respective capabilities. While climate change affects people everywhere, those who have contributed the least to greenhouse gas emissions (i.e. the poor, children, and future generations) are those most affected. Equity in climate action requires that efforts to mitigate and adapt to the impacts of climate change should benefit people in developing countries, indigenous peoples, people in vulnerable situations, and future generations.

It is now beyond dispute that climate change caused by human activity has negative impacts on the full enjoyment of human rights. The fight against climate change effects is a global one, and not every region, country, society, and continent would experience the same level of damage even though everyone is responsible for these changes. It is therefore the collective responsibility of every individual to see to the total elimination of the impacts of climate change all over the world.

CORPORATE GOVERNANCE: THE RISE AND FALL OF STARTUPS

INTRODUCTION

Starting a business can be an incredibly daunting task, and the success of a startup depends heavily on the strategies and decisions the business owners make. Corporate governance can help startups grow and thrive by providing structure and direction to the business. Corporate governance involves a set of rules and regulations that guide how a business is managed and how its resources are allocated. This can include everything from setting out processes for decision-making to establishing ethical standards and creating a company culture that encourages collaboration and innovation. Corporate governance can also help protect the interests of shareholders, encourage transparency, and promote ethical and responsible  behavior. Not only does corporate governance help startups succeed, but it can also provide a competitive edge in the marketplace. With the right corporate governance practices in place, startups can be better prepared to handle the challenges of an ever- changing market and stand out from the competition.

STARTUPS AND CORPORATE GOVERNANCE

In practice, there are numerous examples of lack of good corporate governance leading to a company’s downfall. The most recent example is the collapse of one of the cryptocurrency behemoths, FTX.

FTX was the world’s second largest cryptocurrency exchange prior to its collapse. Due to lack of a good corporate governance system in place, FTX was forced to declare bankruptcy. The initial announcement of the company’s failure resulted in a nearly 25% drop in the price of Bitcoin, a panic in the market, and FTX  losing a rumored $1 billion in customer funds. 

The company did not maintain accurate books and cash accounts and currently is not able to locate accurate accounts and transaction history to verify its positions. There were also auditing failures and a lack of clear employee and contractor records. The company failed to represent the best interests of its stakeholders, which resulted in its collapse. This demonstrates the significance of having a good corporate governance structure in place, as poor corporate governance can lead to the collapse of a fast rising company.

Corporate governance is a concept, rather than an individual instrument. It includes debate on the appropriate management and control structures of a company. It includes the rules relating to the power relations between owners, the Board of Directors, management and the stakeholders such as employees, suppliers, customers and the public at large.“ DR. Narayana Murthy, President Sec, INDIA.

 The Companies and Allied Matters Act, Cap c20, is a major law in Nigeria that governs corporate governance. It includes mechanisms for corporate governance such as appointing directors, removing directors, provisions for auditors and audit committees, and the mandatory participation of shareholders in corporate decisions.

Corporate governance has a significant impact on businesses and determines whether they succeed or fail. A number of startups in Nigeria have failed because they lacked clearly defined corporate governance structures. According to experts, the failures of Nigerian startups are not always due to lack of funds or a harsh environment, but also a lack of internal process that would ensure success.

Prof. Umar Garba Danbata has blamed some companies' failures on a lack of corporate governance structures, as seen in major companies around the world such as FTX, Enron, Worldcom, Arthur Anderson, Leeman Brothers, and Cadbury Nig. Ltd.

In order to succeed, startups need to adopt corporate governance practices at every level of conducting business. There are four different stages to a startup’s growth process which require governance structure at each stage, they include:

1.       Creativity stage

2.       The early stage(Minimum viable product)

3.       Traction stage

4.       Growth stage

Creativity stage

This is the initial stage where the ideas are conceived. At this stage, the market analysis is done to determine the problems the startup company intends to solve. At this stage, corporate governance focus will be on;

·         Roles and responsibilities of partners

·         Definition of equity interest

·         Ownership of the company’s intellectual property

The early stage(Minimum Viable Product)

This is the stage where all the ideas start to materialize. At this stage, the product has been created and is being tested. The governance focus at this stage will be on;

·         Getting investors and partners

·         Means of dispute resolution

·         Protection of intellectual property

Traction stage

At this stage, the MVP being tested is now validated. The next step will be searching for ways to generate revenue, and getting customers and new employees. The Corporate governance focus at this stage will be on:

Establishing a board

Defining hierarchy

Growth stage

At this stage, the company has been well established and is ready to move forward with business. The corporate governance focus at this stage will be on:

Implementing policies

Codes and ethics

Improvement of shareholder/investor relations

CONCLUSION

Okpara (2016) argued that weak or non‐existent law enforcement mechanisms, abuse of shareholders' rights, lack of commitment on the part of Board of directors, lack of adherence to the regulatory framework, weak enforcement and monitoring systems, and lack of transparency and disclosure are causes of CG failure in Nigeria.

The importance of having a solid corporate governance structure for startups cannot be overemphasized as it encourages success and business stability. It should also be noted that early integration of corporate governance at all stages of a startup’s growth is crucial for boosting productivity and attracting investors.

RECENT DEVELOPMENTS IN MIDSTREAM OIL & GAS UNDER THE PETROLEUM INDUSTRY ACT.

INTRODUCTION

The Nigerian oil and gas industry is divided into three sectors: upstream, midstream, and downstream, with several players and regulators operating throughout the value chain. With the oil and gas industry undergoing a transformation over the last few decades, there have been various changes in the way oil and gas are sourced, refined and transported to end users. This has led to the emergence of new players who focus on extracting hydrocarbons from depleted oil wells, pipelines, or other previously non-utilized sources. The midstream segment is one such part of the upstream oil and gas sector that focuses on filling operational gaps between the production of crude oil or natural gas and its end use as final products such as gasoline, diesel, or jet fuel.

International oil companies dominate the upstream oil and gas sector (IOCs). Shell, Chevron, Mobil, Agip, Addax, and Total currently control more than 80% of the country's crude oil production. The sector operates under a variety of agreements, including Joint Ventures (JVs) and Production Sharing Contracts (PSCs) with the Nigerian National Petroleum Corporation (NNPC). Contracts for sole risk and risk service are two other types of contractual arrangements. In addition, the IOCs control more than 90% of the oil reserves and operating assets. In addition, the IOCs control more than 90% of the oil reserves and operating assets. IOC production has declined by 4% per year on average over the last ten years, while marginal field players have increased production by up to 15% per year. (Marginal fields are discoveries that have not been exploited for a long time due to one or more of the following factors: very small reserve/pool sizes to the point of not being economically viable, lack of nearby infrastructure, and profitable consumers.)

DEFINITION OF TERMS

·         Downstream - Downstream operations are oil and gas processes that occur after the production phase to the point of sale. This sector of the oil and gas industry—the final step in the production process—is represented by refiners of petroleum crude oil and natural gas processors, who bring usable products to end-users and consumers.

·         Midstream - Midstream refers to points in the oil production process that falls between upstream and downstream. In particular, midstream activities include the storage, processing, and transportation of petroleum products. These may include companies that specialize in operating tanker ships, pipelines, or storage facilities.

·         Upstream - Upstream refers to the initial phases of oil and gas production, involving exploration, drilling, and extraction of crude oil and natural gas.

·         Production sharing Contracts or Agreements - Production sharing agreements (PSAs) or production sharing contracts (PSCs) are a common type of contract signed between a government and a resource extraction company (or group of companies) concerning how much of the resource (usually oil) extracted from the country each will receive.

·         Decommissioning and Abandonment - At the end of the production life, the project will be decommissioned and abandoned to restore the site to a safe condition that minimises potential residual environmental impact and permits reinstatement of activities such as fishing and unimpeded navigation at the site.

RECENT DEVELOPMENTS IN MIDSTREAM OIL & GAS

The PIA establishes clear distinctions between the operations of the midstream and downstream petroleum industries. The midstream sector includes the establishment and construction of refineries and lubricant and petrochemical production facilities. Construction of facilities for the transportation and storage of petroleum liquids is also included in this sector. The PIA informs players about the permissible activities in the sector, subject to obtaining the necessary licenses or permits.

·         Introduction of the NMDPRA (Nigerian Midstream and Downstream Petroleum Regulatory Authority)

The Nigerian Midstream and Downstream Petroleum Regulatory Authority was created in August 2021 in line with the Petroleum Industry Act 2021 which provides legal, governance, regulatory and fiscal framework for the Nigerian Petroleum Industry as well as development of Host Communities.

NMDPRA’s encompasses a merger of three defunct regulatory agencies: Petroleum Products Pricing Regulatory Agency (PPPRA), Petroleum Equalization Fund {Management} Board (PEFMB), the Midstream and Downstream Divisions of the Department of Petroleum Resources (DPR). This birth has ushered a new dawn for establishing a progressive regulatory framework that encourages investment and full optimization of the midstream and downstream sector of the petroleum industry in Nigeria.

The Authority is responsible for the regulation of the midstream and downstream petroleum operations in Nigeria which includes technical, operational, and commercial activities.

·         Introduction of fines and penalties

Section 174(4) of the Act introduces specific penalties for engaging in activities without obtaining approvals to operate within the sectors. Penalties include sealing of office premises, dismantling of unapproved facilities, confiscation of equipment, or imposition of penalties prescribed by regulations under the Act. The promoters of the company may also be prosecuted with imprisonment of up to 1 year or a fine as prescribed in by regulation to the Act. License holders are expected to apply to the authority for appropriate license within 2 years of the effective date of the Act. 

·         Accessing infrastructure, facilities and transportation network

The Act Introduces right of way permits. It stipulates network codes to govern access to facilities, pipelines and transportation networks between users including applicable charges and tariffs for access. Qualified 3rdparties can also gain access rights to any facility and infrastructure used in the midstream sector at commercials rates. Access to facilities should be granted without discrimination and based on availability.

·         National strategic stock

Section 181 of the PIA introduces a levy to be charged to operators within the sector for financing the National strategic stock. The costs will form part of the retail price of petroleum products. Designated locations across the country will be allocated for keeping the stock. Companies will also be required to maintain an amount of stock as provided by guidelines. The Act does not provide the rate of the levy but it is expected to be determined and published through a regulation.

·         Specific licenses to be obtained to operate in the midstream sector.

Sections 183-202 and section 204 of the PIA provides the specific licenses that an operator will require to play in the various segments of the midstream sector of the petroleum industry.  These licenses will be granted subject to the approval of the application and payment of fees. These relate to the following specific activities: crude oil refining, bulk storage, transportation pipeline, transportation network operations, wholesale petroleum liquids supply, petroleum product distribution and operation of facilities for production of petrochemicals.  It is notable to mention that the license for crude oil refinery needs to be approved by the Minister. The sections further stipulate the duties of the license holders and the conditions for granting the licenses. The tenure of each license and the conditions for granting a renewal is expected to be published through a regulation.

·         Pricing regime and power to regulate tariff

This eliminates government’s regulation on pump price of petroleum products and allows the market forces to determine price. The authority will however regulate prices and tariffs on products in the interest of the public where monopoly exists, or the market is at an infant stage.

Transactions between suppliers and customers are required to be at arm’s length. Suppliers will be required to furnish the authority with details of bulk sales within 14 days including the cost of making the supply. False declaration attracts a fine.

The authority will be expected to provide guidelines on prices based on guided principles. Licensees will also be required to publish prices for their customers.

·         Decommissioning and abandonment Fund

License holders in midstream operations are required to set up a decommissioning and abandonment fund which must be held by a financial institution that is not related to the license holder. The regulator will have access to the funds in settling such obligations where the license holder fails to do so. The amount to be contributed will be based on the decommissioning and abandonment plan provided to the authority.

·         Insights -connecting the dots

Players in the petroleum industry are now required to set up separate companies for carrying out their upstream, midstream and downstream operations. This provides clarity of regulation and fiscal regime applicable to midstream activities which are often regarded as incidental to upstream petroleum operations.

Transitioning existing license holders to the new licensing regime should be seamless to avoid negative impacts to current license holders.

It is also important to consider the tax impact of business reorganizations that will be required for companies that currently operate across different streams. Given that they are now mandated to separate these activities, assessment will have to be made on the transfer of tax attributes of the separating entity, the potential VAT, GCT and stamp duties.

There is the argument that separating the business operations help to manage risk by situating assets according to the risk profile of investors, however, the fiscals are not marked differently and the tax leakages on transfer can be significant. In the absence of any group reliefs, ring fenced losses cannot be utilized within group entities.

Pioneer status and gas utilization are some of the incentives targeted at encouraging investment in midstream operations. Tax leakages and additional costs such as the new levy under the PIA may be counterproductive to achieving this objective by making investments more expensive. Investors as well as other stakeholders will be on the lookout to see how well the funds generated will be managed to meet the set objectives.

On a positive note, there is the expectation that the introduction of a national strategic stock will help to address price stability and avoid stock outs or unending queues. It can also provide a buffer in the event of vandalizations.

CONCLUSION

With pump prices open to the forces of demand and supply, the expectation is that more players will be willing to invest in these sectors. However this may not play out as expected given the potential disincentive created by increased costs and regulations. Operators are likely to pass their costs on to customers subject to regulatory restrictions on market based pricing. Potential tax costs resulting from asset transfers will also have a negative impact on current players who are caught in this net.

HIGHLIGHTS OF THE AFPC-UNGA EVENT 2022

Chinenye Uwanaka, Managing Partner The Firma Advisory

Hon. Otunba Niyi Adebayo, Minister of Industry, Trade and Investment, Nigeria

On the 19th September, 2022, our Managing Partner, Chinenye Uwanaka who doubles as the Co-Founder of the Africa Policy Conversation, a non profit organization focused on finding fitting solutions to problems that affect economic growth and development across Africa; hosted an event on the sidelines of the United Nations General Assembly, in New York, USA, with the theme: Leveraging The Power of the African Youth (As a viable solution for realizing the potential of the continent).

The goal of the event was to facilitate conversations on viable and significant policy reforms, infrastructure improvements, and trade facilitation measures across African countries in order to help the continent realize its full potential. The event served as a platform for constructive engagement between the African youth in the continent, leading African decision makers and thought leaders.

Hon. Sunday Akin Dare, Minister of Youth and Sports, Nigeria

In attendance were leading African decision-makers, corporate executives, and thought leaders. Highlights of the event featured Fire-side Chats with the Minister of Industry, Trade and Investment, Nigeria, Hon. Otunba Niyi Adebayo who emphasized the need for African diaspora to encourage the transfer of expertise and knowledge for capacity development, educational development, entrepreneurship development and mentoring programs. Also in attendance was the Minister of Youths and Sports, Nigeria, Hon. Sunday Akin Dare who discussed the topic: Globalization and the Future of the African Youth. He emphasized on various initiatives that have been introduced under his leadership to promote the socio economic development of the African youth.

From Left:

Anie Akpe, Founder African Women in Tech and IBOM LLC.

Abiola Oke, Founder and CEO, Adisa Consultants and Co-Founder Okey Media

Bolatito Akinroluyo, CEO Otitolabs, CEO Just Like Home Senior Care Inc, Image Consultant, Business Consultant

The speakers were grouped into two Panels, having the first panel discuss on Infrastructure and Growth - Developing the Critical Infrastructure for Africa’s Growth. The confirmed speakers for this panel were Nneka Chime, Principal at Crossboundary, and Ambassador Olusiji Aina who analyzed the US Strategy Towards Sub-Sahara Africa, 2022.

The second panel discussed the topic: The New Economy: Realizing the potentials of the Technology and Creative Economy. The speakers for this panel were Audu Maikori, Founder Chocolate City; Anie Akpe, Founder, African Women in Tech; Abiola Oke, Founder and CEO Adisa Consultants, and Co-founder Okay Media; and lastly Bolatito Akinroluyo, CEO Otitolabs, CEO Just Like Home Care Inc., Image Consultant, and Business Consultant.

Cross-section of in-person attendees

From left to right

Abiola Oke, CEO Adisa Consultants, and Co-founder Okay Media; Hon. Otunba Niyi Adebayo, Federal Minsiter of Industry, Trade and Investment, Nigeria and Audu Maikori, CEO Chocolate City Group

NATIONAL E-COMMERCE POLICY WORKSHOP

Our Managing Partner, Chinenye Uwanaka was the lead consultant for the facilitation of the E-commerce Multi-stakeholder Workshop alongside the National Advisory Committee on E-commerce and Digital Economy, which was themed: Stakeholders Dialogue on E-commerce and Digital Trade Policy for Nigeria, held on the 26th of August, 2022 at the Chelsea Hotel, Abuja.

In attendance were representatives of GIZ, the Central Bank of Nigeria, Federal Ministry of Industry, Trade and Investment (FMITI Nigeria), Federal Ministry of Justice, World Bank, Federal Competition and Consumer Protection Commission, NITDA Nigeria, NCC, Standard Organization of Nigeria, National Export Promotion Council, Nigeria Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) among other parastatals in the public sector. The private sector was represented by Flutterwave, Paystack, Jumia Nigeria, AfriLabs and a host of other e-commerce operators.

The workshop addressed pertinent policy concerns of e-commerce in Nigeria in light of the Africa Continental Free Trade Agreement (AfCFTA)

Industry leaders, policymakers and other stakeholders proffered policy solutions to the identified issues. The Firma Advisory is dedicated to pushing forward new frontiers in the policy discourse on e-commerce and business models that leverage new technologies.

AN OVERVIEW OF LAWS GOVERNING ICT PRACTICE IN NIGERIA

Advancements in information and communication technology (ICT) are catalyzing the Nigerian economy and becoming a critical driver of innovation, productivity, and growth. ICT is being utilized by both the public and private sectors to improve trade, services, and other  aspects of the economy. Given the federal government's determination to transition Nigeria to a non-oil economy, it is important to identify the various ICT policy areas in Nigeria. It is equally important to identify ICT laws to help businesses and corporations leveraging ICT avert their minds to it. The following areas represent some of Nigeria's policy focus on ICT/Digital infrastructure and service:

●       Data Protection

●       Broadcasting

●       Content Regulation

●       Telecommunications

●       Cybersecurity

●       Competition

●       Cloud Computing

●       Artificial Intelligence

DATA PROTECTION

The Nigerian Data Protection Regulation ("NDPR") 2019 is the primary data protection legislation in Nigeria and is administered by the Nigerian Data Protection Bureau (NDPB). The NDPR applies to Data Controllers and Data Administrators  that process the personal data of natural persons residing in Nigeria or who reside outside Nigeria but are citizens of Nigeria. In 2020, the National Assembly presented a draft copy of the Data Protection Bill to the public for review. However, the Federal Government has since abandoned this Bill, and there are significant indications that a fresh draft is in the works. Other data protection regulations are found in sector-specific laws such as the Banks and Other Financial Institutions Act 2020, the Nigerian Communications Act, Cybercrime (Prohibition and Prevention, etc.) Act and so on.

ONLINE BROADCASTING

The primary legislation on broadcasting in Nigeria is the Nigerian Broadcasting Commission Act ("NBC Act"). The National Broadcasting Commission Code 2020 (6th edition) (the “NBC Code”) is a procedural legislation that gives flesh to the Act. The NBC Code requires all individuals who seek to run "web/online broadcasting services" in Nigeria to register with the NBC and to abide by the rules of the NBC Code. The NBC Code also recognizes "international broadcasters" and requires them to follow Nigerian broadcast rules as well as international reciprocity norms. This sixth amendment to the NBC Code precisely includes requirements for local content in the broadcast sector, higher advertising revenue for local broadcast stations and content providers, and comprehensive limits on monopolistic and anti-competitive behavior.

Instructively, the NBC Code does not make specific provisions for Over-the-Top (OTT) Services, which are ways of offering television and film material over the internet on-demand and to fulfill the needs of individual consumers. These OTT services (example, Apple TV, Netflix, Internet Radio etc) are fast disrupting traditional broadcasting and are creating new channels of content creation and consumption.

However, the Nigerian government is attempting to regulate this field through a Bill known as, HB 332: A Bill to amend the National Broadcasting Commission (NBC) Act, as Nigerians constitute a large market for these OTT services and there is data to prove that Nigerians actually consume these services. The National Film and Video Censorship, Classification and Exhibition Regulatory Commission Bill 2019 (the "NFVCCERC Bill") is another Bill purporting to regulate OTT platforms in Nigeria. The Act which this Bill seeks to repeal is the enabling authority for the censoring of film and music over traditional platforms in Nigeria. The Bill will extend its regulatory purview to OTT platforms like Netflix and Apple TV.

It is important to note that the validity of the NBC Code in its entirety was recently contested before a Federal High Court sitting in Lagos in Femi Davies v. NBC, suit no.: FHC/L/CS/1152.2020 (Unreported), and the Court ruled that the NBC Code is "ultra vires, incompetent, null and void and perpetually restrained the NBC from implementing the document". Therefore, until this judgement is overturned, the NBC Code, which is the primary procedural legislation for broadcasting in Nigeria, will be legally ineffective.

CONTENT REGULATION

The journey to content regulation in Nigeria dates back to 2015 when the Frivolous Petitions Bill was introduced in the National Assembly as part of the strategy to regulate Short Messaging Services (SMS) and social media in Nigeria. This Bill was widely protested against by Nigerians and it was eventually withdrawn. In 2019, The Protection from Internet Falsehood and Manipulation Bill 2019 (also known as the Anti-Social Media Bill) which had the same intent was also introduced and the public outrage caused the Bill to be withdrawn.

Shortly thereafter, the Independent National Commission for the Prohibition of Hate Speech (Est., Etc) Bill 2019 which seeks to make "hate speech" illegal was introduced. The bill addresses ethnic discrimination, hate speech, any form of harassment based on one's ethnicity, ethnic or racial contempt, victimization discrimination, and it establishes the Independent National Commission for the Prohibition of Hate Speeches. However, it is not clear whether internet platforms, content intermediaries, or social media platforms are contemplated by the Act.

The draft Code of Practice for Interactive Computer Service Platforms/Internet Intermediaries (“Code of Practice”) issued by the National Information Technology Development Agency (“NITDA”) in June 2022, is the Federal government's most recent attempt to regulate digital content in Nigeria. The Code of Practice applies to all “Interactive Computer Service Platforms/Internet Intermediaries” and their agents in Nigeria.  Essentially, both  Interactive Computer Service Platforms and Internet Intermediaries capture all forms of digital broadcasting mediums and information disseminating internet platforms, like Twitter, Facebook, TMZ and other online platforms where communication is exchanged. The Code of Practice requires these platforms to  comply with Nigerian laws and to work with NITDA to censor, take down or perform other acts on online content as may be required of them by the Code of Practice and NITDA. It is important to note that the Code of Practice is still a draft and has no force of law until enacted.

TELECOMMUNICATIONS

The NCC is Nigeria's primary telecommunications regulator. The Nigerian Communications Act, 2003 ("NCA") empowers the NCC to enact subsidiary legislation in the form of regulations, guidelines, and so on to regulate telecommunications services. The Act requires anyone who wishes to operate a communications system or facility or provide a communications service to be authorized and licensed by the NCC, unless exempted from such requirements. A separate licence is usually required for each type of telecommunications activity, though a number of activities can be carried out under a single licence. Other relevant telecommunications laws include the Wireless Telegraphy Act ("WTA"), which establishes the framework for regulating the use of wireless telegraphy, the NBC Act, which governs broadcasting services in Nigeria, and the Cybercrimes (Prohibition, Prevention) Act, 2015.

CYBERSECURITY

The Cybercrimes (Prohibition, Prevention, Etc.) Act 2015 is the primary law on cybersecurity in Nigeria. The Cybercrimes Act is a criminal law and there is yet no law creating civil duties and obligations for cybersecurity in Nigeria. Other laws relevant to cybersecurity in Nigeria include: The Terrorism Prevention Act 2011 (as amended), the Guidelines for the Provision of Internet Service (“NCC Internet Service Guidelines”) issued by the NCC, and CBN's Risk-based Cybersecurity Framework and Guidelines regulating banks and other financial institutions.

COMPETITION

The principal legislation on competition in Nigeria is the Federal Competition and Consumer Protection Act (“FCCPA”) administered by the Federal Competition and Consumer Protection Commission (“FCCPC”). The FCCPA was enacted to protect consumers' interests and welfare by expanding the range of products available at competitive prices and prohibiting unethical business practices, as well as to prevent major corporations from abusing their dominant positions. The FCCPA applies to all commercial activities within or having effect in Nigeria, to all government departments and state-owned corporations, and to all commercial activities aimed at profit and satisfying public demand.  Extraterritorially, it applies to any prohibited conduct by a Nigerian citizen or a person ordinarily resident in Nigeria, a corporate body registered in Nigeria or carrying on business within Nigeria, any person supplying or acquiring goods or services into or within Nigeria, and any person in relation to the acquisition of shares or assets outside Nigeria that results in the change of the business, part of the business, or any asset of the business in Nigeria. There are other sector-specific legislation that promotes competition and prevent anti-competitive practices, like the NBC Act, relevant CBN guidelines and so on.

CLOUD COMPUTING

The Nigeria Cloud Computing Policy is the only semblance of legislation in Nigeria on cloud computing. However, because policy is not law, it does not bind citizens. It only applies to all Federal Public Institutions, as well as State and Local Government Public Institutions. The Policy also applies to all corporations in Nigeria that are fully or partially owned by the Federal Government, as data generated by these intuitions is considered "Government Data." Its purpose is to assist the government in gaining access to efficient IT resources for cloud computing, particularly from local providers, allowing the public sector to improve its service delivery quality. As a result, it is effectively a local content promotion law.

ARTIFICIAL INTELLIGENCE

There is currently no law on artificial intelligence in Nigeria. However, NITDA is developing a National Artificial Intelligence Policy for Nigeria. This policy, when introduced, will hopefully set the stage for laws or regulations on artificial intelligence in Nigeria.

CONCLUSION

The preceding areas represent some sectors of Nigeria's ICT ecosystem. Other areas not covered include electronic payment, local content development etc. The purpose of this article is to demonstrate that these areas are governed by laws and to show policy makers which areas require regulation. We hope that emanating laws and the enforcement of existing laws do not stifle innovation and development.

A SNEAK PEEP INTO THE PATENT VALIDITY ASSESSMENT SYSTEM

INTRODUCTION

Generally speaking, registration presupposes some sort of conclusion or priority in terms of legal rights. For patent or design however, this might be a little utopic, because Intellectual Property (IP) heavily prioritizes acknowledging original creators and inventors, as will be seen. To satisfy the requirements for the issuance of Patent over an object, function or process and be issued a Patent is not enough apparently; what makes a Patent truly valid in the essence of IP transcends beyond an application for Patent and certainly beyond a mere certificate of registration.

REGISTRATION OF PATENT

The phrase “Registration of Patent” connotes that a Patentee has registered an object, function or process (subject-matter of patent) with the Patent Office and has been issued a Certificate of Registration over it. In reality however, the PH is not registering the Patent itself; the Patent is issued to him upon meeting the requirements for its issuance such as novelty, non-obviousness, utility, etc.

Upon registration, the Patentee becomes the registered title holder over the subject-matter. In any litigation surrounding the validity or infringement, the registration certificate becomes a prima facie evidence of validity, not a conclusive one. This is because validity of Patent is not tied down to the registration process; it focuses on the qualification (creation and inventive step) in the subject-matter. The reason is as already mentioned – IP seeks to protect people’s creativity and ideation.

PATENT VALIDITY ANALYSIS

Patent validity analysis encompasses a lot; from the application for Patent to the scrutiny of the application, its approval, etc. Essentially, it is to ensure that the subject-matter of Patent meets the requirements for the issuance of the Patent.

Patent validity analysis occurs in two phases, the;

a.       Prosecution Phase and;

b.      Enforcement Phase

The Prosecution Phase; this is the more detailed stage of patent analysis. The analysis in this phase is conducted by the Patent Office which would scrutinize the application for Patent made, to ensure its compliance to the requirements and standards for the issuance of Patent. If the application does not follow the procedural guidelines, it would be rejected. If the subject-matter fails one or more requirements, it certainly should be rejected.

The Enforcement Phase; this phase of validity analysis only arises when there is an infringement. Whenever there is an infringement of alleged infringement of Patent, the validity of the Patent is directly a fact in issue or relevant fact or any other fact envisaged by Part II of the Evidence Act 2011 and therefore constitutes an issue for determination, unless the defendant does not join issues with the claimant on the infringement.

The validity analysis of assessment here is done by the Court through the litigation process; parties lead evidence while the court gives its pronouncements based on such evidence before it. The Court in this phase would examine the requirements for the issuance of Patent vis-à-vis the Patentee’s application to assess the validity of the Patent (the subject-matter of the dispute). The basis for this is because the defendant can plead that the Patent was wrongly issued, he may claim to be the inventor of the subject-matter as his defense. If the defendant is successful, the Court would rule that the Patent was wrongly issued and thereby grant an order of revocation or withdrawal of the Patent.

NOTE:  An invalidity determination is final, but a ‘no invalidity’ determination is not. This means that even if a claimant successfully defends his Patent in an action, the validity can still be attacked on the same issues in a different action by a different party. This seems contrary to the rationale behind the legal principles of “estoppel” and “autrefois acquit” but then, IP is civil in nature. In any case, IP is sui generis as well. In light of this, Patentees may be caught up consistently in litigation defending their Patent during the 20 years they should be enjoying exclusive rights over it.

PRESUMPTION OF VALIDITY

There is a “presumption of validity” in the Enforcement Phase of a Patent. The law presumes that the Patent Office performs its due diligence before issuing Patent. This presumption however is rebuttable; if the defendant can lead evidence to convince the court to the contrary or that a requirement was not satisfied, the Patent would be pronounced void by the Court.

The implication of such a judgment is that such a Patentee’s right over that subject-matter in question ceases to exist. He can however re-apply to the Patent Office for a fresh Patent after meeting the requirements it did not satisfy, according to the Court’s judgment (if possible). Within that period within which there is no Patent over that subject-matter however, other persons may apply for Patent over it or something very similar, subject to the requirements of Patent.

BURDEN OF PROOF

One jurisprudential question in the validity assessment in the Enforcement Phase is this, “On whom (should) the burden of proving originality lie”? Even though Sections 131-136 of the Evidence Act 2011 are crystal clear on burden of proof, the rationale for our answer should take into consideration the reality that the subject-matter of Patent has been registered.

Registration needs to be accorded some sort of value, otherwise, it is useless. This makes sense and seems to flow from the rationale behind the principle of “Better Title” in property claims. It is that both the Claimant and Defendant have some sort of evidence of title in the land.

In the case of an infringement of a registered patent, what title does the defendant have to even compete for a “Better Title”? Why should the defendant even be allowed a defense that raises questions on the validity of a Patent?

“He who asserts must prove”. The patent holder who asserts the infringement of his right over an innovative subject-matter is required by law to prove the infringement, but (NOT) the innovation in the subject-matter for which he has a Patent. If the defendant admits the infringement but denies the novelty of the subject-matter, should he still be liable? If he denies the infringement because of the absence of novelty as his defense, is he making a mere academic argument? The fact still remains that the claimant’s title was valid at the time of infringement.

Are we allowing moral rights question legal rights or simply giving legal rights room to validate themselves? It may seem too academic to imagine, but the economic implications of our answers cannot be academic. People invest in enterprises, and a Registration Certificate is certainly a document an investor can rely on for investment. To know that the Certificate doesn’t guarantee anything on the subject-matter on it certainly raises eyebrows.

RECOMMENDATIONS

The Patent Registry must be thoroughly equipped for the rapid and numerous innovations going on in Nigeria in terms of training, resources and other things it would need to be standardized. It has to broaden its search beyond its records to actually deploying personnel to check the novelty of subject-matters brought before it for registration.

Also, our laws and IP Policies must be frequently updated to respond to modern trends and development in the IP Industry.

Sensitization in rural and urban communities on IP should be done and encouraged; social media platforms could even be used to educate and enlighten people on the need for registering their products, particularly about the moral, economic and legal value of Intellectual Property.

Stricter penal measures should be meted out on those who deliberately infringe on people’s IP rights. Also, stricter penal measures should be issued on those who are discovered to have stolen people’s ideas and products by beating people to the registration of their own creation.

Finally, there should be an IP tribunal to enable quicker dispensation of IP cases owing to the delicate nature of IP and the negative effects delayed dispensation of cases may have on its economic value to IP owners of Copyright, Trademark, Patent and Design as the case may be.

CONCLUSION

Intellectual Property rights are sui generis and should be treated as such. While efforts are being made to tackle the challenges bedeviling the Patent Office and its administrations, the priority remains to give original creators adequate protection, value and reverence for their works and this should remain so. Undue relevance and priority should not be placed on Certificates of Registration such that the challenges, rules and malpractices in administrative institutions do not prevail over the essence and moral right in the Intellectual Property sector.

The content of this article is intended to provide a general understanding to the subject matter. For specific consultancy relating to your circumstance, feel free to reach out to us today at hello@thefirmaadvisory.com.

Are Nigerian Data Controllers Mandated by the Law to Maintain State-of-the-art Network Systems Guarding Against Data Breach?

One important aim of data protection laws is to prescribe minimum standards for the protection of information obtained from a person (data subject) by another (data controller). A data controller is anyone who requires and collects data to process certain sets of actions and who determines how the data is processed. Examples of data controllers include: MTN, Access Bank, Flutterwave and Jumia. Anyone whose data is collected for processing  is a data subject; for example, all subscribers to MTN network are data subjects.

The increased reliance on the internet and other  technologies for commerce and daily personal activities has brought with it varieties of cybersecurity risks. At the root of the hunt is data. According to the Economist, "the world's most valuable resource is no longer oil, but data''[1] and this makes protection of data a critical subject. Also, it is getting easier to hack information systems to harvest data as hacking technologies are improving rapidly. There are multiple examples of recent cyber attacks targeted at the information systems of countries and businesses, the data breach at Tuckers LLP[2] being one prime example. There is, therefore, an urgent need to ensure an across-the-board state of art security of network systems to guard against possible breach.

However, is there a legal obligation on data controllers to maintain such secure network systems to guard against both foreseeable and unforeseeable data breach or to mitigate possible loss in the event of a breach? And if such an obligation exists, what is the standard of security required?

The simple answer to the first question is Yes. Article 2.6 of the Nigeria Data Protection Regulation creates this obligation. It requires data controllers to, among other things, implement measures to protect systems from hackers; set up firewalls; store data securely with access to specific authorized individuals; employ data encryption technologies and develop organizational policy for handling Personal Data. Other laws like the Nigerian Communications Commission Act, Cybercrime Act and CBN Regulations and Guidelines equally create this obligation to varying degrees.

This legal obligation is achieved when data controllers doggedly ensure there are adequate organizational policies to anticipate and guard against possible data breach, and in the event of a data breach, the onus is on a data controller to show that there was no negligence in the handling of collected personal data.

Clearly, prevalent industry standards for network security go beyond encryption and setting up firewalls. Does the NDPR or any law in Nigeria set a higher standard for network security?

The answer to the above question is also Yes. As a general application for data controllers collecting and processing data for government use, Article 2.6 Guideline for the Implementation of the NDPR (within Public Institutions in Nigeria) provides for the implementation of "ISO 27001:2013 or any similar standard". Article 2.3 CBN's Guidelines on Operations of Electronic Payment Channels in Nigeria stipulates some standards compliant with international best practices (like the PA DSS; PCI PED; Triple DES and EMV). Other stipulations may be found in CBN's Risk-based Cybersecurity Framework and Guidelines and requisite NCC Guidelines. For Nigerian data controllers collecting and processing data of European Union data subjects, Article 32 General Data Protection Regulation, mandates the implementation of "technical and organisational measures'' to data security, considering "the state of the art, the costs of implementation and [...] the risk of varying likelihood and severity for the rights and freedoms of natural persons." (Emphasis mine).

A breach of Article 32 of GDPR cost Tuckers LLP £98,000 in fine. Tuckers LLP failed to implement certain security measures like implementing multi-factor authentication (MFA) for remote access; applying a critical vulnerability patch for a period of 4 months after being notified of a possible breach that might result therefrom and addressing issues highlighted in a failed Cyber Essentials assessment causing a cyber attack on their information systems, resulting in the encryption and permanent loss of 972,191 civil and criminal case files stored on an archive server.

Other examples of global industry standards of network security practices that Nigerian data controllers can implement include: ISO27000 series, the National Institutes of Standards and Technology ("NIST"), the National Cyber Security Centre ("NCSC"), the Solicitors Regulatory Authority ("SRA"), Lexcel and 'NCSC Cyber Essentials'.

On a final note, it is not only imperative that all data controllers in Nigeria implement data security measures to anticipate and guard against cyber attacks, it is also an obligation imposed by law, breach of which may amount to being sanctioned by the appropriate body. The law also prescribes standards for these security measures taking into account the sophistication in hacking technologies and the prevalence of it. Nigerian businesses and data controllers must therefore, ensure they implement the prescribed high network security standards, or risk an organizational failure and the wrath of the law

References

1. The Economist, (Article) The world’s most valuable resource is no longer oil, but data. Available at https://www.economist.com/leaders/2017/05/06/the-worlds-most-valuable-resource-is-no-longer-oil-but-data accessed on March 28 2022

2. Data Guidance (Article) UK: ICO fines Tuckers Solicitors LLP £98,000 for data breach. Available at https://www.dataguidance.com/news/uk-ico-fines-tuckers-solicitors-llp-%C2%A398000-data-breach accessed on March 28 2022