News Stories in 1st Quarter 2007 Edition of DDH Magazine
The First International Workshop on Maritime Finance and Infrastructure Development – December 11 – 12 2006: What Gains for Nigeria?
A special Report.
The workshop aided the reputation of the Nigerian Chamber of Shipping (NCS) as a serious contender in the task of coordinating targeted help for Nigerian maritime operators. It gave many of them an opportunity to meet international actors, talk over their problems and review again the many prospects thrown up by Nigeria’s new basket of laws and regulations for boosting indigenous sea trade.
For once in the history of corporate collaboration, four banks, viz: First Bank of Nigeria Plc, United Bank for Africa Plc, Skye Bank and First City Monument Bank teamed up with Bank of Industry, National Maritime and Safety Agency, NAMASA, Caverton Marine Ltd and quite a few other corporate sponsors to bankroll the two-day event that drew an impressive array of international resource persons. These are, from the US MARAD, Honourable Jean Mckeeve, (associate maritime administrator for marine finance); Mr Jean-Louis Ekra, President of African Export-Import Bank; Bert Ubamadu, managing director, Fairmont Capital Strategy Group, Washington DC.; Mr David Sinate, deputy general manager, Export-Import Bank of India and Enoh T. Ebong, Attorney/Advisor with Office of General Counsel, United States Trade and Development Agency (USTDA).
From the local environment came the heads of various agencies including Ms Evelyn Oputu, managing director of Bank of Industry; Mrs Mfon Ekong Usoro, director-general of NAMASA; Mrs Bola Adesola, executive director, corporate affairs at First Bank of Nigeria Plc and quite an array of top notch banking personnel from many banks.
Some of these include the information on the cost of new buildings with Honourable Mckeeve reporting that whereas a medium tanker was costing USD25m five years ago, today the same tonnage would require USD60m to pay for it. Isaac Jolapamo used the information immediately after her speech to justify the clamour of his association that government ought to do more now to empower local operators if they have to acquire new buildings. But Dr Akin Olugbade, chairman of Meridien Maritime and Offshore Services cautioned against any Nigerian buying a brand new ship as he cannot get the topmost rates for it if he wants to offer it for service to Nigerian oil and gas industry. Reason? He said the operating laws of the oil industry in Nigeria today has a stipulation of a payment ceiling that the oil companies cannot breach no matter how new the tonnage as long as it comes from the local environment. And that stipulated offer, he affirmed, is below the international going rate for a brand new ship. So he queried why anyone should borrow from the bank at prevailing high interest rate and deploy such vessel for the oil industry only to be paid at a lower premium, saying this meant a double jeopardy.
Challenges expressed by the financial sector, the banks: Excerpts of contributions…
Comment by a UBA representative:
(Citing a problem case of one UBA borrower)
“…But what happened was that the ship that was brought in did not meet specifications. The vessel was actually inspected at the time it was being constructed. The principals also did accept the vessel. Now when the vessel went into operation it was breaking down frequently. So maintenance was a problem, and we have talked about financing the maintenance facilities and infrastructures here. The capacity (for ship repairs) was not available locally. The company was now performing below the minimum acceptable delivery (schedule). So, the company was now paying maintenance charges. In addition to that, there was a force majeure because it was operating in Delta State. So even though we had changed the debt service to six months repayment, the force majeure extended beyond six months. So basically there were just problems that became due but at the time of the assessment, it wasn’t obvious… because we did not expect that a reputable multinational (company) would inspect a vessel and accept it when it was not the right kind of vessel that they needed.”
Comment by a Skye Bank representative:
“All what Chief Akin Olugbade had stated, they (maritime operators applying to borrow) do not give us everything in total. And if you don’t have those parts, it could be a little bit difficult along the line. Take for instance, you finance a ship for about USD3 million. And after all payments, the customer comes back to you to say he needs another USD1 milion to transport the ship down. It throws the bank off the balance sheet. So if the customer understands the business he is doing, it makes it easy for the bank. Secondly, all these people that are involved in shipping, there is an association. That association should be able to come to the bank and say that XYZ company is a member of our association and is really in shipping and we believe that the bank can actually assist him. So (this way) we have a database for the bank to run to and find out all it needs. I know that NAMASA is trying, at least on the registration of ships and so on. Then the other (issue from Chief Olugbade’s address) is getting the contract. It is a little bit difficult for Nigerian banks at this stage to wait endlessly for a contract to come. What happens if at last the contract doesn’t come? So there is a problem in this because you find out that those that are in charge of this contract, it is not automatic. It was mentioned earlier by the Chief (Olugbade) that they (Nigerian shipping lines) also find it difficult in getting contracts. So, you are not sure that the person you want to finance is going to actually get the business. This is a difficult area. Then the third one is about the contributions. As Chief has said earlier, you are planning to build a ship, you also need to have good money. If you are planning to buy a ship and you are not ready to put anything down, if anything happens, you can just walk away and go and start another business. So, it would be nice to watch your own commitments in terms of financing.
Comments by Prof. Badejo of Ogun State University.
“ I want to say that the major problem associated with the maritime industry is finance, and it goes beyond finance. Because there are evidences where government has made attempts to make funds available and the industry has remained comatose. I have come to agree within myself and which I also want to share with the participants that finance is crucial, however, the human resource competence is also very important. The maritime industry is a very complex industry that requires some elements of expertise and knowledge which, without apology, many of those in that industry don’t have the knack of. The maritime industry is very capital intensive. It is also technologically dependent. The technology is dynamic, always changing. And as the technology is always changing, taking into consideration the cost that you have already put into it, you have to be very conscious in your investment approach. The global economy is equally dynamic and the shipping industry responds to economic changes because where the goods are is where you see the ships going. More importantly, another major observation in terms of the Nigerian context, is we say think globally, act locally. If you visit most of the predominantly Nigerian based maritime practitioners, especially those in the operations, hardly can you get satisfactory data. And for the banking profession, information is power. And if you are in the maritime industry, people don’t know the exact figures you are having on daily, weekly and monthly basis, it becomes difficult to secure proper financial assistance from the banking industry. In my own research in the shipping industry, I can tell you that the boast of expected crude oil in Nigeria will no longer become a resource in another fifteen years because we all know that the technology of powered vehicles is changing. If you go to the European countries they go on gas. They are increasingly becoming environment friendly. To what extent are we environment friendly? What I know is that finance goes beyond making the money available. What about insurance aspect? What about the tenor of your money? Most of the banks in Nigeria, they give you one year, maximum five years. Probably, the Bank of Industry may give you ten (or) fifteen years. All these are issues that must be considered, and this is why I challenge the banking industry that you need to ensure that those that are trained in maritime knowledge are part of your staffing situation so that they can provide the benchmark and the data issues that are required.
Comments by Mrs Ify Akerele (Nigerian Chamber of Shipping)
“The banks are beginning to listen, which is a beginning of the beginning. But the major problem which I can find is, where are the jobs? If they give you money and you buy a vessel, what are you going to do with the vessel? That’s one very serious problem we have now. Anytime we invite your patrons (that is, the oil industry), which was the basis of cabotage, it was based on the fact that we want Nigerians to have jobs, oil services jobs. It’s still not forthcoming. The government has indicated that they want to increase it (local content drive) now to 40% but the reception of this is not very encouraging from the oil sector. My question to my guests from the US, First Bank and the other Nigerian banks, Afrexim Bank, is what can we do? Do we go together as a group to the oil industry? How do we persuade them to give Nigerians a chance? The maritime industry has used us (Nigerian Chamber of Shipping) as a sifter…we do some kind of due diligence and recommend people and they haven’t regretted people we recommend. But we still find the process is slow. I just want to know if there is a way we can get together and appeal to this oil industry to work with us, to synergise with us…”
Comments by Chief Jolapamo, President of Independent Shipowners Association.
“ First and foremost, I am beginning to see the light at the end of the tunnel, for those of us who have been in this business for close to four decades. But in saying that this (international maritime finance workshop) is a good omen, we are missing some points. When Chief Asoluka was speaking, he talked about the first, second and third generation of ship owners. The Independent Shipowners Association is under the Nigerian Chamber of Shipping. Our Association is those who own vessels of 500 tons and above. When Chief Asoluka talked about the first, second and third generation of ship owners, he mentioned Aristotle Onassis. Aristotle Onassis was a telephone operator, and he saw through the telephone calls an opening and he took advantage of that opening and went to the banks. Shipping is hanging on a tripod, three people must be there, the banks, the man who wants to invest in ships and the job which the vessel has come to do. Our visitor from the US talked of increasing costs of owning ships. In a year, going by the information she has given us now, a 20,000-tonner has increased from USD35m to USD60m. All that local content (policy) in Nigeria has put in place, USD350m, cannot even buy one crude carrier. The lady from First Bank talked of the demand for shipping. The demand for shipping has always been in this country, it is just that the local participants are not allowed to take what is due to them. This workshop is taking place today with the banks. I cannot walk to the bank today to say I want to buy a ship. I can only walk to the bank to say I want to buy a ship if I have in my hand a paper which will make my bank to be happy with me. So, I want to draw our attention to the fact that if we need to stimulate the growth of capability especially and ship owning in this country and train people who will man these ships, we need to go further by harnessing those government parastatals that have to do with giving jobs to Nigerians. The international oil companies that operate in Nigeria today, we know that most of the contracts they have runs from ten to sometimes twenty years. What Nigerians can get is a contract of maybe three years, which, of course, going by the cost of steel today, which affects the cost of building ships, you will find out that even with the capitalization of banks, our banks cannot cope with what the demand will look like. I will ask the organizers that without the jobs, the banks cannot do anything for us. And because shipping is hanging by the tripod as I said earlier: if you have the shipowner, you must have the bank which funds the ship and you must have the vessels which will do the jobs. So what are we doing about it?”