Ship owners in Nigeria have been passing through difficult times due to their inability to invest in acquisition of new and standard vessels that can compete favourably with their foreign counterparts.
As a result, foreign owned shipping firms now dominate Nigeria’s shipping business worth over $8 billion annually.
Bearing this in mind, upon his appointment as the director general of the Nigerian Maritime Administration and Safety Agency (NIMASA), Dakuku Peterside, listed some key interventions, which his agency hopes to actualise towards finding lasting solutions to the problems limiting shipping development in Nigeria.
Recall that at the Stakeholders’ Discuss organised by the Nigerian Ship Financing Conference and Exhibition (NISFCOE) in 2017, Peterside told newsmen that his agency was working to change Nigeria’s crude oil trade policy; develop special interest rate and intervention fund for vessel acquisition and reduce cost of ship financing.
Sixteen months down the line, these interventions still remain ‘unfulfilled promises’ that seem to exist only on paper and they include:
Change of trade terms from FOB to CIF
Peterside said NIMASA was engaging the Nigerian National Petroleum Corporation (NNPC) with the aim of pushing for the change of the nation’s crude oil trading policy from Free on Board (FoB) that enables buyers of Nigerian crude to engage their vessel of choice to Cost Insurance and Freight (CIS), that allows Nigerian ship owners to be responsible for freighting the crude to the buyers’ destination ports.
According to him, this will create the right environment for Nigerians to benefit from the opportunities that exist in the nation’s shipping sector by creating more jobs for Nigerian owned vessels.
“Since we started the clamor for a change of terms of trade from Free on Board (FOB) to Cost Insurance and Freight (CIF) term of trade for the affreightment of Nigerian crude oil cargo, more stakeholders are now better informed.
He said that NIMASA has approached the NNPC and a team has been put together by both organisations to review and come up with modalities for implementation.
Despite raising the hope of Nigerian ship owners, the outcome of this committee has remained unknown to Nigerians, whose companies have remained jobless for years.
Special interest rate and intervention fund for vessel acquisition
Shipping has a big problem that must be tackled, which is to make Nigerian financial institutions understand that ship acquisition is a peculiar business.
BusinessDay understands that shipping is capital intensive and has long gestation period, meaning that the current debt financing regime cannot support ship financing in Nigeria. In many countries, you get as low as 1 to 3 percent lending rate for ship acquisition, making it difficult for Nigerian ship owners that get the same facility at 25 percent unable to compete with foreign counterparts.
Thus, Peterside disclosed that NIMASA was working on a special foreign exchange intervention for vessel parts acquisition and loan repayment processes to enable indigenous operators to compete favourably with their foreign counterparts.
“We are also engaging with the CBN to deal with the issue of cost of financing and we have made appreciable progress so far. A committee has already been set up to work out modalities to implement the policy.
Ironically, the impact of this move is yet to be felt as the agency, in partnership with CBN is yet to come up with the proposed special interest rate in order to reduce the heavy rate ship owners pay on loans for vessel acquisition.
Disbursement of CVFF
Peterside, who noted that the high lending rates of banks to ships owners for vessel acquisition has been one of the problems of ship financing, also said that NIMASA is determined to disburse the Cabotage Vessel Financing Fund (CVFF), which has been in the agency’s custody since inception in 2003.
Listing the benefits of CVFF, which is now over $100 million and seating with the CBN under the treasury single account (TSA) arrangement, Peterside said that the fund would crash the rate of borrowing from the bank because it comes at almost nothing, compared to that of banks.
CVFF is ship owners’ contribution and does not belong to the government. Therefore, the role of government as the regulator is to ensure effective utilisation of the fund and not to squeeze life out of ship owners.
Despite these listed benefits of CVFF, NIMASA under the management of Peterside has also failed to disburse the fund in 2018.