- Cabotage Act on Trial?
Expectations that Dangote refinery will herald opportunities to grow Nigerian shipping capacity under Cabotage Act have been dashed, as foreign vessels have dominated the supply of crude oil at the expense of indigenous ship owners as well as the evacuation of refined products.
In a development which shipping and maritime law experts have described as a trial on the nation’s Cabotage Act, News Diet has learnt that only one indigenous operator has participated in crude supply to Africa’s biggest oil refinery.
The problem for indigenous operators is that the supply of crude oil to Dangote refinery is being carried out by Suezmax vessels – a type of medium-sized oil tanker – which is bigger than an Aframax but smaller than a Very Large Crude Carrier (VLCC); whereas Nigerian operators mostly own smaller supply vessels like Aframax tankers.
Meanwhile, shipping and energy lawyers have argued for and against the current practice of engaging foreign ships. There is a school of thought that says waiver clauses permit the utilization of foreign vessels where there isn’t a Nigerian operator, while the opposing view maintains that the practice of engaging foreign vessels constitutes a breach of the Cabotage law.
The President of Nigeria Shipowners Association (NISA), Mr. Sola Adewunmi, lamented Nigerian shipowners have been unable to attract investors on account of the unavailability of jobs, while describing the foreign dominance in the supply of crude oil to Dangote refinery as huge losses for operators as well as forgone government earnings via taxes.
“If indigenous shipowners do not have the capacity right away, there should be an opportunity for us to collaborate with foreign ship owners to bring Nigerians into he process. Our people are undergoing training. I cited the example of what the NNPC did in the industry in the past with Capt. Ishola, Senator Ladoja, among others. They gave them the opportunity to work with foreigners and a timeline of about five years.”
“Within the 5-year period, they partnered with foreign firms and were able to develop their shipping companies that were fully Nigerian. This is the type of collaboration we want.” Adewunmi said.
Although estimating the profit margin and potential ripple effects on the Nigerian shipping sector requires a comprehensive analysis of various factors including; market conditions, operational costs, regulatory frameworks, and geopolitical dynamics; a former Governing Board member of the Nigerian Content Development and Monitoring Board (NCDMB), Mr. Mina Oforiokuma, stated that leveraging Nigerian shipowners for such operations has the potential to stimulate domestic participation in the maritime industry.
Mina, who is also the Chairman of Sopetro Offshore Limited, listed enhanced local capacity building, creation of employment opportunities, economic growth and national development; as some gains if Nigerian shipowners dominate crude supply to Dangote refinery and the evacuation of refined products.
When quizzed on the projected profit margins, he said; “the estimated shipping cost for supplying crude oil exclusively from the Niger Delta region to the Dangote refinery for instance; would depend on several variables such as distance, vessel type, cargo volume and grade, bunker fuel costs, NPA port dues, insurance, and prevailing market rates. A detailed assessment conducted by industry experts and stakeholders would be necessary to provide an accurate estimate.”
On his part, the President of Nigerian Chamber of Shipping (NCS) and Chairman of Sea Transport Group, Mr. Aminu Umar, expressed worry that Nigerians don’t own the kind of vessels required for crude carriage to Dangote refinery.
Aminu, however, encouraged shipowners to look at the capital market and explore other funding approaches regionally and internationally, even as he asserted that Nigerian banks have to change their setup to assist with the capital required for the ship acquisition.
His words: “One of our major disruptors started in the last quarter of 2023 and it is Dangote refinery. In the news, NISA and other stakeholders are lamenting that Nigerians are not shipping the crude that is coming from the Nigeria oil terminals to the Dangote Refinery. The simple answer to the question is that, no Nigerian owns that size of the vessel.”
“These are Suezmax vessels that carry upto 1million barrels which is a minimum. It is costs about $100million. I don’t know how many banks can afford to give that kind of facilities to someone to buy this size of ship. As Nigerians, we see that there is an opportunity now with Dangote refinery for domestically moving of cargoes. In addition, remember there will also be refined products coming out of that refinery. Do we have the assets to move those cargoes? Today, we don’t have those assets yet, the question is – how do we get this investment capital.”
Although one of Sea Transport’s vessels carried out the maiden supply of crude oil to Dangote refinery, Aminu Umar insists that Nigerian ship owners may have to adopt pooling or other forms of partnership to partake in crude affreightment.
- Legal implications of Cabotage Act on crude affreightment – Lawyers
A veteran commercial lawyer and Senior Partner, Akabogu Law, Dr. Emeka Akabogu, argued that the supply of crude oil to Dangote refinery would be in violation of the Cabotage law if the supply originates from locations within Nigeria.
His words: “If the crude oil is directly from locations outside Nigeria to the Dangote refinery, it would not be in violation of Cabotage law if carried on foreign vessels. It would be in violation of the law if the supply originates from locations within Nigeria, for instance the Niger Delta.”
Noting that most Nigerian shipowners don’t have the specified size of vessels for the crude affreightment, Akabogu suggested that indigenous operators explore the value chain by way of charters and investing in existing companies that own such vessels or directly investing as consortia in such vessels.
Akabogu, who is also the convener of the Oil Trading Logistics Africa Downstream Energy Week, opined that the investment options must be backed by a framework that ensures vessels with Nigerian ownership which meet relevant requirements are given priority in such crude lifting contracts.
He, however, asserted that the location of the refinery in a free trade zone doesn’t create a leeway for utilization of foreign ships for supply of crude oil and other shipping services.
Meanwhile, the Principal Partner, Jean-Chiazor and Partners, Jean Chiazor Anishere (SAN), maintained that it is not illegal for foreign vessels to supply crude from Nigerian market to Dangote refinery with the availability of a waiver clause in the Cabotage Act.
“The purpose of the waiver is simply because Nigeria’s Cabotage Act isn’t a closed one like the Jones Act that is being emulated. Nigerians don’t have the full capacity to operate the Jones Act utilized in the United States of America (USA). I believe that those foreign vessels engaged to move crude from Nigerian market to Dangote refinery were contracted because the operator couldn’t find indigenous vessels,” she said.
When asked if there is a need to remove the waiver clause in the Cabotage Act, Anishere disagreed and rather advised the federal government to prioritize giving Nigerian shipowners funds to enable them handle huge contracts and grow their capacity.
“The Cabotage Act is a beautiful policy and that’s why Ghana has come to study it to establish theirs. The problem is the implementation of Cabotage in Nigeria. The wisdom of having the Cabotage Vessels Financing Fund (CVFF) is being blighted as disbursement has become a huge challenge. I am sure that when Nigerian shipowners are well-equipped via funding, they will make the necessary investments.”
“Some shipowners will argue that it is not about funds, but about getting the contracts which will dovetail into the funds. But most times, the contract is predicated upon a company’s capability, equipment, infrastructure that show the ability to perform the contract. They need to get the right vessels to show that they are qualified to engage in that service. Funding is very key and CVFF should be implemented immediately,” the learned silk remarked.
- Capital market can finance ship acquisition – Umar
Exploring alternative funding for ship finance, the President of NCS, Mr. Aminu Umar identified capital market as an approach the Nigerian shipping industry needs to look into.
“In Europe, we see the sole investment capital for ships come from the traditional banks. There is equally private equity funds that also participate in funding for shipping, then there is the capital market. Capital market is an alternative the Nigerian shipping industry needs to look into.”
“A former Managing Director of Nigerian Exchange Group, Mr. Oscar Oyema, has always been participating in shipping events and he proposed funding the shipping industry from the capital market. Big shipping companies in the world have some of their funding capital from the capital market,” Umar stated.
