By Athan Uzogarah, LLB, LLM.
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ikeuzogarahlegal@yahoo.com; ikeuzogarahlegal@gmail.com
Shipping plays a vital role in the economic life of nations. It is a means of transportation of people and goods from one place to another, either within the same country or from one country to another country. It is estimated that about 80% of the volume of international trade in goods is carried by sea.
Blue Economy includes all those activities that are based on the sea or are related to the sea. Maritime transport, an important pillar of the blue economy plays a key role in the world economy.[1]
Cabotage means transport or navigation along the coastal areas of a country. It is the carriage of goods and passengers within the coastal waters of a particular country. It is also known as trade along a country’s coast,transportinggoods or passengers from port to port in the same country. Cabotage trade include towage, pilotage, dredging, salvage, bunkering, etc.[2]
In other to protect indigenous interest in the maritime and Cabotage trade, theNigeria Coastal and Inland Shipping (Cabotage) Act 2003[3]was passed into law on 30thApril 2003, it became enforceable on 1st May 2004,[4] while the guidelines for its implementation was released in 2004 (revised in 2007) by the Minister of Transportation.
Nigeria waters include inland waters, territorial waters or waters of the Exclusive Economic Zone (respectively, together or any combination thereof)and the meaning given to them by the national inland;[5]
Cabotage law is a protective law that guarantees and protectslocal shipping interests in the carriage of locally generated cargo. It restricts the participation of foreign shipping companies in the carriage of such locally generated cargo.[6]
It is argued that with the incursion of the prerogative powers of the minister of transportation to grant licences to foreigners or foreign owned vessels to operate in the coastal trade made the Cabotage law a liberal rather than restrictive or protectionist law.[7]
Before the enactment of the Cabotage Act, foreign vessels dominatedCabotage trade in Nigeria. Cabotage law safeguards the interests of the domestic shipping companies in the carriage of cargoes which are transported within the coastal waters of that particular country.
The Act provides that only vessel wholly owned and manned by Nigeria, built and registered in Nigeria shall carry cargo and passengers within Nigeria coastal territorial inland waters or in its exclusive economic zone (EEZ). This also includes tug boats, dredging and towing services within Nigeria coastal waters.[8]
The Cabotage Act seeks to achieve and protect the following values: (a) Cabotage Vessel Must be wholly owned by Nigerian Citizens (b) Cabotage Vessel must be manned by Nigeria Citizens (c) Cabotage Vessel must be registered by Nigerians (d) Cabotage Vessel must be built by Nigerian Shipyards.[9]
The enhancement of local participation in coastal shipping which the Cabotage Act promotes is not enough without financing. The indigenous shippers cannot adequately fulfil the purport of the Act due to paucity of funding and the exorbitant banklending rates in Nigeria.
With the licences and waivers granted by the Minister for foreign vessels to partly operate in our coastal trade[10]especially with regard to highly specialized and expensive vessels required by the International Oil Companies for crude and refined cargoes. The local shippers without an intervention cannot favourably compete.
To enhance the benefits of the Cabotage Act, The Cabotage Vessel Financing Fund (CVFF)was created.[11]The purposes of the Fund shall be to promote the development of indigenous ship acquisition capacity by providing financial assistance to Nigerian operators in the domestic coastal shipping.[12] This is realized by providing financial assistance to Nigerian operators in the domestic coastal shipping.
The CVFF is an intervention fund established by the Cabotage Act with the objective of assisting indigenous shipping operators to acquire new vessels in order to enhance indigenous capacity building.
The monies to be paid into the fund are:
(a) A surcharge of 2 per centum of the contract sum performed by any vessel engaged in the coastal trade:
(b) A sum as shall from time to time be determined and approved by the National Assembly:
(c) Monies generated under this Act including the tariffs, fines and fees for licences and waivers;
(d) Such further sums accruable to the fund by way of interests paid on and repayment of the principal sums of any loan granted from the Fund.[13]
The fund is to be collected by the Nigeria Maritime and Safety Agency (NIMASA) and deposited in commercial banksadministered on the directive of the Minister of Transport as approved by the National Assembly,[14] for the benefit of Nigerian citizens and shipping companies wholly owned by Nigerians.[15]
The precursor to the CVFF was the Ship Acquisition and Ship Building Fundestablished in 1993 by the defunct National Maritime Authority (NMA). The fund was to grant assistance to indigenous shipping companies for fleet expansion and ship ownership.
The Ship Acquisition and Ship Building Fund was disbursed to the following first beneficiaries, namely, (a)Nigerian National Shipping Line (NNSL) (b) National Unity Line (NUL) (c) Faget Nigeria Limited (d) East West Coast Marine Services Limited (e) Genesis World-wide Shipping Limited (f) Cibra Marine Services Limited (g) Skolar Shipping Limited (h) Taraboz Fisheries Limited (i) B.M. Tankers Limited (j) Bulkship Nigeria Limited (k)A & C Engineering and Marine Services Limited.
The Ship Acquisition and Ship Building Fund failed to achieve its desired goals. Some of the beneficiaries refused to honour the terms of the loan agreement,while some diverted the fund to other purposes rather than the purpose the fund was disbursed.
It is also reported that 50 per cent of the beneficiaries of the fund who acquired vessels, acquired obsolete and outdated vessels which incurred heavy maintenance costs. Some of the beneficiaries of the fund diverted it to other businesses and/or personal uses. Based on these reasons the Federal Government suspended further disbursement of the fund, bringingan end to the Ship Acquisition and Ship Building Fund.
To avoid the pitfalls associated with the Ship Acquisition and Ship Building Fund, the Minister pursuant to the powers vested on him by the Cabotage Act[16] issued The Cabotage Vessel Financing Fund (CVFF) Guidelines 2006 to regulate the disbursement of the CVFF.
The guidelines prescribed the procedure for the administration and implementation of the Cabotage Vessel Financing fund (CVFF).The disbursement of the Fund is subject to the approval of the Minister of Transportation upon recommendation by NIMASA.
The contributory parties[17]are the fund suppliers, beneficiaries, regulators and managers which include:
(a) The Nigerian Maritime Administration and Safety Agency (N1MASA); (b) The Primary Lending Institution (PMS) and other lending institutions; (c) The Beneficiaries of the CVFF Scheme; and
(d) Fund managers.
According to the regulation, Applicant must fulfil the following conditions, in order to access the CVFF,
(i) The Applicant must show proof of payment of Cabotage dues of two per cent surcharge, licence and waiver fees;
(ii) Proof of contracts executed with international oil Companies (IOCs);[18]
(iii) Positive cash flow and bankable feasibility reports, which shall be verified by NIMASA and the PLIs;[19]
(iv) The Applicant must show company’s domiciliation account with PLI of their choice;
(v) They shall provide full condition survey report on vessel to be procured, (for vessels) and legal mortgage on vessel to be procured;[20]
(vi) An acceptable security/collateral that guarantees repayment where the applicant defaults;[21]
(vi) The Applicants must make an equity contribution of 15 per cent of the total project cost. CVFF will contribute 35 per cent while the balance of 50 per cent would be provided by the approved banks (PLI).[22]
A ship owner is expected to get $25 million from the fund[23] on a single-digit interest rate of 5.6 percent, 0.25 per cent processing fee and a payback period of maximum of seven years.[24]
The Nigerian National Petroleum Corporation (NNPC) expressed commitment to offer 9% out of the 15% equity participation required by the Indigenous firms-applicants. The ship owners will have to source for only 6%. NNPC will give the ship-owners the specifications of the ships to build or purchase and will take over the ship and provide the cargo until it recovers the amount invested in the acquisition of the ships.[25]
Maritime trade has played a key role in Nigeria’s blue economy development. It accounts for about 95% of the vehicular means of Nigeria’s International Trade. An adequate and efficient maritime transport system plays a vital role in the development of a country’s market, especially the market of international trade by transforming local markets into national, regional and international focus. This allows economies of great scale in areas that have promising comparative advantage with concomitant generation of huge employment opportunities.[26]Nigeria’s shipping sector is estimated to be capable of generating N7 Trillion annually.[27]
If and when the Coastal Vessel Financing fund is disbursed to indigenous Ship Owners, it will tremendously boast Nigeria blue economy.
The Coastal Vessel Financing Fund will supplement the aims the Cabotage Act seeks to achieve. It will cause an increased growth of inland water transportation. This will trigger the development of a modern, safe, reliable and efficient domestic waterborne transport. It will remove pressure from our rail, road and air transport as passengers, goods and heavy equipment will easilybe moved through our water ways.[28]
The disbursement of the CVFF will lead to increased economic activities. The aim of the Cabotage Act is to bar foreigners from the operation of coastal shipping. Our refined products and oil cargoes will be reserved and guaranteed for Nigeria-registered or owned vessels.
The CVFFwill encourage the development of ship building and repair facilities. This will lead to more business to the indigenous shipyards and the government.
The CVFF will allow the indigenous ship owners fund to acquire more vessels at a single digit interest rate. By limiting Cabotage trade to Nigeria owned, crewed and operated ships, it will obviously increase the number of ship fleets/tonnage in the country and attract healthy competition with foreign shipping companies in international shipping.[29]
It will enhance employment in the maritime sector. With the increased locally induced Cabotage trade of movement of passengers and cargos by our indigenous shippers, with the building and maintenance of coastal vessels locally, this will certainly trigger and enhance employment in the maritime sector.
This will increase revenue generation to the state and federal government through personal income tax in the state of residence and corporate tax. Also help conserve foreign exchange.
The banning of foreign vessels from Cabotage trade will give the country control over its national defence and security. By the increased number of locally owned fleet, it will be readily deployed by the country in times of conflict and national emergency, safety and environmental protection.[30]
By restricting foreign vessels that are sub-standard especially flags of convenience known for low safety standards from participating in coastal shipping, it will help reduce marine casualties, hazards and prevent pollution and degradation of the marine environment. The registration of Cabotage vessels and ensuring certain minimum international standard are met will enhance safety and environmental protection.[31]
The disbursement of the CVFF will create enabling environment for the private sector to invest in the maritime industry to achieve the objective of developing the nation’s blue economy and boost the revenue of the Federal Government.
To avoid the pitfalls experienced under the Ship Building and Acquisition Fund, when beneficiaries diverted the funds to other areas. Government must ensure that only genuine ship owners benefit from the fund.
Government must also ensure that the CVFF is neither misapplied nor misappropriated and that it is only disbursed according to the objectives. There must be no obscurity but transparency in the administration and disbursement of the fund, while ensuring that the fund is properly utilised.
Athan Uzogarah writes from Lagos, Nigeria
08037228193
ikeuzogarahlegal@yahoo.com; ikeuzogarahlegal@gmail.com
[1]https://www.opportimes.com/the-blue-economy-and-maritime-transport/
[2] See Section 2 of The Cabotage Act
[3]The Cabotage Act
[4] Section 51Ibid
[5] Section 2 Ibid
[6]See Section 3 Ibid, while Section 23(2) provides for registration and stipulates that a vessel shall not be registered for use in the domestic trade unless the controlling interest in the company is owned by Nigerian citizens. The establishment of the Cabotage Vessels Financing Fund in Section 42(2) of the Act is for the purpose of promoting the development of indigenous ship acquisition capacity by providing financial assistance to Nigerian operators in the domestic Coastal Shipping
[7] sections 15 – 21 of the Cabotage Act
[8] Section 3 and 4 Ibid
[9] The 4 Pillars of Cabotage
[10] Sections 9-14 Ibid
[11] Section 42(1) Ibid
[12] Section 42(2) Ibid
[13] Section 43 Ibid
[14] Section 44 Ibid
[15] Section 45 Ibid
[16] Section 46 Ibid
[17] Paragraph 2(a-d) Cabotage Vessel Financing Fund Guidelines 2006
[18]Business a.m.February 5, 2020
[19] Paragraph 3.2 (i)Ibid
[20] Paragraph 8.3Cabotage Vessel Financing Fund (CVFF) Guidelines 2006`
[21] Paragraph 7.3; & Paragraph 3.2 (vi)Ibid
[22]Paragraph 7.10 and Paragraph 3.2 (iii)Ibid
[23] Paragraph 3 Ibid
[24] The Nation:August 26, 2022; Business a.m.February 5, 2020
[25]The Cable:Thursday, June 29, 2023
[26]Alari Emomoemi Faith, the Maritime Industry of Nigeria. Challenges and Sustainable Prospects
[27]Agbakoba, O., “Strategic Action Plan for Nigeria’s Maritime Sector”, Law Blog, 26 May 2015
[28] Igbokwe, 2006, p. 5
[29] Nweze, 2006, p. 197
[30] Nweze, 2006, Op.cit pp. 192-193
[31]Igbokwe, 2006, Op.cit pp. 13-14
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