Business Essentials Vol 3. No 11
Dear Esteemed Members,
In this week’s bulletin, we x-rayed the recent pronouncement by the Federal Government on the “deregulation” of the downstream sector, which is a welcome policy direction for the economy. We believe that this policy pronouncement will birth a new direction for the economy.
We also shared with you, your Association’s guide to Employers on the planned strike by NLC/TUC over the deregulation policy of Federal Government and an insightful opinion titled Deregulation of the Downstream Sector of the Oil and Gas Sector: Governance of the Nigeria State – Who is in Control?. We urge you (readers) to also let us have your views / opinion on these discourse.
Recent developments with the Tax authorities, our regular Labour Law Review and Upcoming Training Programmes were not left out.
In this issue:
- Liberalising The Downstream Sector: Policy Change And Imperative For The Economy
- Guide To Employers On NLC/TUC’s Planned Strike Over Government’s Deregulation Policy
- Deregulation of the Downstream Sector of the Oil and Gas Sector: Governance of the Nigeria State – Who is in Control?
- Tax Authorities Hard On Defaulters: Pay Attention To Tax Obligations
- Labour & Employment Law: Contract Of Employment (Nigeria Airways Limited Vs. Taiwo Okutubo) (2014) 42 N.L.L.R. Pt 131, P. 479 CA
- Upcoming Training Programmes
|MANAGEMENT TIP OF THE WEEK
Discourage Passive-Aggressive Behaviour on Your Team
Passive-aggressive behaviour creates frustration, stress, and anxiety on teams, resulting in loss of productivity that costs companies dearly. That’s why managers need to foster open conflict by surfacing issues that would otherwise go underground.
Help team members openly disagree by discussing the dynamic you want to establish. Focus on the benefits of addressing conflict directly and set some ground rules. You can say, “I’m concerned that we aren’t using our meetings effectively to air all of our opinions.” Or “I want everyone to add value before decisions are made, not after.”
Don’t be afraid to be direct about counter-productive behaviour. For example, say, “Two or three people come to my office after each meeting to discuss something that I expected to be raised in the meeting.” By calmly and directly highlighting instances of passive-aggressive behaviour, you will help make direct communication feel more comfortable. – Source: Harvard Business Review
LIBERALISING THE DOWNSTREAM SECTOR: POLICY CHANGE AND IMPERATIVE FOR THE ECONOMY
Highlight of the pronouncement includes:
- PMS to retail at N135 –N145 per litre; up from N86.50
- Reflected a 56-68% hike in the retail price of PMS
- Shortage of FX a key consideration in policy shift
- Product importation open to market forces
The country, in a long awaited move received with mixed reactions, the recent pronouncement by the Federal Government in liberalising the downstream market of the Oil Sector. The policy was initiated to address the persistent fuel shortages (heightened by the recent rebound in Brent crude prices, continued FX shortages – which has impacted the ability of independent operators to import PMS) that had plummeted the country over a long period of time.
For the downstream industry, the move to more flexible pricing should provide stronger incentive for private investment in refining and distribution infrastructure. Under this competitive environment, players with scale advantages, good logistics network and crucially greater access to capital and FX will benefit more in the new policy direction.
Taking together with elimination of fuel subsidies in the 2016 budget, the follow-through in adjusting domestic PMS prices to the new global price reality, provides strong evidence about the regime direction in the downstream petroleum industry from regulated pricing to more flexible pricing.
Implications of the Pronouncement
- Quarterly import allocations by the Petroleum Product Pricing Regulatory Agency (PPPRA) may cease to exist and marketers would be allowed to import products as each firm determines.
- The PPPRA’s product pricing template’s FX assumption would now reflect the FX rate at the parallel market. We expect the Monetary Policy Committee (MPC) in its May 2016 meeting to come up with policy to move from “rigid” to “dual” exchange rate policy regime, which will intensify exchange controls and increase transparency of the rationing process, thus reducing the current base which will provide mild FX relief.
- We would see the re-entrance of many industry participants, mainly the independent marketers. It will also bring entrance of private investment in refining and distribution infrastructure.
- For the industry itself, the move to more flexible pricing should provide stronger incentive for private investment in refining and distribution infrastructure. Under this competitive environment, major marketers with scale advantages, good logistics network and greater access to capital and FX should assume greater control of the sector under the liberalized pricing environment.
- Inflationary: Yes, but in the near-term, the impact of the sharp upward PMS price adjustment on inflation will understandably be the focus, with headline reading currently at a 44-month peak of 12.8% YoY. Nonetheless, recasting most recent episode of fuel price hike in 2012, which ultimately proved to be disinflationary post the initial adjustment.
- The policy change suggests that the PPPRA would have to monitor two variables going forward, crude oil prices and FX rates at the parallel market, as opposed to only oil prices previously.
- We expect increased pressure on parallel market rates to be a major fallout.
GUIDE TO EMPLOYERS ON NLC / TUC’s PLANNED STRIKE OVER GOVERNMENT’S DEREGULATION POLICY
Our attention has been drawn to the planned strike of Organised Labour from Wednesday, 18th May, 2016 over Federal Government’s policy of deregulating the Petroleum Sector of the economy. We advise member-companies to proactively meet with their in-house unions / workers representatives with the view to dissuading the workers not to be part of the strike as the issue at stake has nothing to do with employment issues. Each company should explore means of communicating to the generality of its employees that its gate will be open for work on Wednesday and the company will frown at absenteeism, without any genuine reason.
The message should be conveyed as clear as possible that any involvement in such an illegal strike will certainly imperil their job and income security, particularly at a very difficult time like this for the business. The workers should be made to understand that beyond applying the law of No work … No pay, employers will take strong exception at any employee that fails to report for work as from Wednesday, 18th May, 2016.
Companies should strengthen their security arrangement and possibly seek additional reinforcement from the Police as the need may arise to forestall a breach. We expect the Federal Government and Inspector General of Police to provide adequate security for workers commuting to and from their different places of work.
We will continue to track developments and keep you updated as events unfold.
DEREGULATION OF THE DOWNSTREAM SECTOR OF THE OIL AND GAS SECTOR: GOVERNANCE OF THE NIGERIA STATE – WHO IS IN CONTROL?
The Nigeria Employers Consultative Association, the voice of employers, has watched in the past couple of days the reaction of organised labour and civil society organisations to the new policy direction of government on deregulation of the downstream sector of the oil and gas. If for anything, it must be acknowledged that over the years organised labour has never been in support of deregulation and has always been resolute and ferocious in its opposition to deregulation. We have had several crossroads in time past on this same issue and in all of these occasions, organised labour had had its way through the use of instrument of strike and strangulation of economic activities to compel government to back off from its position.
Let us ponder and ask ourselves where organised labour’s position has led our economy on this subject: continued dependence on off shore sources for petroleum products, perennial shortage of petroleum products, flourishing black market where Nigerians pay an amount way above market rate for petroleum products, loss of manpower as a result of endless hours spent at filling stations, massive and unimaginable corruptions in the management of the subsidy dispensation. Is this what organised labour and civil society wants to continue to happen in this economy?
There is no question about the fact that the subsidy regime has failed. We, as a key stakeholder in this economy, have also been consistent with our position that the way out of this policy disaster is deregulation. We therefore want to commend this government for embracing the right policy of deregulation and liberalisation, which will bring to an end the despicable, corruption- ridden and anti- development policy of subsidy on PMS.
The next couple of days will be quite interesting in the life of this administration. Will it capitulate to organised labour as past regimes had done and confined us to backwardness? In fact, in the light of the bitter experiences we have had in recent times on organised labour’s foray into policy space, time has indeed come to raise the question on the right to consultation in a pluralistic society and the limit to this right. We believe in social dialogue, which really is the bedrock of consultation, with stakeholders on crucial policy decisions that affect governance and impact on the people. However, this right should not be equated to or mistaken for the right to negotiate. We must all accept that though we have the right to be consulted but the right of final decision and action rest with the government, the sovereign, which really is best placed to ensure that all interests , rather than just one interest or one vociferous pressure group, have been taken into considerations for the betterment of all.
In all this, it is of course possible for government to err in its governance endeavours or even take an unpopular policy decision. When this happens, it will not be out of place for the people to peacefully protest against such policy action. But this should not be at the detriment of other members of the society who will choose to face their livelihood and move on with their lives. Organised labour and the civil society should realise that we are in a democratic dispensation and rather than shut down the economy through orchestration of mayhem and disorder, they should organise and enlighten voters on the power of the ballot to promote good governance.
Speaking in Lagos yesterday, the Director General of NECA, Mr Olusegun Oshinowo, implore the government to invite organised labour and other key stakeholders such as the Organised Private Sector, represented by NECA, MAN, NACCIMA, NASSI, NASME, Major Marketers, Independent marketers for an all stake – holders dialogue with government, the purpose of which is to fashion a way out which will take cognisance of palliatives for ameliorating the short term pains of the new policy. He also called on government to rise up to the challenge of protecting the rights of the majority of Nigerians who would rather be at work than be prevented by Organised Labour from accessing their places of work. For once, we expect government to stand up and defend its conviction, maintain its line, particularly in this instance when the action taken will be to the benefits of our country. The government cannot afford to abdicate governance to organised labour and civil society organisations.
TAX AUTHORITIES HARD ON DEFAULTERS: PAY ATTENTION TO TAX OBLIGATIONS
In the past few months, we observed some posting of non-compliance stickers on the premises of defaulting companies by FIRS, which has begun the sealing off, of companies that have failed to comply with their tax obligations.
Information from the Service on the recent development was that the action is only applied to companies that are clearly in default such as:
- Failure to file VAT returns over an extended period of time. Some of the affected companies are said to have failed to file monthly VAT returns for up to 3 years.
- Failure to pay undisputed tax liability whether arising from self assessment or a tax audit
In the event of a tax audit resulting in disputed liabilities, this action will not be taken where the company follows the procedures and timelines for assessments and objections as contained in the law.
Although there is no specific provision of the law that supports the sealing off of a company’s premises in this manner, it is clear that these measures are being implemented to improve the low level of tax compliance in Nigeria in order to shore up government’s revenues that have fallen by over 40% since 2014 due to sharp decline in crude oil prices.
Other than FIRS, some states such as Lagos have been doing the same thing for some time and have now intensified their efforts.
In a related development, in its drive to ensure full maximization of its revenue generating potentials, and to commence tax Audit exercise of 2016 in earnest, the Lagos State Internal Revenue Service ((LIRS) has engaged 1200 members of the Chartered Institute of Taxation of Nigeria (CITN) and the Institute of Chartered Accountants of Nigeria (ICAN) as Tax Audit Monitoring Agents (TAMAs).
The TAMAs are authorized to act as agents of LIRS for tax audit and assurance purposes. The LIRS carried out a review of the appointment and operational procedure of the TAMAs in order to enhance efficiency in its audit exercise.
Their duty would be to collect requisite information during tax audit field exercises, collate, prepare and submit tax audit reports based on the facts gathered for use by the LIRS. A workshop was organized for the agents at The Haven Event Centre, GRA, Ikeja, Lagos on Tuesday, April 26, 2016.
Present at the workshop were the Lagos State Commissioner for Finance, Mr. Mustapha Akinkunmi; Chairman, Lagos State House of Assembly Committee on Finance, Honourable Oluyinka Ogundimu; Executive Chairman of LIRS, Mr. Olufolarin Ogunsanwo, and other management staff of the agency.
We recommend that member-companies pay particular attention to their tax obligations both for FIRS and state taxes to avoid the unpleasant experience.
LABOUR & EMPLOYMENT LAW: Contract of Employment (Nigeria Airways Limited vs. Taiwo Okutubo) (2014) 42 N.L.L.R. Pt 131, P. 479 CA
- The respondent (Taiwo Okutubo) was by letter of 16th January 1975 employed as a Public Relations Officer of the appellant. By letter of 28th April 1976 and further confirmed by another letter of 21st May 1976, the appellant terminated the respondent’s employment. By that date, the respondent’s position was that of the Public Relations Manager of the company
- The respondent instituted the action, claiming damages for breach of contract of employment. He sought in the alternative a declaration that the termination of his appointment by the appellant was illegal, irregular and contrary to the rules of natural justice and/or the Federal Service Rules and therefore, null and void.
- The respondent sought a declaration that his employment with the appellant was still subsisting; and requested for the immediate payment of all his salaries and entitlements from 26th April 1976 to the date of judgement
- In response, the appellant alleged that the respondent was on probation up to the time of the termination of his employment.
- The matter went to trial and the court gave judgment in favour of the respondent. Dissatisfied with the judgment of the trial court, the appellant appealed to the Court of Appeal.
- Whether in relation to the terms and conditions of employment of the respondent, termination was illegal.
On power of master to terminate servant’s contract of employment:-
It is trite that at common law, a master can terminate his servant’s contract of employment at any time and for any reason or for no reason at all. Though, the master has the right to terminate a servant’s contract of employment under common law but if the dismissal is in breach of a fundamental term of the contracts, the servant has firstly to appreciate that the contract stands repudiated, whether rightly or wrongfully is another matter and secondly, that his remedy for the breach lies in suing for wrongful termination of his contract of employment, although he must mitigate his loss as far as he reasonably can.
On effect of removal of employee on grounds other than those specified in the contract or allowed by statute:-
Where a master employing his servant is under some statutory or other restrictions as to the kind of contract or the grounds on which he can remove or dismiss his servant, in such contracts if the servant is removed on grounds other than those specified in the contract or allowed by statute, his removal will be held to be unjustified or ultra vires, null and void as the case may be.
On when the Federal Civil Service Rules becomes relevant to a contract of employment:-
The Federal Civil Service Rules can only become relevant in the consideration of a contract of employment where it was expressly or by necessary implication contemplated in the contract of employment. In the case herein, the court found that no such link with the Federal Civil Service Rules was established. The Rules were inapplicable and it was futile for the respondent to anchor his contention on enactments clearly dealing with the creation and general functions of the appellant as a National Airline as contemplated in the Civil Aviation Act.
On onus of plaintiff in an action for wrongful termination of employment:-
In an action for wrongful termination of employment, the onus is on the plaintiff to prove the terms of the agreement breached. In the instant case, no particular provisions of the Federal Civil Services Rules were referred to and relied upon for the alleged wrongful termination and the court cannot speculate on them. Thus, the respondent’s case on this point was not well founded and indeed is baseless.
The Court held that the contract of employment was properly terminated and accordingly allowed the appeal. It set aside the judgment of the lower court in its entirely except the order that the respondent was entitled to one month’s salary in lieu of notice. The Court of Appeal also held that the appellant was entitled to the costs of the appeal assessed and fixed at N5,000.00
Where the contract of employment itself has made clear provisions for a procedure to be followed in order to terminate the employment of an employee, the contract is determined by proper notice and in such a situation, an allegation that the termination is against the rule of natural justice will not stand.
Upcoming Training Programmes:
Date: 18th – 20th May, 2016
Duration: 3 Days
Venue: NECA House
Course fee: N110,500
Date: 24th – 25th May, 2016
Duration: 2 Days
Venue: NECA House
Course fee: N82,500
For further details please contact Adewale (08069720364) email: email@example.com. Visit www.neca.org.ng