NIGERIA: Where are the local shipowners?

While Nigeria's port reform process continues to make slow if steady progress, efforts to promote the growth of domestic shipping lines in the face of dominant international firms have made less headway.

The government is probably right in assuming that transferring control of the nation's largest ports from the Nigerian Ports Authority (NPA) to private sector operators will inject more competition into the sector and should improve services for vessels transporting goods into and out of the country.

Yet the federal government still hopes that a larger proportion of those vessels can be owned and crewed by Nigerians than is the case at present.

The federal government has secured a N42bn ($300m) loan for the National Maritime Authority (NMA) to support its attempts to promote domestic shipping companies. The loan is being provided by Malaysia's Affcom Group, in association with the Malaysian government, following the conclusion of talks that began in 2003. The negotiations are believed to have taken so long because Affcom has stuck by its guns in insisting that the loan must be spent with Malaysian shipyards.

The money will be used by the National Vessel Financing Fund (NVFF) to both support local shippers and the country's controversial cabotage law, which reserves local trade for local companies. The director of cabotage for the NMA, Stephen Ezekwem, says that the loan will be vital because the Nigerian shipping sector is limited in terms of tonnage, while there are problems with the quality and maintenance of many of those Nigerian vessels that do exist.

At present, few domestic firms are involved in the coastal transportation of crude oil or refined petroleum products, despite the Nigerian National Petroleum Corporation's (NNPC) role in the sector.

Foreign firms dominate, despite cabotage

The Cabotage Act passed into law in 2003 and became effective in May 2004. It aims to reserve shipping work that takes place entirely within Nigerian waters for Nigerian vessels. Cargo that either begins or ends its journey in another country can be carried by ships flying the flag of any nation, but cargo moved between Nigerian ports or along the country's inland waterways must be transported by Nigerian vessels. The act also applies to the transportation of oil within the country.

However, the Nigerian shipping sector currently lacks the capacity to handle all domestic cargo and so President Olusegun Obasanjo agreed to include a clause in the act that allows foreign shipping lines to carry out work when Nigerian firms are unable to carry out the task. In practice, this means that a great deal of internal shipping has continued to be carried by foreign vessels since May 2004 and so many waivers have been granted by the NMA.

At present, it seems as if foreign firms are continuing to dominate internal Nigerian shipping almost by default.

The government's policy on cabotage will be enforced by the new Cabotage Enforcement Unit in Port Harcourt, which operates under a mandate from the Ministry of Transport to check vessels in all Nigerian ports. Ownership of vessels can often be difficult to determine, so all ships that are deemed to be Nigerian must be registered with the NMA.

It is understood that over 400 companies, from single vessel operations to larger companies, have sought to register with the authority to date. Ezekwem says that "registration for participation in the coastal trade is compulsory, for both Nigerian and foreign companies and vessels alike".

Under the terms of the NVFF loans, Nigerian companies will be able to secure credit for the purchase of oil tankers worth $30m, as long as they can come up with $5m themselves.

The NVFF will help to replace the shelved Ship Acquisition and Ship Building Fund (SASBF), which was more a form of state support than public-private partnership (PPP) and so was more expensive for the government. The fund fits in with government policy to encourage PPPs and also complies with advice from most of the major multilateral on sector development.

The IMF regularly argues that commercialisation and private sector competition is required, although donor funding and low-cost credit should be offered where domestic businesses are unable to finance expansion.

The director general of the NMA, Festus Ugwu, agrees with the strategy and says that the loan will enable the government to "jump start vessel financing in the sector".

Securing finance is the obstacle

The big obstacle, however, is whether Nigerian banks are prepared to offer loans to Nigerian firms to finance their $5m commitment. Without such a loan and therefore a tanker, such companies will find it almost impossible to secure contracts from the NNPC and elsewhere.

Yet both the shipping companies and the banks may feel that it is unwise to invest so much without the cushion of a long-term contract that has already been secured. In addition, the scheme has been criticised by some within the domestic shipping sector who fear that Nigerian firms will struggle to finance such a large capital outlay and the subsequent loan repayments. They argue that it would be better for the fund to be used to finance high quality secondhand tankers.

The general manager of Globe Shipping Nigeria, Festus Obonna, says: "The first question is: how will a beneficiary shipping company raise $5m when banks are not ready or willing to grant loans to finance vessel acquisition? Then, if you bring in a $30m vessel, where will the vessel trade? If it is only Nigeria, some vessels have been lying fallow here without jobs."

With reference to the lack of contracts awarded to local companies by the NNPC, he argued: "The government can move in to correct this, especially now that it is encouraging indigenous firms to take loans and acquire ships. You cannot take the loan and acquire a ship, and then watch the ship parked like a luxurious bus."

Despite the doubts over access to bank funding, Nigeria's own Fidelity Bank has agreed to look favourably upon providing funding for vessels for domestic firms following the Malaysian deal. Bank official Philip Ogbirano says: "It is apparent that the shipping sector lacks basic infrastructure like electricity, financing and a good network of roads required to boost our domestic economy and equally attract foreign investors to participate in the sector.

"The management of Fidelity Bank has put working frameworks in place and set a masterplan towards uplifting the maritime sector in the country so as to boost our economy since it is a sensitive sector that needs to be developed."

Speaking to journalists, Ugwu of the NMA confirmed: "The bank has made arrangements to provide 11 vessels and interested indigenous investors are expected to provide two hundred vessels. NMA is in full support of the Nigerian Chamber of Shipping in educating people on how the shipping business ought to be done justly." He added that he believed that joint ventures between domestic and foreign firms were a good option.

It has also been reported that the NNPC is seeking to launch Nigerian shipping companies and is currently looking for foreign partners to participate in joint ventures. Any such venture would probably be floated as an independent company.

Although the NNPC often struggles to finance its share of joint venture upstream developments with the oil majors, the amount of capital required to launch a shipping line would not be as large and so it is not out of the question.

Such a move would also help the NNPC to deflect criticism over its policy of awarding shipping contracts to foreign firms, although in practice it has little option given the lack of vessel capacity in Nigeria.

The cabotage law is the centrepiece of the government's policy of enabling the port and shipping sector to make more of a contribution to the national economy. A less publicised part of the policy is the promotion of export zones at the main ports.

However, Adebayo Sarumi, the managing director of the Nigerian Ports Authority (NPA), has confirmed that the private companies or consortia that secure concessions to manage the NPA ports will now be required to set up export zones at each port site in order to attract industrial and manufacturing enterprise.

Most ports have suitable land for development in their immediate vicinity, although large-scale investment would be required to install the necessary power, water and transport infrastructure.

The federal government hopes that large industrial projects can be developed in addition to projects such as oil refineries; but most employment is expected to be generated by less high profile enterprises, such as paper mills and confectionery factories.

The government's plan for the shipping sector outlines a vision of modern, efficient and competitive ports run mainly by foreign firms with some domestic operators. International cargo will still largely be transported by international shipping lines but domestic companies will dominate internal transport.