Co-published project finance guide: Nigeria


in the oil and gas industry are required to maintain a bank account in Nigeria in which they are to retain a minimum 10% of their total revenue accruing from Nigerian operations. These requirements limit the options available for utilising revenue streams from oil and gas assets as security for acquisition finance, and generally require the design of complex waterfall mechanisms to ensure that operators remain in compliance with the law but are still able to domicile funding with foreign lenders. Another aspect of oil and gas financing


that continues to pose a challenge is the cost of stamping finance and security documents, and the registration of security documents at the relevant registries. Under Nigerian law, stamp duty is chargeable on a wide range of instruments with connection to Nigeria. Specifically, stamp duties are payable ad valorem, on virtually all security documentation. Duty rates range from 0.375% to 1.5% of the amount secured and vary with the specific type of security and the nature of the assets involved. Under the Stamp Duties Act 2004 (SDA), relevant instruments are required to be stamped within 30 days of execution, or where executed outside Nigeria, within 30 days of receipt of the instrument in Nigeria. The obligation to stamp is statutorily imposed on the obligee (the lenders); although in practice, the burden for the payment of the duty is usually transferred to the obligor (the borrower). The payment of stamp duty is


particularly relevant for the purpose of enforcing the security created by the security documents. This is because instruments that are required to be stamped under the SDA are precluded from being received in evidence by a Nigerian court without the required duty and applicable penalties first being paid. Further, late payment of stamp duty attracts a penalty of interest at the rate of 10% per annum from


“It cannot be denied that such success is a testament to the coming-of-age of the


Nigerian oil and gas industry


the due date up to the time when the amount of interest is equal to the unpaid duty. Thus, to enforce the security interests created by an offtake contracts assignment agreement and deed of charge over account in Nigeria, among others, it would be important to ensure that this is duly stamped. Where stamp duty is chargeable at an ad


valorem rate of the amount secured, most times, depending on the sum that was borrowed, the borrower may be unable to pay the full stamp duties payable. In practice, parties need not secure the entirety of the borrowing company’s obligations in the first instance but may agree on a notional amount for stamping purposes and subsequently, where the need arises, upstamp the secured amount to the full obligation. This structure will ensure that the parties only incur the full stamp duty obligation where the need arises. In this regard, section 202 of the Companies and Allied Matters Act 2004 (CAMA), permits parties to a registrable charge to determine a figure as the maximum amount secured by the charge, particularly where the charge secures fluctuating or uncertain amounts. The proviso to section 202 of CAMA further states that the maximum sum deemed to be secured by a registrable charge can be increased at any time prior to the winding up of a company, provided additional stamp duty is


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subsequently paid on such increase. It is however pertinent to note that the instrument will only be enforceable in respect of the additional amount, from the date of the upstamping, and charges registered by third parties over the same asset during the intervening period may claim priority over the additional amount in respect of which the instrument is upstamped.


Bolder acquisitions to come In spite of the security issues, within the relatively short period since the announcement of the Divestment Programme, eight transactions, with a combined value of more than $2 billion, and current production of around 100,000bpd, have been closed. Although some of the acquisitions will most likely have been financed by bridge facilities from sponsors and shareholders, which may subsequently be refinanced in the near future, it cannot be denied that such success is a testament to the coming-of-age of the Nigerian oil and gas industry. Based on this success, there is likely to be increased appetite from local and international lenders to finance new and bolder acquisitions and other transactions within the Nigerian oil and gas industry. This will especially be the case where the assets for acquisition are already in production. Things are about to get even more interesting.


Peter L Brechan, partner, Haavind Vislie


www.iflr.com


IFLR“


I value the IFLR because of the range of issues it covers and the high quality and relevance of its articles to an international practice.


Ed Greene, former Securities and Exchange Commission general counsel


IFLR/December/January 2013 85


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