Local Content War Erupts At Senate Probe Panel, Ship Owners Open Fire On NNPC

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Ship Owners Association of Nigeria (SOAN) and Nigerian National Petroleum Corporation (NNPC) are locked in a bitter local content war.

The Senate investigative hearing on the breach of Nigerian laws by foreign vessels engaged in coastal shipping of petroleum products in the country is providing the much-needed opportunity for SOAN to fire at the state oil corporation.

According to the ship owners, NNPC has been breaching the provisions of Nigerian coastal and local content laws in the shipping of petroleum products in the downstream sector of the oil industry in favour of foreign vessels.

In the process, NNPC encourages massive capital flight, the ship owners told the probe panel.

Their disclosures are, however, contained in a petition to the Senate Committee on Local Content and copied to the Senate Committee on Downstream Petroleum Sector and Legislative Compliance.

The Senate Committee was told that foreign ship owners account for 95% of freight spending associated with this downstream activity which is repatriated overseas as capital flight to the detriment of the local economy.

In 2019, the Nigerian ship owners said, an average of $10 million monthly or $120 million yearly was spent as demurrage because import tankers refused to discharge at in-country terminals and tank farms.

As at the end of August 2020, 320 foreign-owned and operated vessels of which only six were chartered by Nigerian-owned companies imported 1.7 million metric tonnes (about 20 billion litres) of petroleum products.

SOAN is deploring a situation where foreign –operated vessels engaged in NNPC’s marine service contract accounts for over 90% of the Cabotage Trade, thus creating an uneven operating environment detrimental to the growth of Nigerian shipping.

The association maintained that NNPC’s vessel hire payment in dollars for coastal fleet encourages capital flight especially because Nigeria-owned/operated vessels will accept prompt payment in Naira as opposed to their foreign counterparts.

Moreover, SOAN in the petition said foreign ships in NNPC’s fleet enjoy government incentives which are denied Nigerian vessels.

These incentives include reduced Nigerian Ports Authority tariffs paid in Naira while Nigeria-flagged vessels pay full tariffs in United States dollars, Customs Temporary Import (CTI) regime with insignificant fiscal earnings to government while Nigeria-flagged vessels pay full Customs duty, Company Income Tax is not paid by them to the Federal Inland Revenue Service (FIRS) as Nigerians do annually.

Freight is pre-paid and remitted in full by the NNPC / NIDAS to offshore bank accounts of foreign vessel owners, whereas freight for Nigerian vessels is always post-paid six months in arrears.

According to the ship owners, NNPC Marine Service Contracts and associated commercial opportunities are not maximised as enablers to enhance technological innovation and in-country value creation.

Through the direct sale of crude oil and direct purchase of petroleum products, fuel import and coastal bunkering vessel service contracts for offshore lighterage and coastal shipping of imported petroleum products to in-country terminals and tank farms, NNPC is the largest employer of downstream shipping services.

NNPC’s policies, said SOAN, gives the lucrative marine services contracts to foreign shipping companies and allocation of marine-related job opportunities to foreign seafarers, thus encouraging massive loss of employment, capacity building opportunities and tax revenue accruable to Nigerian companies, maritime service providers and seafarers, including the federal government.

The indigenous ship owners decried inadequate enforcement of the Cabotage and NOGICD Acts in the downstream sector. This, the petition stated, hinders the maximization of in-country capacity for the promotion of technological innovation needed to drive productivity and economic activities, required to spur economic growth in other sectors.

“NNPC’s non-adherence to Charter Party Agreements in favour of Nigerian shipping companies, render their investments financially insecure, while Vessel Hire Payment Arrears (averaging 180 days) is a protracted breach of NNPC’s  charter party obligations making coastal shipping unviable for Nigerian-owned vessels.”

As contained in clause 13.1 of the NNPC Charter Party Agreement, among other provisions, “the gross charter rate applicable for the hire of the coastal vessel under this contract shall, subject to the terms stipulated in the Agreement, be a fixed amount per day.

Payment of the relevant rate shall be due and payable within 45 days after the submission of the relevant invoice for payment after services of the coastal vessel have been utilized”.

NNPC Marine Service Contracts and associated commercial opportunities are not maximized as enablers to enhance technological innovation and in-country value creation. Through the direct sale of crude oil and direct purchase of petroleum products, fuel import and coastal bunkering vessel service contracts for offshore lighterage and coastal shipping of imported petroleum products to in-country terminals and tank farms, NNPC is the largest employer of downstream shipping services.

Going by Nigerian laws, SOAN noted, such strategic transactions should leverage domestic talents, create in-country value and advance local content. Presently, foreign shipping entities dominate these activities which, for the sake of national security, should be solely reserved for Nigerians.

SOAN noted that “in the 2019/2020 DSDP disposition, contract valued at $9.00 billion was undertaken.  Freight expenditure on Import Tankers was approximately $60 million monthly or $720 million annually. This involved the average monthly importation of 2.4 billion litres (1.8 million metric tons) of gasoline in foreign-owned tankers of 35,000 to 90,000DWT capacity (approximately 40 ship loads monthly).”

“Between January and August 2020, 320 foreign tankers arrived Lagos offshore with imported PMS. This 100% foreign-dominated supply chain activity creates no in-country value for the Nigerian maritime industry with no multiplier-effect on other sectors of the economy. Foreign fleet is chartered by NIDAS Marine, NNPC subsidiary, via foreign shipbrokers namely Clarksons, E.A. Gibson, Brassington, Braemer and Affinity.

SOAN is recommending that relations between NNPC, NIDAS Marine (her subsidiary) and their supply chain must include technology transfer, issuance of bankable contracts to Nigerian shipping companies, employment of Nigerians to man vessels under their charter and sourcing of local service providers as stipulated in their tender processes.

Due to scarcity of foreign exchange, payments for cabotage trade should be denominated in Naira, SOAN further recommended.

The ship owners are pressing for the enforcement of pre-qualification for consideration in NNPC tender processes must reflect compliance with the Nigerian Content Act where companies must provide a detailed local content execution strategy to the satisfaction of the Nigerian Content Development and Monitoring Board (NCDMB) clearly setting out commitment in the area of patronising Nigerian shipping companies and indigenous oil tankers.

NIMASA, according to them, should work closely with the NCDMB for joint categorisation of vessels operating under the Cabotage Act so as to ensure full implementation of the provisions.

 

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