Project financing in Africa
The practice of issuing legal opinions by jurisdictions to secure project financing in Africa: what is the use?
Presentation of the issue
Legal opinions, also called "opinion letters" or "third party opinions", are an integral part of the practice of project financing in Africa, particularly in French-speaking Africa. But what is more surprising is the practice of credit institutions, in particular development banks, observed in several projects, of requesting a legal opinion from a court on acts and contracts concluded by a state before agreeing to finance a project.
As this practice leads to making the financial documentation phase more complex and often longer, it should be reserved for cases in which the legal opinion issued genuinely enables lenders to minimise the risk of non-repayment.
However, when it comes to opinions delivered by eminent members of African jurisdictions with a legal system inherited from the French legal tradition − presidents of the Supreme Court, the Council of State or the Court of Cassation, depending on the project and the country − there is more than a room for doubt.
As a reminder, a legal opinion is a note or letter issued by a legal professional (usually a lawyer) whose purpose is to certify the capacity of a person (company, state) to enter into a contract and/or the validity of the obligations formed by that contract, and is intended either for the person referred to in the opinion or for a third party with an interest in ensuring the accuracy of some information therein.
Originating in the United States, the practice of legal opinions is quite traditional and widespread in the United Kingdom and in common law countries in general. In France, its development is not new, but the practice is generally characterised by a lack of established doctrine and by pure empiricism, leading, to our knowledge, to the fact that very little thought has been given to the suitability of this practice in French administrative law.
With regard to legal opinions issued on behalf of states in Africa, generally issued by magistrates from the highest courts, on acts and contracts of these states, the value of such opinions is questionable.
Countries with a French legal tradition do not have, as is the case in common law countries, "General Counsels" who advise governments or the general public by issuing legal opinions.
In what capacity, then, does a president of the highest court in an African state (or, more generally, any magistrate) issue a legal opinion?
A comparative look with legal opinions issued by lawyers
Not as a public official in charge of settling disputes, nor as an "advisor", contrarily to the case, classically, of a lawyer mandated by his client to issue a legal opinion either for the benefit of his client directly, or for the benefit of his client’s co-contractor in the context of the financial closing of a project.
Legal opinions issued by a lawyer do not constitute an infallible guarantee, insofar as lawyers are – logically – only obligated to use their best endeavours in this exercise, and as the issuing of a legal opinion is not subject to a particular liability regime.
However, these opinions issued by lawyers to their clients have the merit of being based on a contractual basis which, in the event of an error causing damage, makes it possible to engage the contractual liability of the lawyer who issued the opinion.
This is not the case for the president or magistrate of a court, who does not act under a contract with the respective parties of the project to be financed.
Moreover, in day-to-day practice, the terms of the legal opinion are frequently negotiated between its author and the opinion beneficiary's lawyer, even though negotiating opinions is not part of the usual activities of a judge and, again, the judge generally has no mandate from the state to do so.
The absence of a mandate given by the law to issue legal opinions
In France, the highest administrative court, the Council of State, acts as a legal advisor to the government and does have administrative and legislative powers, which leads its administrative divisions to issue opinions for the sole benefit of the government or parliament. According to the Code of Administrative Justice, the Council of State issues opinions (i) on draft laws, ordinances, certain decrees and certain legislative proposals, in order to ensure the legal certainty of the texts in question, and (ii) "on difficulties arising in administrative matters" at the Prime Minister’s or ministers’ request – i.e., it issues opinions in response to questions from the government on a wide variety of legal issues that may arise in a political context. In both cases, the Council of State gives opinions within the framework of the powers conferred by the law.
The issuing of legal opinions to third parties is therefore not part of the French Council of State’s attributions, nor, a priori, that of the equivalent jurisdictions of African countries with a French legal tradition.
It follows that, subject to the exceptions that may exist to the analogy usually made with French law, the magistrates of the Councils of State of African countries with a French legal tradition, or more broadly those of the highest courts of these states, likely have as a matter of principle no authority given by the legislator to issue opinions or, to draw up consultations on the capacity of states to enter into contracts or on the validity of the latter. The transposition of the tasks of the eneral Counsels of common law countries to the presidents of the supreme courts of civil law countries therefore seems to us to be inappropriate.
Liability of the state
In this regard, it is worth keeping in mind that under the general principles of French administrative law, the liability of the state for the public service of justice, which encompasses activities of administrative and judicial courts, can only be engaged in case of faute lourde. Faute lourde is a specific legal concept of the French civil law tradition that relates to errors which are abnormally significant or denote gross negligence, such as, typically, gross procedural errors or gross delays in the judgement of a case, and which, as far as we are aware, has never been applied to a defective or flawed legal analysis. Moreover, a judge does not represent the state when he/she performs an advisory task that does not fall within any of the competences assigned to him/ her by law and, more generally, within any defined legal framework. As a result, the state should in our view not be held liable if the content of the legal advice given by one of its judges proves to be inaccurate. Besides, in reality, there is generally nothing stated in these opinions to indicate that errors in their content would trigger the liability of the state concerned, and, as regards the personal liability of the judge, it is not uncommon for him/her to state in the opinion that he/she cannot be held liable for the drafting of the document.
The paradox is that whilst acts and opinions of the judicial power can, as mentioned above, generally not give rise to any form of liability, under the French administrative law tradition, and by analogy in African countries with a legal system inherited from the French legal tradition, an erroneous legal analysis emanating from the executive power (e.g., from the competent ministers and legal authorities) can engage the liability of the concerned legal entity. When this illegality directly causes a damage to a third party, the judge may order the state to compensate for it. It is thus directly that the responsibility of the state may be engaged for the illegality of an administrative act, simply because of the nature of the latter. The issuing of a legal opinion by a magistrate, even if he/she is the president of the highest court in the land, is neutral in this respect.
Conclusion
If the acts or contracts concluded by an African state with a legal system inherited from the French law tradition in the framework of a project are found to be illegal (lack of capacity of the state, illegality of clauses, etc.) even though they had been "validated" by a high-ranking magistrate of that state, only the latter may be held liable, and not because of the error committed by the magistrate − who would have acted only as a legal expert, admittedly particularly enlightened, since he/she is potentially more able than a lawyer to provide an overview of the position that the judge would possibly adopt if he/she were faced with a dispute relating to the validity of an act or contract that is the subject of the opinion − but because of the very nature of his/her acts. With no possibility of recourse against the state or the judge who issued the opinion, the legal value of legal opinions issued by the presidents of the highest courts of such countries seems, in the best case scenario, to be weak.
Authored by Bruno Cantier and Astrid Layrisse.
Nigeria's Green Transition: Navigating risks and opportunities in the Nigerian energy sector
Nigeria’s Energy Transition Plan
In 2020 Nigeria was the world's seventh largest oil producer and exported some US$30 billion worth of oil – about 4.68 percent of the global total – to a relatively diverse array of importing countries.
Against an international background that sees Nigeria as a key player in the energy sector, a closer analysis of its oil and gas sector reveals a different internal reality. Alongside problems of economic diversification, Nigeria suffers from a severe and enduring power supply shortage and, similarly to the rest of the world, faces the threat and consequences of climate change.
It does not come as a surprise that, in addition to international commitments (such as United Nations Framework Convention on Climate Change, Kyoto Protocol, Paris Accords and NCDs, and following COP26), the Federal Government of Nigeria (FGN) has not only enacted the Climate Change Act (2021), which provides a national level framework for the integration of climate change mitigation actions, but also launched its own Energy Transition Plan (ETP) in August 2022.
The ETP provides an umbrella for energy transition related initiatives, promoting just, inclusive and equitable energy transition (which places gas as the "transition fuel"). The plan is primarily based on promoting sustainable economic growth in key domestic commercial sectors, ensuring universal access to electricity for the population, mobilising investment and private sector involvement by creating significant market opportunities in the energy transition process, and serving as a model for Nigeria's commitment to achieve carbon neutrality.
FGN estimates that funding of US$10 billion from international investors is required to kick-off the plan, in order to reach a total investment of US$410 billion by 2060. To this end, a "US$23 billion investment opportunity has been identified based on current in-country programmes and projects that are directly related to the just energy transition".[1] The investment opportunity portfolio includes opportunities in generation, transmission and distribution, metering, gas commercialization, clean cooking, government buildings, e-mobility, healthcare and technical assistance.
Risks in the Nigerian energy market
Although neither ambition and momentum are lacking, it is a reality that investing in the Nigerian energy market, and in Nigeria in general, presents certain risks.
Those investing in the Nigerian energy market may face risks related to high electricity tariffs when compared to similar regions, political instability (which often casts doubts on the government’s commitment) and crime related to energy infrastructure and equipment.
Several of these risks have been the subject of disputes arising against Nigeria within the energy sector. For instance, in the Nigerian Bulk Electricity Trader v Nigeria case, concerning power purchase agreements (PPA) worth US$2.5 billion and totalling 1,125 MW, the claim was filed against the state following its alleged attempts to modify the PPA tariff structure, despite it already being agreed upon.
Another significant case concerns the Mambilla Hydroelectric Power Station, which should have been to date the largest power plant in Nigeria as per a 1970s plan. The plant is still to be completed due to continuous disruptions caused, inter alia, by a series of disputes based on alleged contractual breaches between Sunrise Power Transmission Company of Nigeria Ltd. (the constructor) and the Nigerian government.
These, and other cases, highlight how, in an area as complex as Nigeria, the enormous investment opportunities go hand in hand with certain risks.
Nigeria's legal framework on investment protection
To promote and incentivize foreign investment, Nigeria, similarly to other developing countries, has introduced over the years a regulatory framework designed to mitigate risks, providing both (i) substantive and (ii) procedural protection to foreign investors.
i. Nigeria's substantive legal framework for investment protection
The adoption of the main domestic measure for investment protection dates back to January 1995, when the Nigerian government enacted the Nigerian Investment Promotion Commission (NIPC) Act. The NIPC Act established the Nigerian Investment Promotion Commission whose function is to encourage, promote and coordinate investment in the Nigerian economy, and introduce positive changes for foreign investments such as, the expansion of payment methods for foreign equity or the procurement and repayment of foreign loans by Nigerian companies without prior ministerial approval (NIPC, sections 4 and 24). Significantly, the NIPC Act also forbids nationalization or expropriation of a business in the absence of a national interest or public purpose. In such cases, the Act clarifies that investors are entitled to fair compensation (NIPC, section 25).
Thanks to the action of the NIPC Commission, Nigeria further enhanced protection on international investments by entering into 30 bilateral investment agreements (14 of which are currently in force); the 2008 Supplementary Act on Investments to the Economic Community of West African States (ECOWAS) Treaty; and the 1981 agreement of the Organisation of the Islamic Conference (OIC).
The BITs and the ECOWAS treaty mostly include provisions on fair and equitable treatment (which – in broad sense – impose on the state the respect of the 'rule of law'), full protection and security (i.e., the duty to 'physically' protect investors and investors' assets from harm), national and most‑favoured-nation treatment (the so-called non-discrimination clauses), as well as standard protection against expropriation (according to which expropriation must be carried out for public purposes, in a non-discriminatory way and under compensation).
As to their scope of application, most of Nigerian investment protection treaties, distinguishably from other BITs, provide a definition of "investment" broad enough to encompass indirect investments.
ii. Investor-state dispute settlement
To protect and encourage foreign investment, Nigeria widely supports the use of arbitration to resolve domestic or international investor-state disputes. Section 26(2)(a) of the NIPC Act specifically provides that, if a Nigerian investor is involved, investment disputes must be resolved by arbitration pursuant to local arbitration law; whereas, for foreign investors, Section 26(2)b provides that, investor-state disputes shall be resolved "within the framework of any bilateral or multilateral agreement on investment protection to which the Federal Government and the country of which the investor is a national are parties".
All Nigerian BITs and investment protection agreements provide a right of recourse to international arbitration. Nigeria is signatory to the 1965 ICSID Convention: its BITs with France, Germany, Korea, the Netherlands and the United Kingdom provide exclusively for arbitration under ICSID rules, while all other BITs allow investors to pursue an arbitration claim alternatively through ICSID or ad hoc arbitration in accordance with the United Nations Commission on International Trade Law rules or other mutually agreed upon rules.
Further, Nigeria is signatory to the 1958 New York Convention on the recognition and enforcement of foreign arbitral awards. As yet, one publicly available award has been issued against Nigeria under the BITs.[2] Its enforcement is however still being sought before the District court of Columbia. Equally, Nigerian courts have never been called upon to enforce an investment treaty award against Nigeria. Nevertheless, an enforcement friendly environment can be expected as Nigerian courts have demonstrated a pro-enforcement bias in the sphere of international commercial arbitration and domestic arbitration.[3]
Concluding remarks
As seen, Nigeria's energy sector is in turmoil, and the opportunities for investment in green and renewable energy are significant; as is the demand for energy supplies.
It is not possible to predict how the Nigerian government will effectively implement the ETP, also considering that political elections are taking place in early 2023. One can nevertheless assume that Nigeria will endeavour to maintain its green transition commitment in the coming years. This is also because Nigeria's regulatory commitment is supported by the EU Global Gateway Africa‑Europe investment package, which has been allocated for the achievement of zero emissions in Africa.
Also, investment risks related to possible policy changes are mitigated by Nigeria's favourable regulatory framework for direct and indirect investment protection, as well as its pro-arbitration and pro‑enforcement environment.
Authored by Caterina Coroneo and Roberto Isibor.
An overview of the Draft Competition Exemptions for SMME's in South Africa
On 30 August 2022 draft regulations (the Regulations) were published under section 10(10) of the Competition Act, 89 of 1998 (the Act) by the Minister of Trade, Industry and Competition (the DTIC). Under these Regulations, it is proposed that small, micro and medium-sized businesses (SMMEs) will be exempt from the application of sections 4(1) (restrictive horizontal practices) and 5(1) (restrictive vertical practices) of the Act (the Relevant Provisions) for a period of five (5) years from the date on which the final regulations are published. For purposes of the Regulations, SMMEs are categorised as such by reference to thresholds based on annual turnover and full-time employee head-count.
The Regulations are intended to accelerate South Africa's economic growth by addressing over-regulation and increasing investment levels, including foreign investment. The DTIC invited members of the public to submit comments on the Regulations by the end of September, which will then be considered before the Regulations are gazetted in their final form.
The Regulations will allow SMMEs to collaborate in ways which may otherwise be prohibited by the Relevant Provisions. The Relevant Provisions contain (at least in part) general prohibitions on activities that have the effect of substantially preventing or lessening competition in a particular market. The Regulations list (and thus exempt) certain categories of practices and arrangements which can, in the ordinary course, fall foul of the general prohibitions contained in the Relevant Provisions. The categorisation of these practices and arrangements is a preliminary step in a longer-term initiative of the DTIC to bring clarity to market participants regarding the application of the Act.
Categories of exempted practices and agreements for SMMEs
The Regulations exempt the following categories of practices and agreements by and amongst SMMEs from the application of the Relevant Provisions:
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research and development agreements
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production agreements, including outsourcing production agreements
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joint purchasing agreements
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joint selling price arrangements, excluding any agreements or arrangements relating to the fixing of selling prices to end consumers
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commercialisation agreements, including selling, distribution and promotion co-operation agreements
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standardisation agreements
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collective negotiation arrangements.
SMMEs are thus allowed to engage in activities of this nature with one another, provided that the collaboration serves the sole purpose of stimulating the growth and participation of SMMEs in the economy. It is unclear how this proviso will be adjudicated, although the Regulations do oblige the SMMEs applying them to notify the DTIC of the agreements or practices that they have implemented.
Opportunities for investment in SMMEs
In response to the COVID-19 pandemic, the South African government developed the Economic Reconstruction and Recovery Plan which sought to promote growth in the South African economy amidst the global economic contraction. Whilst the Regulations seek to complement this plan, they also aim to help SMMEs attract investment in order to regain their portion of market share lost to larger competitors as a result of the disruption in value chains and the shift of consumers to online purchasing.
By allowing SMMEs to collaborate with one another to collectively achieve the scale necessary to compete with larger businesses in their respective industries, the Regulations reduce the cost of doing business as an SMME in South Africa. This not only promotes competition by and between SMMEs, but also makes them more attractive investment opportunities for both local and foreign investors. This is a welcome initiative as it not only reflects the South African government’s recognition of the important role that SMMEs play in our economy, but is also indicative of decision-making that is cognisant of an appropriate balance between regulation and healthy market competition.
The current set of thresholds for qualification as an SMME in South Africa can be found here.
Bringing further clarity to all market participants
In addition to the exemptions dealt with above, the DTIC has embarked on a longer-term initiative to bring clarity to all market participants regarding the application of the Act. Market participants have long argued that there is uncertainty surrounding the application of certain provisions in the Act, particularly that no mechanisms exist for businesses to pre-emptively establish that their proposed transactions will comply with those provisions. To this end, the DTIC has now confirmed that it intends to amend the Act to create a mechanism for the issuing of non-binding advisory opinions. With this, market participants will have the benefit of greater (albeit not absolute) certainty as to how the Act is likely to be applied to a particular set of facts when making business decisions that may be subjected to scrutiny under the Act.
The DTIC has further undertaken to publish a set of draft regulations to provide greater clarity on the types of practices and agreements that are generally prohibited by the Act. These further regulations, which promise to better guide market participants in trying to navigate the various pitfalls of antitrust legislation in South Africa, will also likely help SMMEs to better understand the practices that they may or may not engage in under the Regulations.
Authored by Chris Green and Jean Nel.
References
1 See the ETP’s investor deck, Investing In Nigeria’s Energy Transition Opportunity, Federal Government of Nigeria, March 2022, p. 4, available at https://www.energytransition.gov.ng/wp-content/uploads/2022/05/Investing-in-Nigeria-Energy-Transition.pdf.
2 Overall six international investment claims have been yet filed against Nigeria, out of which two cases have been discontinued (Shell Nigeria Ultra Deep Limited v. Federal Republic of Nigeria (I), ICSID Case No. ARB/07/18 and Guadalupe Gas Products Corporation v. Federal Republic of Nigeria, ICSID Case No. ARB/78/1), one has been decided in favour of the investor (Zhongshan Fucheng Industrial Investment Co. Ltd. v. Federal Republic of Nigeria, Uncitral), one was concluded neither in favour of State or the investor (Interocean Oil Development Company and Interocean Oil Exploration Company v. Federal Republic of Nigeria, ICSID Case No. ARB/13/20) and two are still pending (Eni International B.V., Eni Oil Holdings B.V. and Nigerian Agip Exploration Limited v. Federal Republic of Nigeria, ICSID Case No. ARB/20/41 and Shell Petroleum N.V. and The Shell Petroleum Development Company of Nigeria Limited v. Federal Republic of Nigeria, ICSID Case No. ARB/21/7).
3 See Broderick, Bozimo & Company 2021 Analysis of Arbitration Related Decisions in Nigeria, pp. 1-5, reporting that, as of 2021, (i) 74% of challenges to domestic awards had been unsuccessful, (ii) no successful challenges had been registered in international arbitration cases, (iii) Nigerian courts had enforced domestic arbitral awards 79% of the time, and (iv) for international awards, the enforcement rate had raised to 88%.
