25 November 2012

Nigeria: Cabotage Vessel Financing Fund and Indigenous Shipping Development

Photo: Daniel Hayduck/IRIN
A crew member prepares to board a tanker.

The plans by the Federal Government to finally float a $200m cabotage fund expected to boost local shipping operators' fleet expansion drive has raised hope in the shipping sector after the suspension of the Ship Acquisition and Ship Building Fund (SASBF) about 15 years ago. But critics are worried about the size of the fund and how far it can go in acquiring the right vessel for a wet cargo business considering the number that applied for it, reports Francis Ugwoke

After about 15 years of the suspension of Ship Acquisition and Ship Building Fund (SASBF), there appears to be hope for fleet expansion among local operators in the nation's shipping industry with plans by the Federal Government to establish a new Cabotage Vessel Financing Fund (CVFF).

Already, the Ministry of Transport is awaiting the recommendations of the Nigerian Maritime Administration and Safety Agency (NIMASA) on the companies that will benefit from the fund.

Transport Minister Senator Idris Umar disclosed recently that his ministry is expecting a report from NIMASA on the companies qualified to get the loan. NIMASA has been involved in profiling companies that applied for the fund. In doing this, commercial banks have been selected to manage the fund in order to ensure that beneficiaries have the necessary collaterals. This is to avoid the mistakes of the past when about 80 percent of the beneficiaries of the SASBF defaulted in the repayment of what was given to them.

But as the government plans to introduce the new ship fund, the critical question by stakeholders is whether the amount that each individual company will get is enough to buy a new supply vessel that meets the requirements of the Nigerian National Petroleum Corporation (NNPC) and oil majors.

Indigenous shipping companies depend on both multinational oil companies and NNPC for wet cargo contracts. In the past, indigenous companies that benefited from SASBF were not able to buy good vessels because none of them got more than $2.5m, an amount considered not enough to buy a better cargo or tanker vessel then.


With the establishment of NIMASA, then known as Nigerian Maritime Authority (NMA), by Decree 10 of 1987, government decided to introduce a Ship Acquisition and Ship Building Fund (SASBF) in line with the objectives of the organisation. NMA was set up to promote indigenous shipping which was dominated by foreign firms. To empower local firms participate in the trade, government decided to introduce the SASBF to empower local firms acquire vessels of their own.

But the fund was suspended between 1997 and 1998 as a result of failure of beneficiaries to repay their loans for others to benefit from the fund. What could be said about the development was that some of the beneficiaries mismanaged their funds by diverting them to other businesses instead of ship acquisition. Since the suspension of the fund, many indigenous shipping companies have had to rely on funding from commercial banks which are often at higher interest rates if they are

Available. This, many of them said, has slowed down indigenous participation in shipping trade. The result is that the cabotage shipping regime has also been affected as many Nigerian companies are being denied jobs on the claims that they don't have the necessary capacity to do the jobs.

Establishment of CVFF

Determined to promote the success of cabotage, the management of NIMASA had about eight years ago decided to introduce Cabotage Vessel Financing Fund (CVFF). This was shortly after the passage of Cabotage Law. But changes in NIMASA have slowed down the take-off of the fund. The idea of the fund was introduced by Mr. Ferdinand Agu who was the Director General of NIMASA for about four years.

He left office in 2005. Since then, the agency has had about five DGs who kept making promises about the take-off of the fund but failed. The new fund will be managed by commercial banks that are expected to scrutinise the firms applying for the funds. Sources have it that the fund is less than $200m, an amount considered not enough to go round the number of companies that applied for it so far. And this is for obvious reasons. For instance, it costs between $20-$25m to acquire small supply vessel that can be involved in petroleum

Product affreightment. It costs between $200m to $300m to acquire a standard anchor handling vessel. In the past two years, NIMASA has been promising to release the fund to beneficiaries but the promise has not been fulfilled, raising fears on whether the fund has not been channeled to other areas of government business. But the statement from the Transport Minister, Idris Umar was reassuring when he said that his Ministry was expecting recommendations from NIMASA to take necessary action.

What Stakeholders Say

Industry stakeholders who spoke to THISDAY on the fund said it is a welcome development, while also pointing out that it is long overdue for the management of NIMASA to finalise action on the issue. While some stakeholders said that it does not matter whether the fund will be enough to go round those who applied for it, others said government should not give out to beneficiaries what will not be enough to acquire a seaworthy vessel or a vessel that will not be able to compete with others in the trade.

The stakeholders who are excited about the plans reminded government on why some beneficiaries diverted their funds about 15 years ago to other businesses. They pointed out that it was because some of them felt the money would not be enough to buy a trading vessel. To the stakeholders, whatever amount government wants to give out should be based on current prices of modern vessels in the market, especially a double hull vessel that can participate actively in petroleum product carriage within the nation's territorial waters.

A shipping expert, Mr. John Otubiro, who spoke to THISDAY said that the most important thing is for government to be fast in whatever they are doing, adding that the beneficiaries remain in the best position to assess whatever is given to them and look for alternative funding to ensure that they buy standard vessels that will be accepted in the system. "Government should set the ball rolling with whatever it has instead of postponing the disbursement of the fund on the excuse that what is available is not enough. It is left for the beneficiaries to make it up from other sources, mainly bankers to get a good trading vessel", he said.

Executive Secretary, Nigerian Institute of Marine Engineers, Mr. Alexander Peters told THISDAY that what happened in the case of SASBF should guide government. Expressing disappointment over the issue of diversion of the fund by past beneficiaries, Peters said that government should ensure that this does not happen again.

He also warned that giving out any amount that is not enough to acquire ships may force the beneficiaries to go for low class vessels or vessels not having the right capacity for the necessary trade. He warned government against giving out the fund to those who are not professionals, adding that this was one of the reasons that led to the failure of SASBF.

Human Capacity Consideration

Peters said that human capacity building in the nation's shipping industry should be considered alongside the fund. He argued that if there are ships and there no qualified personnel to manage them, the sector will suffer. He advised that government should not make the mistake of giving out the loans to politicians or those who are not professionals, adding that this will affect the industry negatively. According to him, experience has shown that some companies not qualified to get the loan have been the ones that benefitted. Some of these people, according to him, either buy wrong vessels or divert the money for other businesses.

National Carrier

Referring to the government plans to float a National Carrier in collaboration with the private sector in the aviation sector, Peters said that this should be the case in the nation's shipping industry. With poor outing of the private sector operators, he said government should take a lead in investing in the shipping industry, and the private sector operators will follow. Because of lack of enough funds, the private investors, he said, will find it difficult to establish a successful national carrier.

In his view, government should be involved in this project, adding that with this, the nation will be actively involved in shipping trade that is not limited to the territorial waters. He said the present situation is such that most of the indigenous shipping companies were involved in coastal trading of petroleum products.

He advised government to borrow a leaf from the Shipping Corporation of India which constructs ships, manages them for 8 - 10 years before selling out to private operators in that country. According to him, this remained a better arrangement than giving out loans to companies who end up acquiring 40 years old ships that will be highly capital intensive to run. Besides, he said that with such arrangement, it will be difficult for indigenous companies to acquire other types of vessels other than the ones for carrying petroleum products.

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