Wednesday, 18 May 2016 07:15

A Commentary on some recent Bogus Fines imposed on some Multinational Companies in Nigeria

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By Dr. Emmanuel Ojameruaye, This email address is being protected from spambots. You need JavaScript enabled to view it.

Over the past seven months, the federal government through its regulatory agencies has imposed extraordinary and controversial fines on at least three multinational corporations operating in the country. The first case was a fine of $5.2 billion (N1trillion) imposed on MTN, the South African telecommunication company, in October 2015 by the National Communication Commission (NCC) imposed a for "not meeting the deadline set by the Mobile Network Operators for disconnecting the Subscribers Identification Modules (SIM) with improper registration". The NCC alleged that during the compliance audit it carried out on MTN network it discovered that 5.2 million unregistered customers' lines were not deactivated by MTN. This lead NCC to impose a fine of $1,000 for each of the 5.2 million unregistered SIMs which amounted to the $5.2 billion.  Following a meeting between President Zuma of the South Africa and President Buhari, the fine was reduced to $3.2 billion. However MTN was not satisfied and went to court claiming that NCC does not have the constitutional power to impose the fine. According to MTN, "NCC, being a regulator, cannot assume all the functions of the state on its own, considering that it made the regulation, prescribed the penalty and imposed the fine, payable to the commission and not to the federal government". MTN further averred that it was not afforded its constitutional right to a fair hearing before a court of competent jurisdiction and had not been found guilty of any offence that would warrant it to pay such an outrageous fine. However, MTN eventually paid $250 million on 24 February 2016 "as advance payment" towards out-of-court settlement. The company is unlikely to pay any additional amount and this may very well be the end of the case. It has succeeded in reducing the fine $5,200 million to $250 million which shows the absurdity of the initial fine. Come to face it, if each of the 5.2 million unregistered subscribers spends about N30,000 buying MTN recharge cards in a year and if you factor in the cost of servicing the lines, it may take over 20 years for the company to recoup the $5.2 billion fine. Therefore it is foolhardy to expect MTN to pay the fine of $5.2 billion.

The second case is a fine of another N1 trillion imposed on Guinness Nigeria Plc, an affiliate of Diageo Plc, the British multinational alcoholic and non-alcoholic company, in November 2015 by NAFDAC for "administrative charges for various clandestine violations of NAFDAC rules, regulations and enactments over a long period of time". NAFDAC claimed that Guinness had been revalidating its expired products without the authorisation and supervision of NAFDAC. It also claimed that the company failed to secure the gate of its warehouse and that its raw materials were permanently opened and exposed to the elements and rodents.  In its response, Guinness Nigeria stated that it "does not fully understand the basis for the computation of the administrative charges nor the particular regulations alleged to have been infringed". The company also stated that it has operating in Nigeria for over 65 years and has conducted its business in accordance with all relevant laws and regulations of the country and Diageo's global policies and procedures relating to good manufacturing practice. Accordingly, Guinness has refused to pay the fine and has dragged NAFDAC to court claiming that its right to fair hearing was violated by NAFDAC. The company is urging the court to restrain NAFDAC from imposing any sanction on it. The case may eventually be settled out of court with Guinness paying a token fine.

In the third case, on May 3, 2016 NOSDRA imposed a fine of N1.3 trillion ($6.5 billion) on SNEPCO for the Bonga oil spill that occurred about 120 kilometres off the Nigerian coast in December 2011. This fine is almost equal to the market value of the crude oil produced by SNEPCO in two years. If you remove the cost of product and taxes and other payments accruing to the federal government, my guess is that the fine will be more than net income of SNEPCO over a period of five years! The case is ludicrous because the previous administration of President Jonathan under whose watch the spill occurred attempted but failed to get SNEPCO to pay the initial fine of $5 billion and allowed the matter to die quietly. As I argued when fine was first imposed in 2012, it was premature and extraordinarily excessive.  One wonders why the Buhari's administration has decided to resurrect this case which it cannot win. Perhaps they hope that SNEPCO paying a token fine for an out-of-court settlement like MTN.

It is interesting that in all the three cases described above, the amount of the fine is almost the same and they are all extraordinarily excessive by any standard. It appears that the regulatory agencies and the federal government did not do their homework or research before imposing the fines or going to court. It also appears that the regulators are competing to impose fines on the companies they are regulating. This begs the question, what is the motive behind these punitive fines? If the fines are enforced, all three companies will be crippled. Therefore, the need for accountability is probably not the motive. Cynics would say the regulators are either out to cripple these companies or are out to intimidate and extort money from them. The most plausible motive is to generate revenue for the government. In fact, some analysts see the hefty fines as act of "financial desperation" by the administration to generate money to fund the unprecedented N2 trillion deficit in the 2016 FG budget. But unbeknownst to the promoters and supporters of these hefty fines, they are creating "hysteria" among international investors at a time when the Buhari administration is trying to attract foreign investment as evidenced by the frequent overseas trips of the President. The fines also plays into the narrative that Nigeria is a lawless and unpredictable country.   One wonders if the President and the Attorney General of the Federal seriously considered the appropriateness and implications of these fines and challenged the regulators before approving them or were they blind-sighted by the desire to raise money to fund the budget deficit.

The Presidency and the regulatory agencies must follow existing laws, due process and best practices in imposing fines on companies for their actions or inactions that cause damages to individuals, communities and the environment. To remove arbitrariness, the regulatory laws should be amended to include maximum and minimum rates for fines in respect of violations or damages caused by proven negligent acts of companies based on international standards such as the Clean Water Act in the United States. For instance, the minimum fine for onshore oil spills can be fixed at the price of crude oil on the date of the spill multiplied by the quantity of oil spilled while the maximum fine can be three times the minimum amount. For offshore oil spill the maximum can be two times the minimum fine. Furthermore, the laws should stipulate how the amount paid by polluters should be distributed or used. For instance, 20% of the amount paid can be used for clean up, 50% for compensation to affected individuals and 10% to the affected state governments, 10% to the affected local governments and 10% to federal government with the proviso that these governments will use these funds to carry out development projects in the affected areas. At our level of development, we will be cutting our nose to spite our face if we have tougher laws and higher fines than other countries.  Let us learn from China, India and some other emerging economies. With our poor infrastructure and security challenges, the last things we need are excessive and arbitrary fines and regulations, and regulators who intimidate and extort investors in the country.

May 17, 2016

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Emmanuel Ojameruaye Ph.D

Dr. Emmanuel O. Ojameruaye is President/CEO of Capacity Development International, LLC based in Phoenix, Arizona State, USA. He was Vice-Resident for Research & Program Development with the International Foundation for Education and Self-Help (IFESH), an NGO based in Scottsdale, Arizona State until 2013 when that organization closed its operations. He joined IFESH in 2002, first on loan from Shell International Oil Company until 2008 when he retired from Shell. He worked for the with Shell Petroleum Development Company of Nigeria (SPDC) from 1992 to 2002, as Head Community Development (Western Division) from 1997 to 2002, Head Community and Environmental Issues Management (1995-96) and Head Government and Community Affairs in the Lagos Office. Before joining Shell, he was a National Consultant (appointed by the UNDP) for Nigeria’s National Data Bank Project in the Federal Ministry of Budget and Planning in Lagos (1989-1992) and a Lecturer in Economics and Statistics at the University of Benin in Nigeria (1982-1989). He was also the National Secretary of the Nigerian Economic Society (1986-1990). He holds a PhD degree in economics and has several publications to his credit including three books, Political Economy of Oil and other Topical Issues in Nigeria, A First Course in Econometrics and A Second Course in Econometrics (both coauthored), and several articles on energy economics and community development in the Niger Delta region of Nigeria. He is married with five children.