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Why Indigenous Ship Owners Lose Out in Fuel Importation, by Marketers

02 Dec 2012

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Tanker  vessel

Indigenous shippers have continued to cry foul as foreign ship owners hold sway in the nation’s oil import market. However, importers insist local ship owners need to build capacity and form partnership with their foreign counterparts to benefit from economies of scale and cheap funds, report Festus Akanbi and Funke Adewale

For an import-dependent nation like Nigeria, which also happens to be a big player in the international maritime industry, the expectation of economic watchers is that proceeds from the activities on the nation’s waterways would form a significant chunk of revenues accruing to the country from time to time.

Virtually all aspects of the Nigerian economy revolve round importation, which is done through maritime trade. In an economy experiencing booms in sectors like telecoms, finance, oil and gas and to some extent, manufacturing, the various seaports in the country are daily receiving consignments of equipment and other materials.

More importantly, the frequency of fuel importation in a country with enormous oil resources but where local refining is at its lowest ebb has brought about an intermittent movement of ocean going vessels a permanent feature of Nigerian waterways.

However, the anticipated haul expected from the vibrant international trade taking place on the Nigerian shore has continued to be a mirage as a result of the growing dominance of foreign ship owners in the country, a development which the Minister of Finance and Coordinating Minister of the Economy Dr. Ngozi Okonjo-Iweala acknowledged when she disclosed that Nigeria loses over N2trillion annually to foreigners operating in the country’s maritime sector. The minister attributed this huge capital flight to lack of proper implementation of the Cabotage law, which is expected to allow indigenous participation in shipping.

When the Coastal and Inland Shipping Act, otherwise known as the Cabotage Act, was introduced in 2003, it elicited great excitement. The policy gives the right of certain cargo affreightment within the nation’s territorial waters to Nigerian shipping companies. It also made it compulsory for the ship operating crew to be 100 per cent Nigerians; a move which many believed would create more employment opportunities for seafarers.

Stakeholders had expected a drastic change but, unfortunately, their expectations were dashed. Many have complained about the ineffectiveness of the Cabotage Law as indigenous ship owners have being marginalised, especially by NNPC, its subsidiaries and multinational oil companies.

Operators said about 90 per cent of the revenue accruing from the shipping sector goes to foreign ship owners.
Odds Against Local Ship Owners

However, explaining why the local ship owners appear to be playing second fiddle in the scheme of things in the maritime trade, Chief Executive, Oando Marketing Plc, one of the leading oil marketers in Nigeria, Mr. Yomi Awobokun, said many factors were working against indigenous ship owners in Nigeria.

According to him, “The local ship owners are naturally disadvantaged because they invest in these ships at very high costs. They borrow money at higher rates and the people they are competing with, the international ship owners, have the advantage of cheaper finance and better technology and in some instances, better ships and so if you want to get your fuel cheaper, and you want to get your jet fuel cheaper, the natural thing a marketer will do is to go and look for the best vessel he can find at the best price.”
Saying all hope is not lost for local initiatives in the nation’s shipping sector, Awobokun called for partnership arrangement between the local and foreign shipping firms.

“I think that the first step is for a local company partnering with international company and leveraging what they have as advantages.
“They should leverage their financing, their expertise and grow their fleet rather than just coming to Nigeria as a local company and expect that because they are a local firm, they must be patronised even when they do not have good value. That is not what local content is saying,” he maintained.

The oil marketing chief explained that “What the local content is saying is that we must grow local industries but there is a cost and the government is saying we will add cost and expertise.”
Oando, according to him, “has used a lot of local vessels and we have used them for a long time. We are one of the bigger oil and gas companies that use local vessels but that is not to say that some of the international partners don’t have a good offering. There is opportunity for local industry but there is a lot of work they need to do for them to be relevant,” he said.

Probing the Downstream Sector
Whether it was brought by local or foreign ship owners, keen watchers of the epileptic distribution of fuel especially premium motor spirit in the last few months have called for an overhaul of the entire system.

But Awobokun would like to see the sector as one just recuperating after a harvest of probes and government’s avowed determination to go ahead with the reform already put in place.

He said, “I think the best way to talk about the downstream sector of the Nigerian oil industry is that it is just beginning to heal. There has been all sorts of diseases in the downstream and by diseases, I mean all sorts of subsidies, different policies and attempts to allow the downstream to take its rightful place in contributing to the GDP of Nigeria.

“Let me remind you that we started this year with full deregulation that was after some of government efforts to reduce subsidy in the past failed.”

He maintained that the combative posture of some Nigerians against the ongoing reforms in the oil industry may have been triggered by the fact that government was yet to come up with palliatives promised last January.

“I get the sense that the push back by the populace was not just because of the pain alone but also because perhaps the government hasn’t opened the palliatives or the alternatives. People are not seeing the infrastructure.” he said.
On the rising cases of infraction among players in the downstream sector of the nation’s oil industry, the Oando chief said the unfavourable development in the industry was largely caused by the twin problem of entry of all manners of players into the industry and a regime of lax policies. 

He said, “We saw people look around and say it is a very lucrative sector so everybody rushes into one direction because everybody wants a piece of action. There were controls, which were set up at the beginning by the Petroleum Products Pricing and Regulatory Agency (PPPRA) and other agencies but unfortunately, some of them have been relaxed including some of the instruments that were supposed to bring order into the sector. For instance, some of the controls on participation in the sovereign debt instruments have been relaxed.”

Awobokun, who would like the innocent to be separated from the guilty in the ongoing probes, believed the probes would bring the best out of the industry.

“We also need to find out who are the people in the sector, whose names did not feature in the list for wrongdoing. The government should support them. That is the healing I’m talking about. “I think there is still a long way ahead. We will still go through the process of more probes and court cases but I hope that very quickly, this will settle and then there can be reinvestment in the sector and again, the law enforcement agencies will be ready to act. We should better manage the ports and the jetty to ensure that previous abuse is eliminated.”

Major Oil Marketers Don’t Benefit From Scarcity
When confronted with the allegations that fuel marketers are the sole beneficiaries of the ongoing fuel scarcity, he fired back, saying genuine marketers should be counted out of the sharp practice.

Acknowledging the fact that some oil marketers are smiling to banks in the face of the current scarcity, Awobokun said marketers who have invested heavily in the business do not have time for hanky panky in the business.

“It is true, some marketers profit from fuel scarcity but if you are a marketer with scale, you have a huge foot print that needs fuel, you have investments in terminals and computer system and good people, and you won’t do that kind of thing.

“Fuel is profitable when you have stock and in scarcity, you will lose money. The guys who will make money in times of scarcity are the very unstructured and those who are indeed set up for scarcity period. So it is possible for you to go to some parts of the country and see some petrol stations- the independent marketing firm that belongs to no one in particular without a brand.  You will find out that all year round it has no fuel. Suddenly there is scarcity and it starts to sell at 500 percent of the stipulated price. Those are the guys who largely benefit from fuel scarcity,” he said.

He explained that such sharp practices are becoming unfashionable these days. “It is becoming unacceptable, so we begin to see more and more people consolidate and say to themselves I will rather concentrate on a little predictable business than the one which works every six months.

THISDAY investigations last week had shown that most of the perpetrators of sharp practices in fuel marketing do so in remote parts. The Oando chief said the Department of Petroleum Resources (DPR) is trying its best to check the activities of marketers who sell above the N97 per litre, but noted that it is practically difficult for DPR officials to reach all the filling stations in the country.

According to him, everywhere in the world, regulatory authorities struggle to enforce the law. If you count the number of fuel stations and the number of the regulators, you will find out that the stations have outnumbered the regulators. You also find out that the regulators are able to keep operators in check in urban areas but it will be more difficult for DPR officers to be at border towns where most of these infractions are committed.

So the issue is not that the regulators are not doing what they are supposed to do but that we don’t have enough number of regulators to keep these people in check.

“We get calls immediately any of the stations on our platforms have broken any policy and even when we are not physically domiciled there, we send a team there. I can assure that once the regulators get winds of any station breaking the laws, they will move in quickly and shut such a station down immediately. I believe what they need is information from members of the public.”

Programme on Switch-over to LPG
Speaking on the company’s drive to promote the use of cooking gas, Awobokun said the campaign was informed by the growing deforestation and its attendant social problems.

“It is appalling to learn that several people died from inhalation. That was how we decided to focus on LPG. We have always sold LPG but it was never a big concept. We spent a year going round the country talking to people and we found out this is what a credible company can take up. In terms of consumption per capital, Nigeria is a dismal 4kg compared to other neighbouring African countries. That was why we decided to support the government by asking ourselves, what we can do to promote the use of gas.

We are asking the question, can we use this LPG initiative to grow a local steel industry? Can the government give concession on flat steel? Can government sponsor development of manpower, give concession on heavy equipment that will cut and wedge steel and allow the local manufacturers in Nigeria to benefit and make those cylinders here so that Nigerians can access them perhaps cheaper? So the first thing government needs to do is to look at that sector and see that it is very critical to support the LPG initiative.

“The second thing is there is a tax on LPG and the government is subsidising kerosene and it makes sense for government to step back and say perhaps, it is time to gradually reduce the subsidy on kerosene and remove the tax on LPG to boost its use.

“Another thing is for the National Assembly to pass a law to forbid the use of dirty fuels at government agencies, schools, hospitals and colleges and by the time you do that it would have caught up with homes. What government does is to roll out laws to support a good initiative to show that what must be done must be done properly,” he said.

Tags: Business, Nigeria, Featured, Indigenous Ship Owners

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