Local Content In Maritime And Shipping; The Politics And Intrigues
By Pita Ochai
In the last 10 years, the Nigerian maritime sector has witnessed both negative and positive developments. Over the years, efforts by subsequent governments to give face to some policies aimed at bringing in the much revenue into the country from the sector referred to as the second largest revenue generation after oil, have so far not yielded the needed fruits.
Nigeria is blessed with a vast coastline of about 853 kilometers, with 200 nautical miles exclusive economic zone, including various types of shipping and other maritime operations, but the maritime sector has been unable to set the nation on the right path towards greatness, given its potential. The country’s economy is largely dependent on crude oil export, which accounts for about 80 per cent of government revenue and 95 percent of foreign exchange earnings.
Nigeria also accounts for over 65 percent of total maritime traffic, in volume and value, into West and Central Africa. This places the Nigerian maritime domain in the position of key destination for international ships, including tankers of all sizes.
According to organised private sector estimates, the maritime industry has the potential of contributing up to N7 trillion annually to Nigeria’s economy. Maritime stakeholders at a workshop with the theme “Economic Regulation in the Maritime Sector” held in Nigeria’s capital, Abuja, on June 29, said the N7 trillion revenue can be generated if the federal government enforces better regulation of the industry.
A former director at the Ministry of Transport and member of the Nigerian Shippers’ Council, Collins Okoroafor, in a presentation at the workshop, reported that Nigeria with over 850 kilometres of coastline had huge economic potentials in the sector. “There are eight major seaports, 11 oil terminals and 128 private jetties. Total cargo handling capacity of Nigerian ports is over 35 million tonnes. Nigeria is very active in international trade – major crude oil exporter, import dependent. This trade is about 85 per cent. Maritime industry has the potential of contributing up to N7 trillion annually to the Nigerian economy,” Okoroafor who also chairs the CEGONET Limited stated.
The fall in oil prices last year forced the federal government to start looking more seriously into alternative sources of revenue to fund its annual budget. The maritime sector was a viable alternative, but the multifarious problems in the sector constitute a setback.
Some of the policies that have not yielded much dividend include the concessioning of the ports, which stakeholders point to as being lopsided. Also, not currently befitting the sector is the Cabotage regime which, 12 years after it was signed into law to empower local industries, has rather made foreign shipping companies smile to the banks, The Cabotage Act of 2003 was designed to lay the foundation for local content in the maritime industry.
Presently, foreigners still dominate the industry, accounting for over 80 per cent. More indigenous shipping companies are folding up in an industry where foreigners are thronging.
Cabotage law, known as the Coastal and Inland Shipping (CABOTAGE) Act, was passed into law in 2003, to among others: Restrict trade along Nigeria’s coastal waters to indigenous operators. Under the Act, Foreigners are only to participate in coastal shipping when there is no Nigerian who has capacity for such jobs. But over the years, foreigners still dominate over 80 percent of the trade, due to misapplication of the waiver clause.
Cabotage law was patterned after the United States of America Jones Act of 1938, which has helped developed that country’s indigenous capacity in shipping. An important annexure in the Cabotage Act is the Cabotage Vessel Financing Fund (CVFF), which is derived from the two percent deductions from all contracts awarded under the Cabotage regime. It was designed to enable indigenous shipping companies acquire adequate tonnage to be able to participate in coastal and inland trade currently dominated by foreigners, who also dominate deep sea shipping.
NIMASA, which is statutorily mandated to disburse the fund, has since 2008 appointed four banks: Skye, Diamond, Fidelity, and Sterling, as Primary Lending Institutions (PLIs) for the CVFF. Under the CVFF guidelines, the beneficiaries must tie their loan applications to a maritime project for which each must provide 15 percent of the project cost, having been pre-qualified by NIMASA, which is made to guarantee repayment. The CVFF has remained an unfulfilled dream of the drafters of the Cabotage Act.
The most glaring indices of failure of the Cabotage Act is the depleted bottoms (fleet) of indigenous ship owners, the mass of unemployed seafarers, the prevalence of foreign interests in the country’s coastal shipping, especially as it concerns rendering of services in the oil and gas sector and in line with the Local Content Act.
Information sourced from the website of the Nigerian Shipowners Association (NISA) shows that over 90 per cent of the 78 registered ship owners are on the brink of extinction as they are virtually submerged in debt. The woes of the local shipping companies were further compounded by banks and other financial institutions constantly menacing to recover monies owed them, after the expiration of the loan tenor.
The indigenous firms’ plight was further worsened by their inability, so far, to access the CVFF lying idle in some banks since 2008.
Cabotage Law of 2003 spelt out four pillars upon which its implementation must rest. They are that: Cabotage vessels must be wholly -owned by Nigerians; they must be registered in Nigeria, must be crewed by Nigeria and Nigerian shipyards must build and repair Cabotage vessels. Between 2004 when the Act came into being and now, successive ministers of transport and Director General of National Maritime Authority (NMA), now NIMASA, have failed to achieve objectives of the law.
Nigeria reportedly loses about N4 trillion annually to capital flight in the shipping sector, since almost 100 per cent of the sea freight business in Nigeria is still done by foreign companies.
Twelve years after it was signed into law, industry stakeholders say so far, it has not lived up to its billing as the performance has been woeful, poor, dismal and nobody will say successful. The Act was designed to help build local content in the maritime sector by empowering indigenous ship owners. The need to make the Act work was the first issue brought before President Muhammadu Buhari by the Nigerian Indigenous Shipowners Association (NISA) immediately he was sworn-in. NISA urged President Muhammadu Buhari to develop the local shipping industry by making the relevant agencies of government to implement the Coastal and Inland Shipping Act of 2003, otherwise known as the Cabotage Act.
The NISA, which has maintained that the indigenous shipping industry was capable of employing five million people, stressed that faced with the fall in price of oil in the international market and fall in the revenue generation of the federal government, the need to pay more attention to the maritime industry to shore up government’s dwindling revenue has become imperative and inevitable.
The Cabotage Act was enacted in 2003 to help develop the local shipping industry by providing an edge against foreign competitors and financial incentives through the Cabotage Vessels Financing Fund (CVFF). The law establishes that no foreign vessels ought to do business in Nigerian waters other than indigenous ships, while offering the local shipping lines the right of first refusal.
However, 12 years later, the Act remained largely unimplemented by the Nigerian Maritime Administration and Safety Agency (NIMASA) and the Nigeria National Petroleum Corporation (NNPC), which are arch agencies for the implementation of the Act, with foreign vessels still lifting oil and doing other trades in Nigerian waters, while the local ships languish in iddleness, penury and battling extinction.
The CVFF, which is about N58 billion also remained unaccessible by the local shipowners, with ripe allegations that the fund might have been abused by its custodians, the ministry of transport and NIMASA. In one of their recent meetings in Lagos, the shipowners agreed to send a proposal to the government of President Muhammadu Buhari on how to enforce the cabotage and raise huge revenue from the maritime industry. At the meeting which was presided over by its acting president, Alhaji Aminu Umar, the shipowners said that the maritime industry remained the best alternative sector to shore up revenue for the federal government to make up for the shortfall from the oil and gas sector.
Aminu Tambuwal, former speaker of the House of Representatives and now governor of Sokoto State, in tandem with the industry stakeholders, expressed concern over what he observed as increasing failures in the nation’s maritime industry.
He was of the opinion that the Cabotage Act, designed to give the maritime industry world reckoning, had failed to generate the desired result. “The question to ask since the enactment of the Act, is how far we have gone in increased participation of our indigenous companies and nationals in our domestic shipping business. How many more Nigerians are manning the vessels operating in our domestic waters? How many more of our domestic vessels are built or repaired in Nigerian shipyards and dockyards, how many more Nigerian companies are involved in the trade? “How many more are flying the Nigerian flag? What is the position of the Cabotage Vessels Financing Fund? The ultimate question is almost 10 years on, how far has Cabotage fared? The answer will range from woeful, poor dismal to fair and nobody will say successful”, he asked.
Sadly industry stakeholders observed that while the Cabotage Vessel Financing Fund (CVFF) planned to aid Nigerian Ship owners acquire vessels, has not been utilized, they doubt if the fund that has accrued to about N54 billion is still in the coffers of the bank. The fund is being kept by NIMASA who have been empowered by the law to disburse it to prospective Nigerian owned shipping companies.
The maritime regulatory body, since the signing of the Cabotage Act, has not mustered the political will to not only disburse the fund, but to make the regime work.
The requirements of the law which stipulates that vessels to be used by indigenous operators must be built and registered in Nigeria and also be wholly-owned and manned by Nigerians are unrealistic. Rather, Ministers of transport and indeed Director Generals of NIMASA have continued to utilise the waiver clause in the Act to the detriment of indigenous Ship owners.
“As the indigenous operators fail to meet these requirements, government has also provided a waiver clause in the same legislation that allows their more advantaged competitors to muscle in and corner the larger chunk of the trade. Given the combination of these two adverse elements in the Act therefore, in a non-technological and developing economy such as ours, it is little wonder that the critics of government can go to the extent of pronouncing the enactment of the Cabotage law as ‘dead on arrival’,” Eugene Nweke, National President of the National Association of Government Approved Freight Forwarders (NAGAFF), pointed out.
Interestingly, the Ports Consultative Council (PCC) and many other keen watchers of happenings in the industry insist that the sector, all through Jonathan’s tenure, remained stagnant. They have therefore come up with a road map that would propel the maritime sector and the port industry in the next four years under the administration of President Muhammadu Buhari.
Mixed feelings on the concessioning of the ports
In concessioning the ports, the government said it was targeted at improving; enhancing management capability of enterprises; creating a conducive institutional, legal and regulatory framework; developing private sector participation in financing, management and operations of port facilities. Other related objectives of the reform, according to the government, include increasing the efficiency of port operations, decreasing the costs of ports services to the users; reduce the costs to the government for the support of a viable port sector; boost economic activity and accelerate development; and make Nigeria the hub for international freight and trade in West Africa.
“The government decision to concession the ports as part of a reform programme was informed by the urgent need to address the declining performance of Nigerian ports, which were adjudged to be inefficient and unattractive to shippers”, Sullaiman Yusuf, then minister of transport, pointed out.
Consequently, APM Terminals, one of the concessionaires, was given the largest terminal in Apapa, Lagos, to manage. The company, chaired by Chief Ernest Shonekan, said they have so far spent more than N58 billion on civil works, equipment and upgrade of terminal since it took over the facility in 2006. This includes provision of equipment and rubber gantry cranes that aid quick cargo delivery and fast turnaround time in the ports.
Years after concessioning of the ports, most people still believe that the much expected reduction in the prices of cargo clearance has remained a mirage, even as concessionaires keep on inventing new ways of collecting levies from importers. The increases, port operators say, is not in line with government’s promise of lower rates few years after concession.
The concessionaires, on their part, are blaming the high charges on the rising prices of petroleum products to run their machines, cost of acquiring cargo handling equipment and the need to make returns on their investments. But freight forwarders are of the view that an increase of over 100 per cent higher than what importers used to pay before concession is not good for the economy. According to them, shipping lines, terminal operators and off-dock terminals have jacked up their prices, while demurrage on containers have also tripled far beyond what was charged pre-concessioning era.
Recently, Mike Osuofia, Managing Director of Osyjack Shipping Limited, recounted some of the high charges they are made to pay. According to him, for a 20-footer container, shipping companies charge N5,000 for document release, container cleaning N3,000, shipping line charges N28,000, telex release N5,000, amendment charges N15,000, as well as five percent value added tax (VAT) of all the total charge. He explained that shipping companies also collect N580 for NPA as Maritime Organisation of West and Central Africa (MOWCA) levy and demurrage on containers that were not returned on time.
Terminal operators also collect N3, 500 delivery charges; N25, 000 terminal handling charges; N400 vehicle entry permit; N2, 500 to position containers for examination and N1, 500 storage or rent charge for first three days after grace period and N3, 500 after 24 days. For the off-dock terminal, according to him, they collect N20,000 as transfer charge; N2,000 as release and documentation; N5,000 as royalty to terminal operators; N2,500 to position containers for customs examination; N3,500 as labour charges for examination, including N1,250 as terminal delivery charge and N400 for vehicle entry permit.
Before the concessioning, Osuofia said the charges were N1, 204 as wharf age and N1, 294 for documentation and release, terminal delivery order including vehicle entry permit, stressing that importers also pay five percent VAT of the total charges. The NPA also charged N375 as demurrage after three days grace period and N750 for 40-footer, no matter the number of days.
Despite the huge rejection by industry stakeholders, efforts by the government to reduce the astronomical charges have however proved abortive, as the recent granting of the economic port regulator status to the Nigerian Shippers Council has not helped matters, after the concessionaires under the aegis of Seaport Terminal Operators Association of Nigeria (STOAN), took the case to a federal high court, which ruled in their favour, asking the council to maintain status quo.
However, there are others who feel much has been achieved since the ports were handed over to private management. The Rector of the Port and Terminal Management Academy of Nigeria, Dr. Samuel Babatunde, has described ports concession in Nigeria as “a success story because the exercise have proved worthwhile after all” With the concession of the ports, according to Babatunde, these facilities “have benefited from the private sector experience of ability to fix things right.”
He said: “All the aims and objectives of concession have been achieved, and Nigerian ports have come of age, and are reckoned with in the international trade, commerce and investment.”
Babatunde posited that, with the concession, the ports have done very well in the areas of security of cargo, enthroned quicker turnaround time of vessels in the ports, reduced cost of doing business, provided enabling environment for economic activities, and facilitated the realisation of more revenue by the Nigerian Ports Authority (NPA), and, invariably, the Federal Government. Babatunde, who is the First Vice President of the Nigeria Institute of Shipping (NIS), as well as ILA Fellow, listed “the ills being suffered by the system in the old order” to include: Turnaround time for ships was too long and usually calculated in weeks, sometime months, depending on the cargo being loaded or discharged; Cargo-handling plants and equipment owned by the NPA were few and mostly unserviceable, leading to shipping companies hiring these machines from private sector sources after having paid NPA; Dwell time for goods in the ports was prolonged due to poor port managements.
As a result, overtime cargo filled the most active seaports, leading to congestion; Labour for ship work was held in the vice-grip of wharf overlords, who controlled dockworker unions and supplied less than the manpower paid for. This fraud, which became accepted by the maritime community, lasted for years and was usually perpetrated to extract maximum revenue from helpless ship owners and their agents without a care of how this impacted on the Nigerian economy and the already poor reputation of Nigerian seaports.
Nigerian seaports were, as a result of the compounded problems, rated as some of the costliest seaports in the world; Many port premises and quay aprons had fallen to disuse, and failed road sections inside the ports made movement of goods within port grounds cumbersome and very slow; Following ports congestion, complaints of untraceable or missing cargoes were being regularly lodged against the NPA, all to no avail; and Security inside Nigerian seaports was compromised by the relentless ingress of multitude of all shades of persons into the seaports. As a result, miscreants called wharf rats easily gained access into ports and pilfered goods in storage or vehicle parts. In fact, security within port grounds was at the mercy of an elusive racket.