News Column

The New Opportunity for Indigenous Ship-Owners to Lift Crude Oil

May 5, 2014

With 60 per cent contract for crude oil lifting reserved for local shipping companies, industry stakeholders express doubt over the capacity of local operators to meet international regulations guiding the trade, reports Francis Ugwoke

The announcement by the federal government according indigenous shipping companies the right to be involved in crude oil carriage is no doubt a cheering news. It is indeed a dream come true and a sigh of relief for Nigerian shipowners who have over the years complained about the huge loss to the nation because only foreign firms were involved in crude oil lifting. Before now, it had been estimated that Nigeria was losing at least about $2billion annually to foreign firms involved in the contract. Petroleum Minister, Mrs Dizeani Alison-Madueke, said last week that 60 per cent of the oil lifting contracts this year have been awarded to shipping companies owned by Nigerians. This, according to her, was to encourage local participation in the oil and gas sector of the national economy. The 40 per cent balance of crude oil lifting was shared among international companies. She said, "When we unveiled the Nigerian content law a few years back, the overriding principle was to grow indigenous capacity in an aggressive manner and I am happy to report that today, in the oil and gas sector, Nigerian content has been placed on the path of irreversible progress". The policy decision, she explained, was in line with the aspiration of President Goodluck Jonathan for the transformation of the oil industry. She also explained local shipping firms were brought in as a result of the robust indigenous investments in marine vessels of different categories and wholly owned Nigerian vessels that have increased. She said, "these vessels are the Category one and Category two types. Investments in reception, storage and distribution facilities such as jetties, depots, trucks, vessels and modern retail outlets have more than doubled over the past few years, and this has helped to increase the nation's sufficiency level in petrol". Crude Oil Lifting Condition Over the years, indigenous shipping companies have been disadvantaged in crude oil lifting. It has been a trade only for foreign firms. The arrangement has been on Free on Board (FOB) basis under which the buyer of crude oil products pays and takes every risk of transporting the products. This indeed has been a safe arrangement for the federal government as it suffers no risk as to the carriage of the products to the buyer. But under the arrangement, the indigenous shipping companies are excluded from the trade as the buyers arrange their own shipping companies to carry the wet products. To be involved in crude oil carriage, indigenous shipping companies had called on the federal government to change the contract terms to Cost Insurance and Freight (CIF) under which the government or NNPC as the exporter of the products will determine who delivers them to the buyer. It is under this arrangement that Nigerian firms can be engaged for crude transportation to the buyers. Experts had pointed out that under this arrangement, the disadvantage is that the government or NNPC as the supplier of the products may have to hold on until the wet cargoes are delivered and certified okay before payment is made.

Stakeholders' Reaction As good as the news of the policy is, some members of the Nigerian Shipowners Association (NISA) do not appear to appreciate the policy by the federal government. Instead of applauding the federal government, the association was reported to have condemned the statement credited to the Petroleum Minister on the policy, describing the policy as simply deceptive. Chairman of NISA, Chief Isaac Jolapomo, alleged that there was no transparency in the selection of those who benefitted in the contract. He was quoted by Ships & Ports as saying, "there is no end to the game of deception. Nothing has changed at all. What is at play here is what one can describe as the voice of Jacob and the hand of Esau. The process of selection was neither open nor transparent. Nobody can tell how the companies were selected. When and where was it advertised? Some people were handpicked and arrangement was made with them and some foreign companies. As far as we are concerned, nothing has changed at all". The association's General Secretary, Capt Niyi Labinjo, also told the News Agency of Nigeria (NAN) that the federal government should allow only indigenous shipping companies to lift Nigeria's crude oil. Labinjo explained that this will lead to multiplier effect in the economy in terms of creation of jobs, more revenue and improvement in the country's security.

However, other industry stakeholders who spoke to THISDAY said the federal government decision allowing 60 per cent of crude oil to be carried by Nigerian firms was a good development. A shipping stakeholder and Managing Director of Indiana Oil & Gas co. Limited, Chief Festus Obonna, applauded the federal government's decision. But Obonna said that government has to work hard to make the policy very effective. Explaining that implementation has always been a problem, he added that the conditions should be conducive with no strings attached. Obonna warned that government should not, with the policy, ask the beneficiaries of the contract to first pay 50 per cent of the cost of cargo being affreighted. He referred to a similar policy during the time of late General Sani Abacha's administration which compelled companies to pay $18million, adding that this eventually made them to run away. Maritime lawyer, Barrister Emmanuel Ofomata, who welcomed the federal government policy, said it will bring about a lot of economic developments to the country. Describing the decision as a big milestone, Ofomata said that the measure was also a vote of confidence on Nigerian companies. According to him, the measure will lead to more development for the indigenous shipping sector as well as generate employment for many Nigerian youths. He urged the Ministry of Petroleum and the NNPC to show transparency in future exercise as well as ensure that the policy succeeds, and not a mere political statement.

Secretary, Institute of Marine Engineers, Engr. Alexander Peters, who spoke to THISDAY doubted the capacity of Nigerian shipping companies to participate in crude oil lifting under the current fleet level in the industry. Peters said that as far as he was concerned, it will be difficult for Nigerian firms to meet conditions for international crude oil lifting. He queried, "how many local shipping companies can meet required international standards? Ships have to meet standard to be able to trade internationally". He disclosed that under international regulation, tankers carrying crude products must meet atmospheric pollution requirement, among other oil pollution spilling standards to avoid the Exxon oil spill tragedy years ago in the United States. "That is why a lot of Nigerian shipowners confine themselves to Nigerian environment where anything goes", he said. Peters added, "even with the pronouncement, where are they lifting the crude oil to, unless in Nigerian refineries, most of which are not working, or illegal refineries. In West African region, there are countries our Nigerian ships cannot go to, especially in countries close to the French government." On how to address the problem, Peters advised that Nigerian shipowners must begin to acquire standard ships instead of second hand vessels. He also pointed out that one of the problems in the country is that many lack maintenance culture. He also added that since many operators do not have the resources to acquire very good ships, government cannot completely shelve the responsibility of setting up national shipping line as a national carrier. "It is only government that can muster enough financial strength to buy good ships not second hand ships" He recalled that some Nigerian shipowners who had wanted to trade internationally failed, adding that one of them who acquired two vessels that were running overseas could not sustain the effort. " You cannot carry crude in substandard ships because of international regulation against spilling like the case of Exxon in the US", he repeated. He also added that any ship acquired for international crude oil affreightment must in all respects meet all the standards because of international conspiracy against developing countries by the developed economies who would want the former to remain where they are perpetually.


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: AllAfrica


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters