Nigeria to save $326.895m from controversial pilotage deal with INTELS

The Nigerian Ports Authority (NPA) has detailed how INTELS Nigeria Limited waived $193 million as part of a concerted effort to resolve the pilotage contract dispute with the federal government.

The NPA claimed that it was in the best interests of the country to strike a deal with INTELS that resulted in the waiver of the $193,317,556 in accrued interest on debt owing.

While praising Adegboyega Oyetola, the Minister of Transportation, Marine, and Blue Economy, for his diligent efforts to guarantee that the problem was handled, it also gave stakeholders and Nigerians assurances that income generation will now grow as a result of the endeavour.

The Authority noted that the minister was discouraged by the unnecessary revenue loss resulting from the impasse over the pilotage contract, and they further stated that the minister's expression of concern demonstrated his dedication and patriotism to ending the protracted issue.

Importantly, the NPA revealed that the settlement it struck with INTELS on the controversial pilotage contract would save Nigeria a handsome $326.895 million.

After accounting for the $193,317,556 interest waiver, the Authority estimated that the federal government would gain more than $500,000,000.00.

The agreement also called for a reduction in the interest rate on the outstanding debt from six months' LIBOR rate plus 6.5 percent to six months' SOFR rate plus 3 percent, a spread-out repayment schedule over 15 years with interest-free years in the first two, and a decrease in commission from 28 percent to 24.5%.

The NPA stated that there was misinterpretation in some media outlets regarding a letter sent by the port manager of Lagos Port Complex, Apapa, to shipping companies in a statement titled "Setting the Record Straight in Respect of Service Boat Monitoring Operation in Nigerian Ports Authority: Reinstatement of INTELS Nigeria Limited as Management Agent."

For the benefit of the general public and port business stakeholders, the Authority stated that "it has become necessary to set the record straight."

"This is additionally to prevent misinterpretations and assumptions that might result from a wrong reading of the previously mentioned correspondence."

The NPA announced that it has reached an agreement to forgive $100,000,000, which represented accumulated interest on the amount owed to Deep Offshore Services Limited under the terms of the Phase 4B deal, as of July 31, 2023.

A further waiver of the interest accumulating on the outstanding debt under the Phase 4B Agreement for a two-year period beginning on July 1, 2023, and ending on July 30, 2023, which is projected to be worth $93,317,556, is what the Authority is referring to.

The interest rate on the debt owed to Deep Offshore Services Limited has been lowered from six months' LIBOR rate plus 6.5% to six months' SOFR rate plus 3%, with effect from the day the Supplemental Agreement was executed. A portion of the accrued interest will be waived, and the interest rate on the loan will drop from 6.5% to 3% over the course of the following 15 years, saving the Authority a total of US$ 326,895,226.

Instead of raising it in response to the sharp increase in operating costs, the agency fee on pilotage revenues was lowered from 28% to a lesser commission of 24.5%. The authority will gain a great deal from the projected spread of the $522,433,453.25 debt over a 15-year period in terms of money preservation for other operational needs over that time.

According to the NPA, the facts above accurately reflect the situation. It further states, "The authority's interest is to ensure that services are provided in line with international best practises and to enhance the federal government's revenue profile." The authority suggested a settlement plan with INTELS, which was filed with the federal government through the Ministry of Transportation, in order to lessen the ensuing loss of revenue and resolve the legal deadlock caused by the disagreement.

On behalf of Deep Offshore Services Nigeria Limited and itself, Intels also submitted a settlement proposal. After intense talks, which included notable concessions from Intel and Deep Offshore as well as proven wins from NPA and the federal government, the parties eventually negotiated a resolution.

"The parties decided on the following proposed terms of settlement: a waiver of $100,000,000.00 on the authority's outstanding debt to Deep Offshore Services Limited; a further waiver of interest that may be accrued on the outstanding debt to Deep Offshore Services Limited over a two-year period, estimated at $93,317,556; a reduction in the interest rate on the outstanding debt to Deep Offshore Services Limited from Libor+6.5% to SOFR+3%; and a reduction in the agency commission on Service Boat Pilotage collections from 28.5% to 24.5%. The contract shall be extended for an additional fifteen years.

The NPA added that the federal government considered the proposal and approved it on August 18, 2023.

“The federal government further directed that the withdrawal of the cases be carried out by filing Terms of Settlement by the parties and for the Court to adopt the same as judgement of the Court. The authority was also to discontinue the unconcluded procurement process, which was in disobedience to the orders of the Federal High Court, Lagos.

“The Parties executed Terms of Settlement on the 24th of August, 2023, and the same was adopted as the Judgement of the Federal High Court in Suit No. FHC/L/CS/1058/2020 on the 21st of September, 2023, by Honourable Justice A.M. Liman. Arising from the foregoing, the authority also filed a Notice of Withdrawal at the Court of Appeal, Lagos, in respect of the appeal at the Court of Appeal, Lagos.

“Following the Judgement of the Federal High Court, Lagos, the Nigerian Ports Authority and Intels Nigeria Limited executed the managing agency agreement, while a Supplemental Agreement with Deep Offshore Services Limited for the Phase 4B Port Development was also executed in view of the fact that the initial agreement was suspended.”

The NPA further stated that the federal government lost humongous revenue in the period the NPA took over the management of pilotage.

According to the NPA, “After the expiration of the Service Boat Management Agreement, the authority took over the performance of the service through various departments and divisions. However, due to the constraint of not having the requisite technology to monitor the operations, the expected revenue dwindled, resulting in a drastic reduction in revenue generation for the Authority.

“An analysis of its impact on the authority's revenue showed a sharp decline from $216 million and $209 million in 2014 and 2015, respectively, under the INTELS agency to $130 million and $99 million in 2020 and 2021, respectively, after the takeover by NPA. The situation in 2023 is even worse, as the collection up to June 2023 was only $55.3 million.”

While admitting that errors were made by the past management of the NPA, it stated, “Prior to the expiration of the Service Boat Monitoring Agreement, the authority commenced the procurement process for the engagement of Service Boat Operations Monitoring Agents.

“Several companies submitted bids, and the Parastatal Tenders Board of the authority considered the proposals and approved forwarding the four companies considered qualified for the next stage of the process to the Ministerial Tenders Board for further procurement processes in line with the requirements of the Public Procurement Act. The four companies are Pacific Silverline Limited, Nexttee Oil and Gas Trading Company Nigeria Limited, ICA Logistics Limited, and Ishasha Investments Limited.

“Shortly after the opening of the bids, Intels Nigeria Limited and Deep Offshore Services Limited instituted a suit no. FHC/CS/L/1058/2020 at the Federal High Court, Lagos, against the Authority, seeking orders of the Court to restrain the authority from engaging new service providers to carry out the monitoring of service boat operations in the Exclusive Economic Zone.

“Intels further claimed that the authority was in breach of the management agreement and sought relief, including that the contractual status quo remains. Deep Offshore claimed that the termination of the managing agency agreement will negatively affect the process of recovering project costs from the authority.

“The Federal High Court, Lagos, per Justice Oweibo, by an Order of Interim Injunction dated July 24, 2020, restrained the authority from giving effect to the public notice calling for expression of interest for the provision of the service boat operation from interested entities in line with the Procurement Act.”

It added, “The authority notified Intels Nigeria Limited via its letter dated August 5, 2020, of the expiration of the Service Boat Management Agreement on August 8, 2020, and of its intention to take over the provision of the said Service Boat Operation. A public notice was equally issued to all service boat operators, requesting that they deal with the various port management issues. Intels Nigeria Limited again approached the Federal High Court, Lagos, in suit no. FHC/L/CS/1058/2020, requesting an order of the court to restrain the authority from giving effect to the Notice of Expiration served on Intels.

“At the Federal High Court, Lagos Coram Hon. Justice Aikawa granted an Ex parte Order of Interim Injunction on August 28, 2020, restraining the authority from giving effect to the Notice of Expiration of the Agreement pending the determination of the arbitration between the parties.

“By another application dated September 18, 2020, the Authority challenged the jurisdiction of the Court to entertain the suit without first issuing and serving on the authority the mandatory pre-action notice as provided in the Nigerian Ports Authority Act. The Federal High Court, Lagos Coram Oweibo J., notwithstanding the above objection, extended the lifespan of the interim injunction and thereafter referred the matter to arbitration.”

The NPA said that the orders of the Federal High Court should have effectively stalled the procurement process, adding, “However, despite the orders of the Court, the authority continued with the procurement process and forwarded the names of the companies to the Federal Ministry of Transportation. The procurement process was subsequently put on hold based on the advice from the Federal Ministry of Transportation that the authority should comply with the orders of the court.

“The authority was thereafter sued by Pacific Silverline Limited, Nexttee Oil and Gas Trading Company Nigeria Limited, ICA Logistics Limited, and Ishasha Investments Limited at the Federal High Court, Lagos, in suit No. FHC/L/CS/1772/2022, seeking declarative reliefs and an injunction restraining the Authority and the Honourable Attorney General of the Federation from awarding the contract for the Service Boat Operations Monitoring contract in the four pilotage districts to any other entity other than one that participated fully in the procurement process.

“The Federal High Court on July 11, 2023, upheld the objection of the authority and struck out the suit. The claimants have since filed an appeal at the Court of Appeal against the ruling of the Federal High Court and also applied for an injunction to restrain the Authority from executing the ruling of the Court. The appeal is pending at the Court of Appeal, Lagos, and no date has been fixed for the hearing of the same.

“Messrs Pacific Silverline Limited recently filed another suit at the Federal High Court, Kano, in suit no. FHC/KN/CS/245/2023, challenging the approval granted the authority to settle the cases between the Authority and Intels Nigeria Limited. The Federal High Court wholly dismissed the said suit on the 30th of November, 2023."

It continued: “In order to mitigate the attendant loss of revenue and surmount the legal impasse created by the dispute, the authority proposed a settlement initiative with INTELS, which was submitted to the federal government through the Ministry of Transportation. Intel also made a proposal for settlement on behalf of itself and Deep Offshore Services Nigeria Limited. Protracted negotiations followed, and the parties eventually reached a settlement following remarkable concessions by Intel/Deep Offshore and verifiable gains by NPA/the federal government.”