1. International Briefing Series: Nigeria Friday 28 May 2010

2. Nankunda Katangaza Policy Manager (Africa, the Middle East and South Asia) The Law Society of England & Wales Chair

3. Peter Stephenson Director UK Trade & Investment, Lagos

4. POLITICS ECONOMY OIL & GAS OPPORTUNITIES SUM-UP

5. Good luck Jonathan- first Bayelsa State/Ijaw President Vice-President- Namadi Sambo, ex-Kaduna State Governor 2011 Elections- some reform underway but needs free & fair process this time. Some good new ministers- still with Obasanjo & IBB influence?

6. Finance Minister- ex-UK Goldman Sachs executive- Olusegun Aganga. Petroleum Minister- Diezani Allison- Madueke(ex Director Shell) NNPC- more changes –many problems

7. Growth good at 6%- but real infrastructure constraints Big budget bucks- 30% expenditure increase from US$20.6 bn (2009) to US$31bn(2010) Track record on quality, efficiency of development spending- “poor”

8. Budget deficit at 6% financed by borrowing/oil round/ Eurobond etc Banking crisis still a drag- poor lending patterns to SME’s. AMC still to emerge Foreign reserves and excess crude account revenues are down- sovereign wealth fund emerging? Growth hotspots- agriculture/construction/ retail and telecoms

9. Petroleum Industry Bill & Gas Master Plan, Local Content and Niger Delta issues. Benchmark price $ US 67/output 2.35 mnbpd- looks ambitious and vulnerable to Delta militancy and OPEC curbs Fuel subsidy equals all of Nigeria’s capital spend

10. PIB to reform the petroleum sector so that national oil and gas industry will achieve 21 st century global industry performance. Re-structuring of NNPC Good governance, transparency and sustainable development. Unpick offshore production sharing contracts within IOC’s ?

11. Derived from Nigerian content policy. Increase in indigenous participation in Oil & Gas industry. Prescribes minimum thresholds for use of local services and materials e.g. insurance. Promotes employment of Nigerian staff

12. China has agreed to spend $23bn to build refineries and downstream infrastructure. CNOOC looking to secure 6bn barrels of oil reserves. Sinopec paid $7.2bn for Addax in 2009. But IOC’s are digging in and won’t be shifted easily from renewable leases- Exxon Mobil recently paid $600m to renew.

13. GDP growth- 6.2% in 2010. Massive import dependency Growing population +middle class 2015- Lagos will be the world’s 3 rd largest city with 25 million inhabitants. 2050- Nigeria will be the 6 th largest country in the world. (Estimated 287 million population)

14. Consumer Explosion- Cars/housing/tv’s/white goods/travel/private schools/universities/entertainment/shopping/phones Super smart educated elite which treats London as a suburb of Lagos. Nigerians returning home with management skills and experience

15. 70m lines-90%mobile + 80 m potential Business systems/ fibre optics/undersea cable 3G –High speed internet/mobile tv

16. Takeover possibilities (SA banks showing interest) Insurance/pension/brokerage reforms/bond market 80%unbanked/ 98% no insurance Technology/electronic payment Fear of fraud Credit agency infancy

17. Corporate training: increase in professional development Hotspots telecoms/FMCG/power/financial/aviation/ports/ o&g/healthcare Emergence of private schools/universities/polytechnics: developed by corporate/state governments/private individuals. Education Ministry: focus on training/education and quality assurance

18. Growth rate 10%/GDP contribution 4.4% ($9.76bn) High demand/growing sophistication of consumers- improving economics PZ/Unilever/Procter & Gamble/Nestle/GSK all investing heavily (PZ £40m GSK £ 20m)

19. Construction industry in Nigeria worth US$2.87bn in 2010.( Global Construction Perspectives and Oxford Economics forecast) The report named Nigeria the “Global hotspot from here to 2020”. It puts the nation’s construction growth as being even faster than India. Multi billion dollar construction industry. Infrastructure development topped the Nigerian Federal Government agenda in the capital expenditure budget for 2010 at approximately N506.2bn. Major projects underway include Eko Atlantic city and Pinnacle in Lagos.

22. Outperforming all SSA markets on OMIS (paid services) revenues. 14th in world on revenue 2009/2010 Paid for reports 2009/10 include: Oil & Gas Education & Training Fire/police/security ICT

23. Financial services Agriculture Food & drink Beauty and fashion Construction Ports & logistics Several launch & customer events Business Select (fast-track business visas)

25. Royal Assent 8 April 2010 New laws modernize and simplify existing legislation Criminal offence to offer or receive a bribe home/abroad including foreign public officials Increase penalty from 7 to 10 years Introduce corporate offence of failure to prevent bribe Encourages business to introduce adequate procedures to prevent bribes

26. Some political stability- head winds ahead? Growth good at 6% Banking crisis-barrier to business growth Infrastructure constraints- road, rail, aviation & power Chinese companies active in the economy

27. UK investment growing Its tough- no short term fixes More returnees- internationalized Nigerians Oil price/good governance/ power/ anti corruption are still critical Still stunning, unrealized potential………but how long will it take?

28. Yinka Agidee Partner The Rock and Company (Lagos)

29. SYNOPSIS 1. Historical Overview 2. Oil and Gas Legal Regime 3. Current Developments a. Amnesty Programme a. Amnesty Programme b. Local Content Law b. Local Content Law c. Petroleum Industry Bill (PIB) c. Petroleum Industry Bill (PIB) 4. Business Opportunities 5. Dispute Resolution a. Litigation a. Litigation b. Alternative Dispute Resolution (ADR) b. Alternative Dispute Resolution (ADR) 6. Summary THE ROCK AND PARTNERS THE ROCK AND PARTNERS

30. HISTORICAL OVERVIEW Oil was discovered in commercial quantities in Oloibiri in Rivers state in 1958. Oil was discovered in commercial quantities in Oloibiri in Rivers state in 1958.  Nigeria is the 11th largest producer of crude oil in the world.  Oil represents Nigeria’s economic backbone and accounts for over 90% of export revenue.  Nigeria has a large untapped gas deposit, which has largely been flared by oil companies. IOC’s have been the major players and practically dominated every ramification of the oil & gas industry. IOC’s have been the major players and practically dominated every ramification of the oil & gas industry.

31. OIL & GAS LEGAL REGIME The Nigerian oil and gas industry is principally regulated by: The Nigerian oil and gas industry is principally regulated by: 1.The Petroleum Act (PA), Cap P10 Laws of the Federation of Nigeria 2004; 1.The Petroleum Act (PA), Cap P10 Laws of the Federation of Nigeria 2004; 2.The Petroleum Profits Tax Act (PPTA), Cap P13, Laws of the Federation of Nigeria 2004; and 2.The Petroleum Profits Tax Act (PPTA), Cap P13, Laws of the Federation of Nigeria 2004; and 3.The Nigerian National Petroleum Corporation (NNPC) Act Cap N123, Law of the Federation of Nigeria 2004 3.The Nigerian National Petroleum Corporation (NNPC) Act Cap N123, Law of the Federation of Nigeria 2004 The PA was enacted in 1969, the PPTA in 1958 and the NNPC Act in 1977. While these laws have been amended a couple of times, they remain substantially in the original forms in which they were enacted.

32. CURRENT DEVELOPMENTS The long anticipated reform of the oil and gas sector is gathering momentum as the FGN puts in place legislative and administrative regulations, which are expected to revolutionise the industry. I will take three key subjects: 1. Amnesty Programme; 1. Amnesty Programme; 2. Local Content law; 2. Local Content law; 3. The Petroleum Industry Bill (PIB). 3. The Petroleum Industry Bill (PIB).

33. AMNESTY PROGRAMME 60 day pardon declared by the Federal Government of Nigeria on 25 th June 2009, to militants in Nigeria’s oil rich Niger Delta; 60 day pardon declared by the Federal Government of Nigeria on 25 th June 2009, to militants in Nigeria’s oil rich Niger Delta; Ended on 4 th October 2009 with major militant groups surrendering their weapons; Ended on 4 th October 2009 with major militant groups surrendering their weapons; Post Amnesty period to address developmental issues in the region, skill acquisition for ex – militants and generally redress issues that led to the militancy; Post Amnesty period to address developmental issues in the region, skill acquisition for ex – militants and generally redress issues that led to the militancy; Fosters peace, stability and security of operations in the Niger Delta. Lauded locally and internationally but suffered set back due to political instability in the country; Fosters peace, stability and security of operations in the Niger Delta. Lauded locally and internationally but suffered set back due to political instability in the country; Currently being pursued by the government. Currently being pursued by the government.

34. LOCAL CONTENT Nigeria Oil and Gas Industry Content Development Act 2010, was signed into law by the President on 22 nd, April 2010. Nigeria Oil and Gas Industry Content Development Act 2010, was signed into law by the President on 22 nd, April 2010. Seeks to increase indigenous participation in the oil and gas industry by prescribing minimum thresholds for the utilisation of local goods, services and materials as well as promote employment of Nigerians in the oil industry. Seeks to increase indigenous participation in the oil and gas industry by prescribing minimum thresholds for the utilisation of local goods, services and materials as well as promote employment of Nigerians in the oil industry. By this law the key element for all transactions in the Nigerian oil and gas industry is Nigerian content regarding overall project development, management and execution. By this law the key element for all transactions in the Nigerian oil and gas industry is Nigerian content regarding overall project development, management and execution.

35. SALIENT POINTS Consideration of Nigerian content as a key element for project execution in the Nigerian oil and gas industry; Consideration of Nigerian content as a key element for project execution in the Nigerian oil and gas industry; First consideration to be given to Nigerian independent operators in the award of oil blocks and projects subject to the fulfillment of conditions specified by the Minister; First consideration to be given to Nigerian independent operators in the award of oil blocks and projects subject to the fulfillment of conditions specified by the Minister; Exclusive consideration to be given to Nigerian indigenous service companies which demonstrate ownership of equipment, Nigerian personnel and capacity to execute projects; Exclusive consideration to be given to Nigerian indigenous service companies which demonstrate ownership of equipment, Nigerian personnel and capacity to execute projects; Submission of a Nigerian Content Plan (NCP) when operators and contractors are bidding for licences and executing projects. The NCP should state that first consideration will be given in the procurement of goods and services produced locally as well as in the employment and training of Nigerians. Submission of a Nigerian Content Plan (NCP) when operators and contractors are bidding for licences and executing projects. The NCP should state that first consideration will be given in the procurement of goods and services produced locally as well as in the employment and training of Nigerians. The minimum Nigerian content required is set out in the schedule to the Act and must be complied with strictly; The minimum Nigerian content required is set out in the schedule to the Act and must be complied with strictly; All project promoters and operators are to consider Nigerian content when evaluating any bid. Where bids are within 1% of each other at commercial stage, the bid containing the highest level of Nigerian content shall be selected, provided the Nigerian content in the selected bid is at least 5% higher than the closest competitor; All project promoters and operators are to consider Nigerian content when evaluating any bid. Where bids are within 1% of each other at commercial stage, the bid containing the highest level of Nigerian content shall be selected, provided the Nigerian content in the selected bid is at least 5% higher than the closest competitor; Award of contracts shall not be solely based on the principle of the lowest bidder. Where a Nigerian indigenous company demonstrates capacity, it shall not be disqualified solely on the basis of the lowest bidder provided the value does not exceed the lowest bid by 10%; Award of contracts shall not be solely based on the principle of the lowest bidder. Where a Nigerian indigenous company demonstrates capacity, it shall not be disqualified solely on the basis of the lowest bidder provided the value does not exceed the lowest bid by 10%; All projects, contracts, subcontracts and purchase orders in excess of $1million shall require the approval of the Nigerian Content Monitoring Board for adverts, pre-qualification criteria, technical bid documents and proposed bidders list; All projects, contracts, subcontracts and purchase orders in excess of $1million shall require the approval of the Nigerian Content Monitoring Board for adverts, pre-qualification criteria, technical bid documents and proposed bidders list; Establishment of a Nigerian Content Monitoring Board (the Board) to ensure compliance with the provisions of the Act; Establishment of a Nigerian Content Monitoring Board (the Board) to ensure compliance with the provisions of the Act; Establishment of offices in the project location and communities where the operator has significant operations, as directed by the Board; Establishment of offices in the project location and communities where the operator has significant operations, as directed by the Board;

36. SALIENT POINTS: CONTD Retention of 5% management positions as approved by the Board as expatriate positions to take care of investor interests; Retention of 5% management positions as approved by the Board as expatriate positions to take care of investor interests; Fabrication and welding to be carried out in - country; Fabrication and welding to be carried out in - country; Multinational companies working through Nigerian subsidiaries must demonstrate that the Nigerian subsidiary, owns a minimum of 50% of the equipment deployed for execution of the work; Multinational companies working through Nigerian subsidiaries must demonstrate that the Nigerian subsidiary, owns a minimum of 50% of the equipment deployed for execution of the work; No insurance risk in the Nigerian oil and gas industry can be placed offshore without the written approval of the National Insurance Commission (NAICOM) which shall ensure that Nigerian local capacity has been fully exhausted; No insurance risk in the Nigerian oil and gas industry can be placed offshore without the written approval of the National Insurance Commission (NAICOM) which shall ensure that Nigerian local capacity has been fully exhausted; Only the services of a Nigerian legal practitioner or a firm (s) of Nigerian legal practitioners whose office is located in any part of Nigeria, can be retained for legal advisory services, except for project management and consultancy services, where the minimum Nigerian content required is 50%; Only the services of a Nigerian legal practitioner or a firm (s) of Nigerian legal practitioners whose office is located in any part of Nigeria, can be retained for legal advisory services, except for project management and consultancy services, where the minimum Nigerian content required is 50%; Retention of the services of only Nigerian Financial Institutions for Financial services, except where impractical in the opinion of the Board. Maintenance of bank accounts within Nigeria with a minimum of 10% of the revenue generated from their Nigerian operations to be retained within Nigeria; Retention of the services of only Nigerian Financial Institutions for Financial services, except where impractical in the opinion of the Board. Maintenance of bank accounts within Nigeria with a minimum of 10% of the revenue generated from their Nigerian operations to be retained within Nigeria; Appropriate fiscal framework and tax incentives for foreign and indigenous companies which establish facilities, factories, production units or other operations in Nigeria for purposes of carrying out production, manufacturing or for providing any services and goods otherwise imported into Nigeria; Appropriate fiscal framework and tax incentives for foreign and indigenous companies which establish facilities, factories, production units or other operations in Nigeria for purposes of carrying out production, manufacturing or for providing any services and goods otherwise imported into Nigeria; Succession plan which shall provide for Nigerians to understudy each incumbent expatriate for 4years and at the end of the 4year period, the position shall be occupied by a Nigerian; Succession plan which shall provide for Nigerians to understudy each incumbent expatriate for 4years and at the end of the 4year period, the position shall be occupied by a Nigerian; Establishment of an oil and gas e – market place to facilitate transactions in the industry; Establishment of an oil and gas e – market place to facilitate transactions in the industry; The Board in conjunction with the Nigerian Maritime Administration and Safety Agency (NIMASA) to ensure compliance with the provisions of the Cabotage Act in relation to matters pertaining to Nigerian content; The Board in conjunction with the Nigerian Maritime Administration and Safety Agency (NIMASA) to ensure compliance with the provisions of the Cabotage Act in relation to matters pertaining to Nigerian content;

37. POINTS TO NOTE Definition of a Nigerian company – Interpretation section Definition of a Nigerian company – Interpretation section The Act defines a Nigerian company as a company formed and registered under the Companies and Allied Matters Act with not less than 51% of the equity held by Nigerians. Offences and Penalties – Section 68 Offences and Penalties – Section 68 An operator, contractor or subcontractor who carries out any project contrary to the provisions of this act, commits an offence and is liable on conviction to a fine of 5% of the project sum for each project in which the offence is committed or cancellation of the project. Establishment of a Nigerian Content Development Fund - section 107 Establishment of a Nigerian Content Development Fund - section 107 To fund the implementation of Nigerian content development, 1% of every contract awarded is to be deducted at source and paid into the fund. Companies operating in the oil industry will need to introduce procedures to comply with this law. This would involve a review of their policies relating to human resources, procurement and collaboration with third parties.

38. PETROLEUM INDUSTRY BILL (PIB) An Act to establish the legal and regulatory framework, institutions and regulatory authorities for the Nigerian petroleum industry, to establish guidelines for the operation of the upstream, midstream and downstream sectors, and for purposes connected with the same. An Act to establish the legal and regulatory framework, institutions and regulatory authorities for the Nigerian petroleum industry, to establish guidelines for the operation of the upstream, midstream and downstream sectors, and for purposes connected with the same. Currently before the Senate and scheduled to be passed into law in August 2010. Currently before the Senate and scheduled to be passed into law in August 2010. The PIB, seeks to consolidate and/or repeal a number of existing legislation and create a single, comprehensive and all inclusive piece of legislation in the petroleum industry. The PIB, seeks to consolidate and/or repeal a number of existing legislation and create a single, comprehensive and all inclusive piece of legislation in the petroleum industry.

39. THE PIB: MATTERS ARISING FISCAL REGIME FISCAL REGIME A progressive royalty based on production rates and oil price is introduced replacing the existing depth-related royalty. The PIB proposes higher royalties and increased off - take. It also introduces the Nigerian Hydrocarbon Tax along with other taxes, rents and royalties existing in the industry. INCORPORATED JOINT VENTURES INCORPORATED JOINT VENTURES The PIB advocates for existing joint venture contracts to be turned into incorporated joint ventures with the new national oil company SEPARATE LICENSES FOR OIL AND GAS SEPARATE LICENSES FOR OIL AND GAS The PIB treats oil and gas separately, licenses will be issued for either oil or gas, and if a contractor wishes to produce both, two separate licenses are needed. Also, oil and gas are treated separately for cost and taxation purposes, with a lower tax rate for gas than for oil as a way of incentivizing the development of gas. DEVELOPMENT OF GAS E & Ps AND THE GAS MASTERPLAN DEVELOPMENT OF GAS E & Ps AND THE GAS MASTERPLAN The PIB actively encourages the development of gas through allocation of licences to prospect for and develop gas in accordance with the Gas Masterplan. ACREAGE RELINQUISHMENT AND MARGINAL FIELDS ACREAGE RELINQUISHMENT AND MARGINAL FIELDS The PIB provides for the Directorate to take over licenses after ten years of inactivity as part of relinquishment clauses and marginal fields initiatives. LOCAL CONTENT MAXIMISATION LOCAL CONTENT MAXIMISATION Failure to comply with the terms of any local content law shall be a ground for revocation of a Failure to comply with the terms of any local content law shall be a ground for revocation of a licence, lease, contract or permit that may have been previously granted to the company that failed to comply with the said terms. licence, lease, contract or permit that may have been previously granted to the company that failed to comply with the said terms. DOMESTIC GAS SUPPLY OBLIGATIONS AND PENALTIES FOR NON – COMPLIANCE DOMESTIC GAS SUPPLY OBLIGATIONS AND PENALTIES FOR NON – COMPLIANCE Lessees of petroleum mining leases are to allocate a specific volume (to be determined by the Nigerian Petroleum Inspectorate) of the gas produced, to the domestic market. Stiff penalties are provided in the event of default including payment for the gas that was not supplied as provided in the gas sales agreement, a fine of $3.50 for every 1,000 standard cubic feet of gas that was not supplied to the domestic market and prohibition from exporting its gas during the event of default. The Domestic Gas Obligation was introduced prior to the PIB and is an existing policy of the government. GAS FLARING GAS FLARING The PIB provides for payment of penalties as determined by the Minister in the event of flaring. In July 2009, the Nigerian Senate passed the Gas Flaring (Prohibition and Punishment) Bill (GFPPB). The GFPPB seeks to amend the Associated Gas Re-injection Act (AGRA) 1979 and prohibit gas flaring in Nigeria. Under the AGRA, it is illegal to flare unless an approval is given by the Minister of Petroleum Resources.

40. PIB: FISCAL REGIMES CURRENT RATES - Presently, the applicable royalty rates are as follows: CURRENT RATES - Presently, the applicable royalty rates are as follows: On – shore operations – 20% Swamp/shallow waters (1- 100m)–18.5% Offshore Up to 200m-16.67% 201 - 500m-12.0% 501 – 800m-8.0% 801 – 1000m-4.0% Above 1,000m-0% PIB - ROYALTY BASED ON PRODUCTION PIB - ROYALTY BASED ON PRODUCTION Progressive royalty linked to production rate and oil price is introduced replacing the existing water depth – related royalty. Onshore Fields producing up to 4,000bpd-5% Over 4000 to 8,000bpd-12.5% Over 8,000bpd-25%

41. FISCAL FRAMEWORK Offshore (water depth of 200m) Fields producing up to 8000bpd-5% Over 8,000 to 16,000-12.5% Over 16,000bpd-25% Over 16,000bpd-25% PIB - PRICE BASED ROYALTY PIB - PRICE BASED ROYALTY Ranges on an incremental basis from 0% to 25% starting from $70bbl with a price cap of $160 as follows: $0 to $60 - 0% $60 to $100 - 0% plus 0.4% royalty percentage for every $1 increase in value above $60bbl $100 to $130 - 16% plus 0.2% for every $1 increase in value over $100bbl $130 to $160 – 22% plus 1% for every $1 increase in value over $130 Over $ 160 - 25%

42. PIB: WHY IOCs ARE COMPLAINING IOCs are not pleased with the higher costs imposed on deep offshore projects, including taxes and royalties. IOCs are not pleased with the higher costs imposed on deep offshore projects, including taxes and royalties. Nigerian deep offshore projects have been highly profitable for IOCs because unlike onshore there were no royalties and few security issues. The Nigerian National Petroleum Corporation (NNPC) does not partner IOCs in offshore projects, making it easier to access investment from other IOC partners. Nigerian deep offshore projects have been highly profitable for IOCs because unlike onshore there were no royalties and few security issues. The Nigerian National Petroleum Corporation (NNPC) does not partner IOCs in offshore projects, making it easier to access investment from other IOC partners. Although deep offshore terms may be similar to competitors, like Angola, experts have said they are not comparable due to Nigeria's unique working conditions, often hampered by secondary costs related to corruption and security problems. Some of the IOCs have viewed the previously generous deep offshore terms as compensation for these problems. Although deep offshore terms may be similar to competitors, like Angola, experts have said they are not comparable due to Nigeria's unique working conditions, often hampered by secondary costs related to corruption and security problems. Some of the IOCs have viewed the previously generous deep offshore terms as compensation for these problems. Government’s intention is to create a win – win situation for all stakeholders and will try to harmonise conflict areas before it is passed into law. Government’s intention is to create a win – win situation for all stakeholders and will try to harmonise conflict areas before it is passed into law.

43. Opportunities for International Lawyers Are there still opportunities for foreign lawyers in view of the Nigerian Content Act? Are there still opportunities for foreign lawyers in view of the Nigerian Content Act? Tremendous opportunities still exist for foreign firms to partner with Nigerian law firms through loose partnerships, correspondent relationships, alliances etc. Tremendous opportunities still exist for foreign firms to partner with Nigerian law firms through loose partnerships, correspondent relationships, alliances etc.

44. INVESTORS CONCERNS Geology/Security Issues Geology/Security Issues Nigeria has proven and viable reserves of oil and gas to keep the industry running for a long time. Fiscal Terms Fiscal Terms Whether Taxes, Royalties and other costs are such that will keep the investor in business Whether Taxes, Royalties and other costs are such that will keep the investor in business Legal Regime Legal Regime Whether the local legal/regulatory regime and practice creates favourable investment environment Whether the local legal/regulatory regime and practice creates favourable investment environment

45. DISPUTE RESOLUTION – spotlight on Lagos State Litigation Litigation States High Courts/Federal High Court States High Courts/Federal High Court Court of Appeal Court of Appeal Supreme Court Alternative Dispute Resolution (ADR) – The Lagos Multi – Door Courthouse Alternative Dispute Resolution (ADR) – The Lagos Multi – Door Courthouse Established in 2007 vide ‘’A Law to Establish the Lagos Multi- Door Courthouse and for other connected matters, Law 21’’, Laws of Laos State; Situate at the premises of the High Court of Lagos State; Has been adopted by other states including Kano, Akwa - Ibom, Abuja Has been adopted by other states including Kano, Akwa - Ibom, Abuja

46. LITIGATION The most recognized and established form of dispute resolution system in the world; Based on the Common Law system adopted from England; Based on the Common Law system adopted from England; Adversarial and long period of determination Adversarial and long period of determination Trade Practices Trade Practices Parties Physical presence is required during Pre Trial Conference (PTC) and trial Parties Physical presence is required during Pre Trial Conference (PTC) and trial

47. FORMS OF ADR 1. Arbitration: Arbitration is more aligned in many respects to litigation. 2.Mediation It is a voluntary private dispute resolution process in which an impartial third party assists parties to reach a negotiated settlement. 3.Conciliation It is a voluntary private dispute resolution process in which an impartial third party assists parties to reach a negotiated settlement. 4.Early Neutral Evaluation (ENE): This is a technique whereby an impartial senior lawyer or retired judge or magistrate may evaluate the likely outcome of a case if it were to proceed to trial. This is expected to lead to more realistic negotiation between the parties, without any influence on the path or process of negotiation, nor any binding judgment imposed.

48. ARBITRATION AND CONCILIATION ACT: SALIENT PROVISIONS Form of Arbitration Agreement - In writing; Form of Arbitration Agreement - In writing; A court before which a suit, subject of an arbitration agreement is brought, SHALL, if any party request when submitting first statement, order a stay of proceedings and refer the parties to arbitration. However, arbitral proceedings and suits may run concurrently; A court before which a suit, subject of an arbitration agreement is brought, SHALL, if any party request when submitting first statement, order a stay of proceedings and refer the parties to arbitration. However, arbitral proceedings and suits may run concurrently; Number of arbitrators determined by parties to the agreement or deemed 3, where no provision is made; Number of arbitrators determined by parties to the agreement or deemed 3, where no provision is made; Foreign arbitral awards are recognised and enforceable Foreign arbitral awards are recognised and enforceable

49. MEDIATION MEDIATION Walk – ins Walk – ins Any party to a dispute may initiate ADR service by writing to the Director of the LMDC or visiting the centre. Court Referrals Court Referrals The presiding judge in a matter already in litigation or in the course of PTC may in appropriate circumstances, refer parties to the centre Direct Interventions Direct Interventions The LMDC may, in certain circumstances where public interest or interest of disputing parties demand, approach parties with a view to assisting in the resolution of their disputes

50. PROCEDURE Request for mediation Request for mediation Submission to mediation Submission to mediation Execution of a mediation agreement Execution of a mediation agreement Appointment of a mediator by the LMDC Appointment of a mediator by the LMDC Date, time and Place – each mediation session shall not exceed 10 days from the date of the last session and parties are encouraged to reach a settlement within 3 mediation sessions Date, time and Place – each mediation session shall not exceed 10 days from the date of the last session and parties are encouraged to reach a settlement within 3 mediation sessions Settlement Agreement is binding, has the force of law and is deemed enforceable as a judgment of the High Court of Lagos State. Settlement Agreement is binding, has the force of law and is deemed enforceable as a judgment of the High Court of Lagos State.

51. SUMMARY Conduct business due diligence and obtain relevant information in respect of the sector of interest; Conduct business due diligence and obtain relevant information in respect of the sector of interest; Identify preferred business vehicle and take steps to comply with necessary requirements for legalisation of the same; Identify preferred business vehicle and take steps to comply with necessary requirements for legalisation of the same; Partnership and/or Joint Venture agreements should be put in place; Partnership and/or Joint Venture agreements should be put in place; Make provision for dispute resolution; Make provision for dispute resolution; Change has come. Change has come.

52. CONTACT DETAILS THE ROCK AND PARTNERS GLOBE BUILDING, 3RD FLOOR 25 ADEYEMO ALAKIJA VICTORIA ISLAND, LAGOS. TEL:002341 4611334, 2715582 FAX: 002341 4610746 E-MAIL:trp@hyperia.comtrp@hyperia.com WEB:www.trp-ng.com

53. Kalu Abosi SPA Ajibade & Co

54. REVIEW OF THE UNIVERSAL BANKING MODEL IN NIGERIA: ISSUES AND PROCESSES By: Mr. Kalu Abosi S. P. A. Ajibade & Co. Suite 301, SPAACO House, 27A Macarthy Street, Onikan, Lagos. Email: kabosi@spaajibade.com Website: www.spaajibade.com

56. Introduction  The Central Bank of Nigerian (CBN) is the primary banking regulator of 24 banks operating in Nigeria most of which are listed on the Nigerian Stock Exchange.  The Banks and Other Financial Institutions Act and the Central Bank of Nigeria Act are the primary banking legislation with the latter dealing with the powers, functions and responsibilities of the regulator. CBN regulates the industry through circulars and guidelines issued from time to time. 56

57. Introduction  Present Banks are the survivors of the “banking consolidation” of 2004 -2005 as a consequence of regulator mandated increase in share capital. Banks that did not meet the requirements had their banking licenses withdrawn.  All three foreign owned banks at the time chose not to merge with any banks. Their parent companies increased their capital through direct injection of funds to meet the regulatory requirement.  It is estimated that about 80% of the capital raised during the “banking consolidation were fresh issues. 57

58. Introduction This is an overview of the banking sector in Nigeria from the CBN: 58 Loans & Advances£14,584,500,000.00 Shareholders’ Funds £6,943,000,000.00 Total Assets£ 46,544,900,000.00 Depositors Funds£31,252,500,000.00 Gross earnings£4,860,100,000.00 Branches4329

59. Universal Banking & Reforms  Current universal banking model was introduced in 2000 and allows the banks to engage in a wide range of financial services spanning insurance, asset management, investment advisory, capital market transactions as issuing houses and underwriters etc.  Sometimes these businesses are conducted by the bank itself as the operating entity (where the sector regulator permits such), but mostly through subsidiaries. 59

60. Universal Banking & Reforms (Cont’d)  Most financial service businesses in Nigeria today are owned and controlled by banks e.g. Pension Fund Administrators, Pension Fund Custodians, Insurance Underwriters and Brokers, Trustees, Securities Registrars and Financial Advisory firms.  There is a perception that this close relationship between banks and other financial service businesses exposes the banks and the whole financial system to stability challenges and systemic risks. 60

61. Universal Banking & Reforms (Cont’d)  The main issue underlying the risks are poor corporate governance practices and absence of “arms length” transactions and transparency within the group. In some cases the actions of the banks and their affiliates border on the downright illegal.  Many non-performing loans, in some cases, close to 50% of an institution’s loan portfolio. Insider credit and poor credit administration processes. Majority of loan exposures were to the “unsecured” securities (listed & private) and the petroleum marketing sector. 61

62. Universal Banking & Reforms (Cont’d)  The “meltdown” in the Nigerian Capital market that saw the loss of over 70% of the value of equities listed on the Nigerian Stock Exchange (it is the only stock exchange in Nigeria) was the wake up call to a re-evaluation of the financial system in Nigeria. 62

63. Universal Banking & Reforms (Cont’d)  Change in leadership of the CBN in June 2009 brought about several reforms and proposals for the banking industry including: o Replacement of the executive management of “troubled banks” and capital injection to banks with issues of capital adequacy. o Enforcement of board term limits for non executive directors. o Imposition of 10 year term limits for bank CEOs (to take effect retroactively). 63

64. Universal Banking & Reforms (Cont’d) o New rules on margin trading have been put in place. o A new credit and risk management system for banks is in place. o Reprieve from margin loan exposures of banks through the Asset Management Corporation of Nigeria. 64

65. Universal Banking & Reforms (Cont’d)  A new Chief Executive resumed at the Securities and Exchange Commission in January 2010 and there is a general move towards more transparent dealings and a firmer enforcement of laws and sanctions.  A number of institutions and individuals are facing the enforcement action from both the SEC and the CBN.  Primary securities legislation is under review.  End of universal banking is a key reform element. 65

66. New Model & Transition Process Requirements  Under the new model banks will conduct only core banking businesses. Banks that conduct prohibited businesses through subsidiaries companies will have to divest from such entities.  Aim is to “ring-fence” banking from other non banking businesses.  The change will occur through the introduction of a new licensing regime. CBN will withdraw existing licences and issue new ones that spell out the regime. 66S.P.A. Ajibade & Co.

67. New Model & Transition Process Requirements (Cont’d)  In place of the Universal banking license there will be two classes of monoline banking licenses as follows: o Commercial Banking made up of National and Regional Banks, o Specialised Banks including Non-interest banking, Micro finance banks and Primary Mortgage Institutions.  Permissible activities for commercial banks under the proposed new licence include: o Taking Deposits o Provision of credit and finance facilities o Custodial Services o Ownership of non operating equity investments in non financial firms. o Provision of financial advisory services 67S.P.A. Ajibade & Co.

68. New Model & Transition Process Requirements (Cont’d)  Prohibited activities for banks include: o Insurance underwriting o Loss adjusting services o Re-insurance services o Asset Management o Broker/ dealer in the securities market o Issuing house /underwriting (securities) o Proprietary trading  Banks that intend to continue prohibited lines of businesses may make a business case for continuation to the CBN. Where the case is compelling the CBN will require that bank and its subsidiaries should transit to a group structure. 68

69. New Model & Transition Process Requirements (Cont’d)  Elements of group structure- A holding company will own the bank and the other distinct legal entities through which business will be conducted.  Any new business that intend to own at least two banks or one bank and hold up to 20% equity of any other financial institution will adopt a group structure.  The holding companies are to be regulated by CBN and will be non operating entities. Extensive corporate governance and other rules on relationships and transactions within the group will be enacted. 69

70. Possible Scenario 70S.P.A. Ajibade & Co. Holding Company Possible layer Commercial Bank Securities Trading Issuing House and Underwriter Primary Mortgage Institution

71. Possible Scenario 71S.P.A. Ajibade & Co. Holding Company Commercial Bank Securities Trading Issuing House and Underwriter Primary Mortgage Institution

72. Possible Scenario 72S.P.A. Ajibade & Co. Super Holding Company Banking Business Holding Company Commercial Bank/Custodial Services Provider Micro Fianace Bank Non Interest Banking Securities Business Holding Company Underwritting and Issuing House Broker /Dealer Trustee or Asset Manager

73. New Model & Transition Process Requirements (Cont’d) Upon the proposed rules becoming law, banks have 3 months to decide their preferred option. Those that choose to divest from prohibited business have another 9 months to divest from or “spin-off” the businesses. Banks that meet regulatory approval to transit to a group structure will have a further 15 months to complete the processes. 73S.P.A. Ajibade & Co.

74. New Model & Transition Process Requirements (Cont’d) The Group structure is the way most banks will go. Already one institution has said it would go that way. A number of the banks with suspect health are most likely going to divest through an outright sale. Even before the new model was proposed one of the “troubled banks” had already ceased to control its investment banking and securities trading subsidiary. 74S.P.A. Ajibade & Co.

75. Implications  Investment opportunities o Banks with proprietary investments in real estate, petroleum marketing, shipping etc. will have to sell to new investors. o Some banks will go through a partial sale of subsidiaries and may be looking for strategic partners with technical expertise to take equity in some subsidiaries. o Ongoing review of securities legislation may result in new requirements by the SEC for ownership of capital market operators - Issuing Houses, Trustees, Asset Managers and Underwriters. 75S.P.A. Ajibade & Co.

76. Implications (Cont’d) o Some commentators have suggested that bank holding companies should not be allowed to own controlling interest in certain capital market operators regulated by the SEC. o Other sector regulators like the National Insurance Commission could come up with rules on ownership requirements for group based Insurance companies. o The ownership requirement of the group structure mandates broad based ownership. An example is that one entity cannot hold more than 15% of the voting rights of the Holding Company. o No shareholder other than the Holding company can hold more than 15% of the voting rights of a bank in a group structure. 76S.P.A. Ajibade & Co.

77. Implications (Cont’d)  Advisory opportunities for local and international firms o The transition process is short and many involved parties will need to be hand-held through the process to satisfy the following requirements: -Deal and transaction structuring to ensure maximum protection of shareholder value. -Structure that preserves existing obligations and creditor confidence. 77S.P.A. Ajibade & Co.

78. Implications (Cont’d)  Contractual: o Contractual obligations will be preserved and transferred to the Holding company by order of court – a scheme of arrangement structure that will have the Holding company issue shares and exchange same with the existing shares of the bank. o The shareholders of the bank will become the shareholders of the holding company in the same proportion of the shareholding in the bank. o The Holding company becomes the owner of the bank. Under this arrangement present holders of a bank’s GDR will become holders of the holding company’s GDR. In the case of a spin-off or a sale, obligations will remain with the entity as will existing assets and lines of business. 78S.P.A. Ajibade & Co.

79. Implications (Cont’d)  Creditors: o Debt obligations will also pass to the Holding company or remain with the entity where there is a change of ownership. Key structuring requirement will be to ensure that assets do not move without collateral obligations. 79

80. Implications (Cont’d)  Change in typical non-compete and confidentiality clauses in transactional documents – impact of “arms length” relationship and ownership requirements. o Parties in the same group structure may not be subject to a general non-compete clause unless “associated companies” is defined in particular agreements to include group structure. o Depending on bargaining power, such an extension may not pass with companies in a group who ideally should pursue different business plans. 80S.P.A. Ajibade & Co.

81. Implications (Cont’d) o The general exemptions of related parties in some confidentiality clauses would have to be reconsidered. The standard should remain that disclosure should be on a need to know basis and assumption of the same confidentiality obligation.  End of one stop shop contractual arrangements- so called “boutique” financial services contracts.  Holding companies will be non-operating and will not enter into operations or service contracts. 81S.P.A. Ajibade & Co.

82. Implications (Cont’d)  A consequence will be that business relationships that span several service areas will, as a matter of law, require different contracts.  Access to capital and funding of projects- contrasting views.  Capital Market Transactions – unrelated transaction parties. o “insider dealing” in capital market transactions will come to an end. 82S.P.A. Ajibade & Co.

83. Implications (Cont’d) o Foreign investors using local Custodians (all the major ones are owned by banks and that will continue under the new banking model) should bear in mind that unrelated Broker/Dealers will have to be used for a significant portion of transactions. 83S.P.A. Ajibade & Co.

84. Conclusion  Imperatives for success: o Effective regulation. o Enforcement of arms length transactions. o Proper corporate governance rules 84S.P.A. Ajibade & Co.

85. END Thank you 85S.P.A. Ajibade & Co.