A Review of the Nigerian Energy Industry

Shipowners laud moves to rejig Nigeria’s oil trading terms

*Crude oil laden tankers.

Vincent Toritseju

22 January 2018, Sweetcrude, Lagos — Plans by the Federal Government to change Nigeria’s crude oil trading terms from Free-On-board (FOB) to Cost, Insurance and Freight (CIF) has received the commendation of the country’s indigenous ship owners.

Sale of Nigeria’s crude oil have been on FOB terms for more than 50 years. Under these terms, the buyer pays for the products and would nominate the ship to carry the cargo to the destination of choice.

The arrangement has left indigenous shipping companies in the cold as the buyers of the products simply reach out to highly capitalised multinational shipping agencies that transport their goods.

Under the CIF terms, the government or NNPC as the exporter of the product will determine who delivers them to the buyer. With this, Nigerian firms can be engaged for such contracts, and where they do not have the capacity, they can form partnerships with foreign firms.

NNPC on Tuesday said it had commenced engagement with the Nigerian Maritime Administration and Safety Agency (NIMASA) to explore the most viable and cost-effective options in the export of Nigeria’s crude oil.

Speaking with Vanguard in Lagos, President, Shipowners Association of Nigeria (SOAN), Engr. Greg Ogbeifun said the CIF policy, if well implemented, will encourage the establishment of Nigeria-owned tanker fleet to participate in crude export.

He said the emergence of a Nigerian fleet would also spur the country to develop an appropriate dry dock.
“The emergence of a Nigerian fleet has the benefit of increasing the revenue base from the affreightment.

Besides the financial benefit, Nigeria will be flying her flag internationally. There will be an increase in our flag tonnage.

It will lead to our flag register being re-jigged to meet international standards. It will create huge job opportunities for the teeming seafarers both for training and employment.

“If we now have a fleet of very large crude carriers, that will inevitably lead to the development of appropriate ship repair yards for the dry docking and repair needs of these fleet. A dry dock of that nature will create jobs, stem capital flight and increase skills development in the maritime sector,” he said.

Ogbeifun, however, warned against the rush to acquire tanker fleet without building adequate manpower run and operate such fleet.
He said, “We should not just jump into acquiring tankers. We should take it one step at a time and build adequate manpower capacity to be able to technically run and operate such fleets.

“Maybe the way to go about that is to start by acquiring a couple of tankers and then engage technical partners in a joint venture format who are experienced in doing this internationally and then gradually build the skill, the capacity and the confidence that Nigerians will gradually grow into and then gradually increase the fleet size.”

The SOAN President urged NNPC to further engage stakeholders and understudy what other countries that produce and export their crude have done to overcome the risk inherent in the CIF terms even as he noted that there are many benefits under the CIF terms than the risk the NNPC may be apprehensive of.

NNPC Group Managing Director, Dr. Maikanta Baru argued last week that under CIF, the wet cargo remains the property of the Federal Government, a situation which could be dangerous for the country’s earning as creditors could use court orders to arrest crude oil cargoes on transit in order to secure payment being owned by Nigeria.

But Ogbeifun said, “NNPC should work with the relevant agencies including NIMASA as well as the stakeholders to brainstorm on how to mitigate their concerns and also look at what other countries have done to address that.”

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