I ENFORCEMENT POLICIES AND GUIDANCE
Nigerian competition law on cartels is not yet fully developed and has rarely been tested. There is a wealth of possibilities for the future. There is, as yet, no dedicated general competition law regulator; nor is there a general regulation prohibiting cartels in Nigeria. Most of the recent activity has been in sector-specific regulation rather than in general regulation. There are broad statutes and regulations on the subject, but there is not much detail in them, and there is little detailed practice.
Some of the broad statements apply across more than one sector of the economy. Others are confined to particular sectors (e.g., electricity, telecommunications, insurance and banking). Several proposals for law reform have been made, but they are not as detailed on the issue of cartels as they should be.
The lack of detail in the law can be attributed to several reasons. One is that growth in economic production has outpaced the refinement of business law. Another is that, in practice, there has not been much of a problem with cartels in Nigeria. Leadership in most of the key sectors of the economy has tended either to be monopolistic (as with the telecommunications, upstream oil and gas, electricity and aviation sectors) or deeply fragmented (as with the financial services, electric power and oil marketing sectors), rather than oligopolistic.
For example, in the oil industry, in the downstream sector no company holds up to 20 per cent of the market share. The upstream sector is dominated by the federal government, which owns 60 per cent of the sector, with the leading international oil companies sharing the balance.
Nigerian law calls for the prior notification to and approval by the regulator of mergers, acquisitions and business combinations among companies in every sector of the economy (the Investment Securities Act 2007 (ISA) Section 118(1)). The application of this rule to mergers and acquisitions is controversial but a subject of everyday practice. Its application to business combinations is as yet untested.
‘Business combination’ is not defined in the ISA or the rules made pursuant to the ISA. There is no record either published or known to us in which the regulator has addressed the question of defining a business combination or of applying the law to a cartel situation. It is unlikely that a business combination among companies does not catch cartels.
The definition in the ISA does not insist that the combination must restrict or be likely to restrict competition: every business combination is caught. It is not clear whether an agreement amounting to a contract in law is needed for there to be a ‘business combination’ within the statute.
The regulator in this area is the Securities and Exchange Commission (SEC). It is both a general competition law regulator and a securities law regulator. The statute and regulations do not catch business combinations among individuals or trusts, or other vehicles that are not companies, but they do apply to partnerships.
There are no rules setting out the considerations that the regulator is to address in deciding whether to grant approval to a business combination. There is every likelihood, however, that the regulator will extend to cartels the same reasoning that it is mandated by law to apply to mergers.
A key consideration for determining whether to grant approval is whether the merger is likely to:
[...] substantially prevent or lessen competition or is likely to result in a pro-competitive gain which will be greater than and offset the effects of any prevention or lessening of competition that may result in a merger or is likely to result from the merger and would not likely be obtained if the merger is prevented or can or cannot be justified on substantial public interest grounds.2
In determining whether a merger may substantially prevent or lessen competition, the SEC is empowered in Section 121(2) of the ISA to ‘assess the strength of the competition in the relevant market, and the probability that the company, in the market after the [combination] will behave competitively’.
In considering whether a merger should be allowed on public interest grounds, the SEC is required to consider its effect on competition by small businesses and the ability of national industries to compete in international markets.
The SEC may, as punishment for a mistake, deceit, misrepresentation or breach of condition, revoke its approval for a proposed merger. The SEC may investigate a concluded merger if it believes that the merger may ‘substantially prevent or lessen competition or cannot be justified on public interest grounds’. The SEC may break up the merged entity ‘into separate entities in such a way that its operations do not cause a substantial restraint of competition’.
The SEC is specifically empowered by the SEC Rules 2013 to break up, on public interest grounds, a company that ‘constitutes a restraint to competition or creates a monopoly in a particular industry’. The SEC Rules are silent on whether the company must have been involved in a merger or acquisition transaction.
To break up a company, the SEC must give it an opportunity to be heard and must forward its decision to the court for sanctioning. The SEC Rules give guidance on what amounts to a restraint of competition: price-fixing, market sharing, limiting supply and tying arrangements.
i Sector regulation
The Nigerian Communications Commission Act 2003 (the NCC Act) and the Competition Practices Regulations 2007 made pursuant to the NCC Act, establish a sector-specific regulator, the Nigerian Communications Commission (NCC), and prohibit cartels in Nigeria.
Holders of licences under the NCC Act are prohibited from engaging in any conduct that has ‘the purpose or effect of substantially lessening competition in any aspect of the Nigerian communications market’ (NCC Act, Section 91(1)). The Act also specifically prohibits licensees from entering into any agreement or arrangement, whether legally enforceable or not, that provides for rate fixing, market sharing or boycotts (NCC Act, Section 91(3)).
However, the NCC may grant exemptions to a licensee to engage in conduct that substantially lessens competition, but only in instances where the national interest so warrants – a term undefined and, as yet, untested (NCC Act, Section 93).
It is unclear whether the general provisions on cartels apply to the Nigerian communications market, because the NCC is established in the NCC Act as the exclusive regulator of competition law in the Nigerian communications market (NCC Act, Section 90).
The regulator for the electric power sector is the Nigerian Electricity Regulatory Commission (NERC). The Electric Power Sector Reform Act 2005 (EPSRA) has two provisions against cartels. The first prohibits anyone holding a licence from the NERC to cede its undertaking or any part thereof without the consent of the NERC (EPSRA, Section 69(1)). An agreement to divide a local market has been held to violate Section 69(1).3
The second says that no person holding a licence from the NERC may, without the NERC’s consent, be affiliated with the undertaking of another person who is in the business of generating, transmitting, distributing or trading electricity. This provision is, as yet, untried (EPSRA, Section 69(2)).
According to the EPSRA, Section 82(5), the NERC has the responsibility to consider, in respect of services in competitive markets, the prevention or mitigation of abuses of market power in its decisions regarding the setting of prices and tariffs; and whether to approve a merger, acquisition or affiliation. To do so, the NERC may require information from licensees, undertake inquiries, and establish or contract with an independent entity to provide monitoring services.
In a case where the NERC determines that Section 82(5) of the EPSRA is violated, it may issue cease orders or levy fines not exceeding 50 million naira.
The rules governing bids on the ongoing and wide-ranging privatisations of the electricity sector also aim to prohibit the formation of cartels. Those rules prohibit any one bidder from buying more than two companies. Eleven distribution companies and 26 generation companies have been privatised already.
The Nigeria Civil Aviation Air Transport Economic Regulations, 2012 (the CA Regulation) made pursuant to the Nigerian Civil Aviation Act, 2006 (the Aviation Act) makes it unlawful for two or more parties in the civil aviation industry to enter into any contract, arrangement, understanding or conspiracy that acts as a ‘restraint of competition’ unless such agreement is authorised by the Nigerian Civil Aviation Authority (NCAA).
The CA Regulation proscribes:
- a price-fixing;
- b division of the market by allocating customers, passengers, suppliers, slots, territories or specific types of products or services;
- c involvement in collusive actions; and
- d limitation or control of development or investment in capacity, slots and any other market or operational factor.
The CA Regulation also prohibits the application of dissimilar conditions to equivalent transactions with other service providers that thereby place the other party at a competitive disadvantage and make the conclusion of an arrangement, understanding or contract subject to acceptance by the other parties of supplementary obligations, and that, by their nature or according to commercial usage, have no connection with the subject of the contract.
Furthermore, the Aviation Act, Section 30(4)(g) requires every Nigerian carrier to file a true copy of every contract or agreement relating to the establishment of transportation fares, charges or classifications, or eliminating destructive, oppressive or wasteful competition, or for any other cooperative working arrangement.
The NCAA is empowered to impose penalties and sanctions, such as the suspension or revocation of certificates, licences and authorisations, fines and imprisonment for a term of not less than six months (Aviation Act, Section 30(9)). The NCAA may prescribe the payment of compensation to any person adversely affected by a violation of the Aviation Act and the CA Regulation.
There have been hearings involving British Airways, Virgin Atlantic Airways and the NCAA. The NCAA indicted them, and found them guilty of collusion and abuse of dominance on the Lagos–London route by arbitrarily fixing prices, and imposing abusive fuel surcharges, taxes, fees and charges. However, the NCAA could not fine them, because the legislation in force at the relevant time did not provide for a fine or penalties for the breach of anticompetition rules. This has been corrected in the new legislation that is currently in force.
The NCAA may authorise a cartel that contributes to the improvement of availability or distribution of products and services, or the promotion of technical or economic progress, while allowing consumers a fair share of the resulting benefit; that imposes on the airline, service providers or operators concerned only such restrictions as are indispensable to the attainment of the objectives referred to above; or that does not afford such airline, service providers or operators the possibility of eliminating competition in respect of a substantial part of the products and services concerned.
II COOPERATION WITH OTHER JURISDICTIONS
To date, there are no detailed rules or cases in Nigeria concerning cartels with a foreign element. In our view, cartels with foreign elements are business combinations within the ISA for two reasons. First, prior to 2007, the ISA competition law provisions applied only to Nigerian companies. Since then, the provisions have not been confined to Nigerian companies, and the ISA suggests that they apply to foreign companies. Second, it is difficult to believe that a foreign cartel, the economic impact of which (by way of policies or conduct) will be felt in Nigeria, will not be subject to Nigerian law.
III JURISDICTIONAL LIMITATIONS, AFFIRMATIVE DEFENCES AND EXEMPTIONS
No general exemptions have yet been developed regarding the requirements of prior notification and approval. Small mergers (with a value at or below US$1.6 million (500 million naira)) are exempted by law from review. The SEC is likely to extend this dispensation to business combinations.
Surprisingly, there is no general exemption for cartels sponsored by the federal government. Such an exemption was explicitly rejected in the ISA (2007), Section 118(4). There was such an exemption in the earlier ISA (1999), Section 99(4). The 2007 statute supersedes the 1999 statute.
A general exemption for intra-group transactions for mergers is in effect. The statute is silent on whether there is one for cartels. It is likely that the SEC will extend the reasoning on mergers to cartels.
IV LENIENCY PROGRAMMES
The Federal Ministry of Justice, headed by the Attorney General, does not undertake competition law work, but nothing in the general law prohibits it from doing so. Nigeria does not have any regulations on leniency programmes offering reduced sanctions for conspirators who report to the law enforcement authorities about their own cartel activities or those of their co-conspirators.
The penalty for non-notification that is established in the ISA is a fine of no less than 2 million naira and a further daily fine of 5,000 naira for as long as the infraction continues. The penalties are very light. It is also believed that such a combination will be void by law. There is, as yet, no clear judicial decision on the effect of the lack of prior notification for mergers or cartels. A judicial decision on prior notification and approval requirements in another context (for foreign investment) but under the same statute and with the same regulator indicates that the agreement to form the cartel will be void.4
VI ‘DAY ONE’ RESPONSE
There are no rules in this regard, and there has been no practice on ‘day one’ responses in Nigeria.
VII PRIVATE ENFORCEMENT
The general regulator has not put out any policy or guidance statement on private enforcements.
VIII CURRENT DEVELOPMENTS
At the time of writing, several bills are before the federal legislature on competition law matters.5 In Nigeria, only the federal government (and not the states) can legislate on competition law matters.6
Of the bills being discussed, the Federal Competition and Consumer Protection Bill, 2016 (the Bill) is expected to be passed into law before the end of the second quarter of 2017. The Bill has passed the second reading stage and, in October 2016, was referred to the Senate Committee on Trade and Investment. The Bill, though not exclusively concerned with cartels, has specific provisions directed at cartels.
The Bill seeks to establish a competition law regulator and to proscribe completely, or permit only with the regulator’s prior approval, a range of restrictive trade practices that cartels and other actors may engage in. Among these practices are price-fixing, market division, restricting output, collusive tendering, tying arrangements, conspiracy, mergers and the abuse of a dominant market position.
The sanctions for the breaches of the provisions include setting aside prohibited transactions, fines of up to the equivalent of 50 million naira or 10 per cent of turnover in the year immediately prior and imprisonment for up to five years. The Bill gives the consumer, but not suppliers or competitors, a private right of action to enforce the provisions. The Bill claims for itself supremacy over all other competition law statutes and regulation.
A number of the other bills aim to set up regulatory agencies devoted exclusively to competition law.7 Others are calculated to combat varieties of anticompetitive conduct that cartels may engage in. The bills overlap significantly with each other and with the Bill. None of these other bills has significant traction at the present time.
1 Gbolahan Elias is a partner, and Obianuju Ifebunandu and Okechukwu J Okoro are associates, at G Elias & Co.
2 ISA, Section 121(1).
3 Petadis v. HFP Properties, Case No: NERC/10/0011/08.
4 Faloughi v. Faloughi (1995) 3 NWLR (Pt 384) 434.
5 The general competition law bills before the National Assembly are the Nigerian Trade and Competition Commission Bill (2008), which was represented in 2012; the Federal Competition Commission (Establishment) Bill (2011) represented in 2015; the Restrictive Trade Practices, Monopolies and Price Control Bill (2011); the Competition (Anti-Trust) Commission (Establishment, etc) Bill, 2016; and the Federal Competition and Consumer Protection Bill, 2016. The Petroleum Industry Bill 2012 is also before the National Assembly.
6 1999 Constitution Schedule 2 Part 1 (commercial and industrial monopolies, combines and trust).
7 Nigerian Trade and Competition Commission Bill (2012) and the Federal Competition Commission (Establishment) Bill (2011).