- Foreign-owned vessels are departing from Nigeria to conduct operations in other locations.
- The decision to leave stems from a combination of factors, including insecurity, unfavourable government policies, and escalating inflation.
- The departure of foreign vessels has resulted in a rise in the number of indigenous players in the industry. However, these local players are struggling to generate sufficient profits due to unfavorable government policies.
In April 2023, the President of the Nigerian Chamber of Shipping, Aminu Umar, announced that approximately half of the foreign trading vessels in Nigeria have been compelled to leave over the past year due to increasing insecurity and inadequate government policies.
Umar also noted that the European market has gained strength due to the Russian-Ukraine war, thus making it a more favourable trading environment.
Additionally, he stressed the issue of insecurity in Nigerian waters, which has forced foreign vessel owners to pay for war risk insurance. This situation is abnormal, considering that Nigeria is not involved in any war.
According to Nairametrics’ findings, among the departing foreign vessels are export vessels responsible for transporting crude oil from Nigerian platforms. The development highlights the significant challenges faced by the oil sector, including a decline in oil production rates caused by crude oil theft.
In the previous month, Nigeria’s daily oil production stood at 988,602 barrels, a significant decrease compared to the pre-Covid-19 period when the sector produced 2 million barrels per day. Consequently, the current activities in the oil sector are not as dynamic as they could be.
Insiders within the sector who shared insights with Nairametrics revealed that a multitude of factors has prompted the departure of numerous foreign vessels. These factors include security concerns, escalating costs, and government policies.
Foreign vessels exporting crude oil from Nigeria now face a new requirement: they must hire maritime security companies for protection during their operations. These security companies accompany the vessels from arrival to departure, ensuring their safety throughout the loading process.
While this generates job opportunities for Nigerians, it poses challenges for foreign companies due to potential exploitation. This security model has spread to neighbouring countries like Cameroon and Togo, with some Nigerians establishing similar systems there.
The Nigerian Navy collaborates with maritime security companies to provide comprehensive coverage, as their resources alone are insufficient. The Navy still contributes personnel for vessel protection and receives a daily payment of $70 per person.
The Nigerian Navy receives compensation of $70 per person per day when accompanying loading vessels for a month, along with meals provided by the vessel owners. Maritime security companies charge approximately $7,000 per day for hiring a security vessel, adding to the financial burden of vessel owners involved in crude oil exports.
Dry docking a vessel for maintenance can cost up to half a million dollars. At the Onne Port, idle vessels incur ongoing expenses for wages and maintenance costs in US dollars, leading owners to consider leaving rather than incurring further expenses. Local players lack vessels of the same quality as foreign counterparts, limiting their profitability.
Some local players lease foreign vessels through bareboat charter arrangements, but this is not financially sustainable. If all local players had vessels of equal quality, the need for foreign vessels would decrease, resulting in a cost reduction.
According to Captain Bright Eromosele, who spoke with Nairametrics, local players in Nigeria are unable to match the calibre of vessels owned by their foreign counterparts. Their vessels do not meet the same standards as foreign vessels, resulting in limitations on their profitability.
Captain Eromosele provided context by mentioning that certain local players have chosen to lease foreign vessels through bareboat charter arrangements to operate within Nigerian waters.
However, he noted that this arrangement imposes escalating costs on the local players, regardless of vessel utilization, making it financially unsustainable. In cases where local players are unable to sustain payments after six months of inactivity due to decreased activities in Nigeria’s oil sector caused by oil theft, the foreign vessels are returned to their owners.
Captain Eromosele further emphasized that if all local players possessed vessels of equal quality to their foreign counterparts, the need for foreign vessels would be eliminated, resulting in a significant reduction in costs.
Government policies have also been criticized by industry operators for their unfavourable impact on local players in the oil sector. Since the departure of foreign vessels, the number of local players has increased.
Operators have expressed concerns regarding the need for NNPC Upstream Investment Management Services (NUIMS), formerly known as NAPIMS, to improve its efforts in setting advantageous day rates for vessel owners.
NUIMS oversees the regulations related to vessel owners in the oil sector. When an international oil company (IOC) intends to hire a vessel, it must engage with NUIMS, which handles all pricing on behalf of the IOC. The price determined by NUIMS is then used for the hiring arrangement.
Under the current arrangement, vessel owners submit tenders, and NUIMS selects a company for collaboration based on agreed rates, as reported by Nairametrics.
Some industry participants believe that more flexibility in rates would benefit operators, allowing for higher rates that ensure profitable operations. Investigations by Nairametrics revealed a significant decline in daily rates, from $28,000 to approximately $16,000, causing ship owners to struggle to generate satisfactory profits.
In comparison, the same vessel can be hired for $22,000 per day in Israel, prompting many owners to prefer operating their vessels outside Nigeria to maximize earnings in perceived more effective systems.
The upcoming administration has the potential to address this situation by providing support to indigenous shipowners through intervention funds. However, the disbursement of the $700 million Cabotage Vessel Fund has been halted by the Nigerian House of Representatives, as directed to the Nigerian Maritime Administration and Safety Agency (NIMASA).
The Cabotage Vessel Finance Fund was established to facilitate the growth of domestic coastal shipping by offering financial assistance to Nigerian operators for acquiring indigenous ships.
According to Captain Eromosele, upgrading the vessels of indigenous companies with government support would benefit all local players. Additionally, favourable rates from international oil companies (IOCs) would contribute to the successful operations of vessel owners.
Considering Nigeria’s high inflation rate of 22.22% as of April 2023, the highest in nearly two decades, NUIMS must collaborate with IOCs and adjust rates accordingly. The increased costs associated with vessel maintenance, flights, and chopper rates should be taken into account when determining the rates.
Why do we go through avoidable challenges to business without remedy?