CABOTAGE: A CASE STUDY OF THE NIGERIAN

REGIME SOUTH AFRICAN MARITIME INDUSTRY CONFERENCE,

CAPE TOWN, SOUTH AFRICA. 4th – 6th July 2012

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MR. ZIAKEDE PATRICK AKPOBOLOKEMI DIRECTOR-GENERAL/CEO NIGERIAN MARITIME ADMINISTRATION AND SAFETY AGENCY (NIMASA)

∗ Introduction ∗ Role of Nigerian Maritime Administration & Safety

Agency (NIMASA) ∗ Overview of the Nigerian Cabotage Regime ∗ Salient Features/Provisions of the Nigerian Cabotage

Regime ∗ Types of Registration under the Act ∗ Implementation and Enforcement of the Cabotage Law 2

∗ The Cabotage Regime and national Development ∗ Appraisal of the Implementation of the Cabotage

Regime in Nigeria ∗ Impact of the Cabotage Regime on Flag Development ∗ Challenges of Implementation of Cabotage in Nigeria ∗ Conclusion.

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∗ The Shipping Sector globally, is responsible for the movement of 90% of goods through the use of over 50,000 vessels plying the trading routes Worldwide.

∗ In Nigeria, the Sector accounts for about 95% of trading prospects including Oil and Gas. Nigeria also accounts for over 60% of total Seaborne traffic in volume and value in the West African Sub- region.

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∗ Nigeria is richly endowed with highly productive open sea with a coastline of about 853km and 3,000km of inland waterways housing abundant and diverse maritime resources including huge deposit of hydrocarbons (crude oil and natural gas

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It has vast open sea of 853km coastline and a total EEZ measuring 200 nautical miles

In reserve, the country is estimated to have about 22.5billion cubic meters of crude oil, 3.5 trillion cubic meters of gas and 42.7 cubic meters of bitumen. The economic value of these resources to the nation in terms of foreign earnings is directly related to the maritime component of the respective industries.

∗ Also the Oil and gas sector is the predominant sea trade in Nigeria and is estimated to constitute about 95% of coastal and inland shipping while fishing trawlers and break bulk carriers make up the remaining 5%.

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∗ The foregoing clearly presents enormous coastal trade opportunities for Nigeria’s shipping community. However, foreign interests over the years dominated these trades almost to the exclusion of Nigerians. Indigenous interests were not able to match the resource strength of their foreign competitors in vessel acquisition, manning and operational capabilities. Foreign interests often enjoy lower interest rates and subsidized acquisition of equipment and resources that gave them competitive advantage over their Nigerian competitors.

∗ It is in recognition of this that consistent efforts have been made by successive government through various policy strategies to drive the development of the maritime sector through the participation of indigenous operators.

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∗ A notable milestone in this regard is the passage into law of the Coastal and Inland Shipping (Cabotage) Act in 2003; with the primary objective of developing indigenous capacity in the Maritime Sector. This was perhaps the first major step by the Nigerian government to domesticate opportunities and fully tap available potentials in the Nigerian Maritime industry.

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∗ As the primary driver of Nigeria’s aspiration in the sector through the implementation of relevant policy strategies, my task in this paper is (therefore) to briefly x-ray the Nigerian Cabotage regime as a veritable tool in this regard as well as the role of Nigeria’s Maritime Administration (i.e NIMASA) with emphasis on our statutory functions and responsibilities vis-a-vis the vast opportunities available in the maritime industry for both local and foreign investors.

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∗ NIMASA is the Apex Maritime Regulatory body in Nigeria. It was formally established in 2007 following the merger of hitherto two separate Agencies, namely – Joint Maritime Labour Industrial Council (JOMALIC) and National Maritime Authority (NMA).

∗ The primary objective of the merger was to aggregate the responsibilities of these Agencies into a one-stop platform for the regulation of Maritime activities in Nigeria.

∗ NIMASA can therefore be described as the centre of gravity of the Nigerian maritime sector, given that it is the hub of the industry in terms of promoting its development and growth, regulating activities therein, and providing interface between Nigeria and the international maritime community.

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∗ Over the years, the lack of indigenous presence in the Nigerian shipping trade brought about government intervening policies, but none has been as far reaching in conception and ramification as the Coastal and Inland Shipping (Cabotage) Act, 2003.

∗ The Cabotage Law seeks to create a captive market in the domestic shipping trade for indigenous shipping companies. In that sense, it is intended to be a catalyst in the systemic development and capacity building in the domestic shipping trade. At the same time, it must be pointed out that the law sensibly provides for partnerships between Nigerian maritime industry operators and foreign investors in a way that would protect and support our local economy, national interest and the investment objectives of all cabotage service providers.

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∗ The Nigerian Coastal and Inland Shipping (Cabotage) Act of 2003 was fashioned after the Jones Act of the USA.

∗ The Act became enforceable one year after its enactment in April 2004; following the publication of the following guidelines by the Federal Minister of Transport as required under the Act:

∗ Guidelines on implementation of the Coastal and Inland Shipping (Cabotage) Act 2003 and revised in 2007;

∗ Cabotage Vessel Financing Fund (CVFF) Guidelines, 2006;

∗ Coastal and Inland Shipping Cabotage (Detention of Ships) Regulations 2006; and

∗ Bareboat Charter Regulations 2006 12

4.1 Liberal Cabotage Policy / Waiver System .

∗ In recognition of the inadequate indigenous capacity in the maritime sector, the Nigerian Cabotage Act operates a liberal policy through the use of a recognized waiver system.

∗ The waiver principle as provided by the Act is based on the grounds of non-availability of Nigerian owned, built, crewed and registered vessels. The essence of this policy is that the nationality requirement of the above four (4) pillars of our cabotage regime are often waived where the criteria are satisfied that indigenous capacity is unavailable.

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4.2 Cabotage cargo

∗ The Act limits the application of the cabotage regime to specific categories of cargo which are itemised hereunder:

∗ “Cargo” means cargo and passenger originating from one port or point in Nigeria to another within Nigeria. The emphasis is on the loading port or point and the port of destination of the cargo and passengers. It includes cargo and passengers carried on, through, or under Nigerian waters to any place in Nigeria;

∗ Cargo originating from Nigeria and destined for Nigerian ports/markets but carried via port outside Nigeria;

∗ Cargo Carried from one point in Nigeria to another whether or not of commercial value.

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4.3 Non-Cabotage Cargo

∗ Cargo carried along the cabotage trade areas, which do not fall under the operation of Cabotage Act includes:

∗ Cargo originating outside Nigeria and destined for Nigerian ports i.e. international cargo;

∗ International shipping cargo destined for discharge at several ports in Nigeria as contracted in the bill of lading;

∗ In-transit cargo or passengers;

∗ Cargo originating from Nigeria but destined for ports outside Nigeria;

∗ Trans-shipment cargo, provided the shipment originates outside Nigeria.

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4.4 Cabotage vessels

The following types of vessels are identified under the Act as Cabotage vessels: ∗ Passenger vessels; ∗ Crew boats; ∗ Bunkering vessels; ∗ Fishing trawlers; ∗ Barges; ∗ Offshore service vessels;

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4.4 Cabotage vessels cont... ∗ Floating Petroleum

storage; ∗ Tankers; ∗ Carriers; ∗ Any other crafts or

vessels for carriage on, through, or under Nigerian waters; of persons property, or any substance whatsoever.

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4.5 Cabotage Trade Area

∗ The operation of the Act applies in the inland waters, Coastal waters, Territorial waters, exclusive economic zone, Islands (natural and artificial) within Nigerian waters.

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∗ Under the Cabotage Act, the citizenship requirement with respect to ownership of cabotage companies and cabotage vessels are as defined by the Constitution of the Federal Republic of Nigeria and excludes corporate citizenship. Ownership is determined by the identity of the individual owners who truly own and control the equity both in the vessel and the ship owning company.

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4.6 Ownership Concept Under The Act.

4.7 The Four (4) Pillars of the Nigerian Cabotage Regime:

∗ Section 3 – 6 of the Cabotage Act 2003 reserves the coastal trade i.e. the carriage of goods and passengers on vessels built, owned, registered in Nigeria, and manned by qualified Nigerian seafarers. Thus the regime is typically identified by four notable pillars, namely that:

∗ Cabotage vessel must be built in Nigeria,

∗ Cabotage vessel must be owned by Nigerian Citizens;

∗ Cabotage vessel must be manned by Nigerian citizens, and

∗ Cabotage vessel must be registered in Nigeria.

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4.8 Cabotage Vessel Financing Fund (CVFF).

∗ Part VII, Section 42 of the Act established the Cabotage Vessel Financing Fund (CVFF). The purpose of the fund is to promote the development of indigenous ship acquisition capacity by providing financial assistance to Nigerian operators in the domestic coastal shipping. Per mandate therefore, the beneficiaries of the fund shall be Nigerian citizens and shipping companies wholly owned by Nigerians.

∗ The CVFF is presently funded through:

∗ Two per cent surcharge of the contract sum performed by any vessel engaged in coastal trading,

∗ Monies generated under the Act including tariffs, fines, and fees from licenses and waivers. 21

∗ Pursuant to section 22 of the Act, vessels for use in cabotage trade are required to be registered in the Special Register for vessels and ship owning companies engaged in cabotage operation.

∗ In this regard the Special Register for Cabotage vessels is domiciled in the office of the Registrar of ships in NIMASA. The following types of registration are required under the Act: ∗ Registration of wholly Nigerian owned vessels ∗ Registration of Joint Venture owned vessels; ∗ Registration of bareboat chartered vessels; and ∗ Registration of foreign owned vessels. 22

∗ Section 30 of the Act designates NIMASA as the implementing Agency. The Agency thus maintains a fully functional Cabotage Services Department which coordinates all the programmes and activities associated with the implementation of the law.

∗ The implementation of the Act is being achieved through close collaboration with other relevant government Agencies like the Nigerian Navy, National Petroleun Investment & Management Services (NAPIMS), Nigerian National Petroleum Corporation (NNPC), and Petroleum Products Marketing Company (PPMC). The essence is to ensure harmonized regulatory and operational practices.

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∗ The ultimate goal of Nigeria’s cabotage regime is to achieve the meaningful participation of Nigeria and Nigerians in coastal maritime trade and ultimately increase the competitiveness of the country in international shipping.

∗ It is also instructive that besides the role of providing infrastructure for maritime development, a viable local maritime sector is also a potential Revenue earner.

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∗ In addition, a properly managed Cabotage Regime would lead to: ∗ Development and growth of domestic water borne

transportation; ∗ Development of indigenous ship acquisition capacity; ∗ Development of human capital in the sector; ∗ Development of ship repair and dock yards;

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∗ Wealth creation; ∗ Creation of employment of skilled and semi-skilled

manpower; ∗ Conservation of foreign exchange; ∗ National Defence and Security; ∗ Competition on a level-playing field; ∗ Training of Seafarers; and ∗ Safety and protection of the Marine Environment.

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In implementing the Act some achievements have been recorded in the following areas:

a. In the Oil and Gas Sector, Nigerian Marine Service providers who have the capacity for any job required, are given the first choice to do the job and this has been further boosted by the Nigerian Oil and Gas Content Development Act, which makes compliance with the provisions of the Cabotage Act, a requirement in the provision of Marine Services;

b. Creation of a USA Dollar denominated CVF Fund through monies charged on Cabotage Operations to be utilised to offer financial assistance, create access to funding by Financial Institutions with the sole aim of increasing

c. Training of Nigerian Cadets on board Cabotage Vessels as this is one of the criteria for the renewal of waivers granted to any Vessel;

d. Employment of Nigerian Seafarers on board Cabotage Vessels as the Agency insists on the replacement of any foreigner on board a Cabotage Vessel, where a local equivalent of such a crew member is available;

e. Growth in indigenous tonnage as all Cabotage Vessels are required to be registered with the Agency; and

f. Creation of awareness in Nigeria on the opportunities available in the Cabotage Trade and an increase in the participation of Nigerians in the Sector; and,

∗ With the passage of the Cabotage Act 2003, strict regulatory measures were introduced to the hitherto free coastal trade, critical amongst which is the requirements that such vessels must be entered into the special cabotage register.

∗ An examination of the cabotage guidelines will disclose that a prerequisite for Cabotage registration, is prior registration under the Nigerian flag.

∗ In addition to this, the oil and gas industry which is the key employer of ships in Nigeria has commenced full implementation of its local content policies utilizing cabotage registration as a benchmark for vessel employment.

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∗ In recent years the Agency has witnessed the influx of FSO and FPSO vessels, Seismic research, data gathering and other specialized vessels operating in Nigerian waters into the Nigerian Register and this had led to substantial boost in the registered tonnage of the Nigerian flag. This could not have been achieved without the Cabotage Act.

∗ The impact of the above is that the Nigerian flag and the Nigerian Ship Registration Office have been rejuvenated. Our ship registration capacities are daily tested by the influx of applicants seeking to qualify for the cabotage trade and there has been a steady increase in the rate of flag registration since the commencement of the implementation of the Cabotage Act as indicated in the table below:

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PRE-CABOTAGE IMPLEMENTATION YEAR NO OF REGISTERED

VESSELS GROSS REGISTERED TONNAGE

2000 127 56,206.25 2001 59 31,508.23 2002 45 22,804.23 2003 53 37,704.19 2004 202 106,924.12 TOTAL TONNAGE 255,147.02

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POST- CABOTAGE IMPLEMENTATION YEAR NO OF REGISTERED

VESSELS GROSS REGISTERED TONNAGE

2005 218 343,521.67 2006 142 66,826.38 2007 263 177,814.73 2008 326 446,208.46 2009 357 474,622.68 2010 363 804,317.48 2011 318 400,185.71 2012 (June) 184 609,386.21 TOTAL TONNAGE (As at June 2012) 3, 322, 883.12

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In implementing the regime, the Agency has been faced with some challenges which include the following:

10.1 Lack of Indigenous Capacity:

The Act stipulates that the under-mentioned requirement qualifies a vessel to participate in Cabotage Trade in Nigeria:

∗ The Vessel must be wholly owned in Nigerians;

∗ The Vessel must be wholly manned by Nigerians;

∗ The Vessels must be built in Nigeria; and

∗ The Vessel must be registered in Nigeria.

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However, there is dearth of indigenous ownership, building and manning capacity. The indigenous operators do not have enough vessels for Cabotage operations as envisaged by the Act. There is also lack of ship building and ship repair yards in Nigeria to handle the building of Cabotage Vessels; and on Manning, there is dearth of Seafarers, especially of the Officer Cadre to take over from the foreigners. This is why the waiver regime has been provided for in the Act.

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10.2 Building:

∗ Instead of insisting that ALL Vessels must be built in Nigeria, this requirement is being reduced to vessels of 5000 GRT and below to be built in Nigeria. Submissions have been made to the Parliament towards the amendments of the Act. The Agency is considering the Public Private Partnership approach towards the building of Dockyards and Shipyards.

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10.3 Manning:

∗ In order to address the shortage of the officer Cadre in the Sector, with particular reference to Navigation and Marine Engineers, the Agency has introduced an intervention programme called the Nigerian Seafarers Development Programme. The intention is to produce in the shortest possible time, skilled manpower for the Sector.

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10.4 Legal Framework:

∗ The need to review and amend the Cabotage Act to reflect the actual situation on ground cannot be over emphasised and this will also take care of some contentions areas and remove ambiguities which include the definition of ‘ships’ to include Rigs, FPSO’s and FSO’s. The Nigerian Parliament in the process of amending the Nigerian Cabotage Act.

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10.5 Enforcement:

∗ Lack of platforms to access offshore platforms and other vessels that are far in the seas. The Agency has recently entered into a Public Private Partnership arrangement with an indigenous operator with a view to outsourcing platforms for enforcement.

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Officers of the MGC on watch on our coastal waters.

10.6 Cabotage Vessel Financing Fund ( CVFF):

a. It has been observed that local operators who apply to access the CVFF do not meet the basic risk criteria of the Primary Lending Institutions (PLIs) approved by the Agency, who also bear all the risk of every facility they recommended.

b. On the issue of equity contribution of 15% by applicants of the fund, as provided by the guidelines, most indigenous operators are unable to provide this.

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∗ With the Cabotage regime, the Nigerian maritime industry has come full circle from the era of the liner shipping companies, through the cargo allocation of the past era to the current dispensation which has heralded fundamental economic initiatives paving the way for both local and foreign direct investments that have positively impacted on the maritime industry via modernised port infrastructure, increased tonnage, vessels and seafarers employment.

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∗ The Nigerian flag as the primary measuring gauge of the state of the industry has closely mirrored the evolution of the industry and with the creation of cabotage opportunities; the total registered tonnage has increased substantially. Indeed by implementing Cabotage, we are merely fulfilling the classic saying that charity begins at home. The Cabotage Act has been described as a Bill of Rights for Nigerians.

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∗ The Nigerian Maritime Administration and Safety Agency (NIMASA) as a National Institution is poised to play its role of creating the ambience for Indigenous Shipping Entrepreneurs to survive and thrive. The Agency will therefore not rest on its oars in ensuring Local Capacity Development in the Nigerian Maritime Sector.

I thank you for your attention.

PATRICK ZIAKEDE AKPOBOLOKEMI (DIRECTOR-GENERAL/CEO)

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