GOVERNMENT INCENTIVES SHOULD “LIFT ALL BOATS” - Africa’s premier report on the oil, gas and energy landscape.

GOVERNMENT INCENTIVES SHOULD “LIFT ALL BOATS”

Iroghama Ogbeifun is the Managing Director and Chief Executive Officer (CEO) of Starzs Investments Company Limited, a Maritime logistics company that provides fleet services to international and indigenous oil and gas exploration and production companies in Nigeria.

She spoke with Africa Oil+Gas Report’s Senior Correspondent, Lukman Abolade.

Excerpts:

20 months ago, you called attention to ‘discouraging’ fiscal policies in the maritime industry that push away indigenous investors. Nigerian shipowners and operators, you argued, were taxed with higher import duty charges while trying to import owned ships as compared to chartering foreign ships that only required temporary permits at the country’s point of entry… Are you satisfied with the current efforts to address these issues?

This advocacy point has been signalled for over a decade. Experienced maritime experts have taken on government agencies, including Nigerian Maritime Administration and Safety Agency (NIMASA), and Ministry of Finance, on tax exemptions, if possible, zero import duty for Nigerian ship owners, who are bringing in vessels that belong to them, that way supporting the sector and increasing the number of companies that are able to buy the ships.

It is not a new initiative for Nigeria only. Other countries have grown their indigenous ship registry in this manner. By giving such tax incentives, but for Nigeria it is all the way round, like you rightly mentioned, some of the efforts have yielded some positive results a few years ago, about two or three years ago.  A gazette, I believe, was issued about zero duty for certain class of vessels. Now, the question to ask is, how many of those kinds of vessels are being brought into the country? Technically, do the wider category of shipowners, who are bringing bigger, larger vessels into the country benefit from such initiative? I don’t think so.  Today, as a tug owner, if I were to bring in a tug, which is definitely larger than the gross register tonnage (GRT) that was cited in that release, I will pay some levies, I will still pay for duty, and we’re seeing what’s happening with the exchange rates. From where I stand as a key stakeholder, I have not felt the impact of any initiatives, that’s focused on zero duty for importation of Nigerian owned ships into the country, I’m yet to feel the that impact, I think that still needs to be worked on and considered by the relevant government agencies.

Your position is that government should put in place zero duty that will address all categories of vessels?
All kinds of vessels should be considered, when you are importing into the country, regardless of the size or the kind of ship, as long as it is Nigerian owned and is going to be listed on the Nigerian ship registry. It is a massive plus for NIMASA, so it should qualify for zero import duty. With the limit  to  smaller classes of ships, if you do the audit and find that you have more of the larger classes of vessels operating within the country potentially coming in and the demand for such assets within the country’s waterways is not covered by your exemption, then you haven’t really resolved the problem, you never really addressed the issue.

It’s been two clear years of operationalizing the Petroleum Industry ACT (PIA). Are you impressed with the implementation, as it concerns the marine sector?

As a maritime company focused on the energy industry, part of what I would use to measure the impact will be this: “have I seen enhanced and increased activities within the industry in the last two years since the PIA has been at play? Am I having a sense of improved confidence in the oil companies, such that they are beginning to invest more and expanding their activities, leading to more work, and more opportunities for players like myself? I think the answer is No. Yes, we’ve had series of conversations, but we are yet to see some of those projects emerge and then see the subsequent business or commercial impact on Nigerian maritime companies working within the sector. Maybe the oil companies are still not satisfied with the terms of the PIA as it was passed. The law was to create an enabling environment for the oil and gas sector. As a midstream player, as a maritime company focused on servicing the oil and gas industry, I should know. I should sense it.

A new Executive Secretary has been appointed to run the NCDMB. If there is anything you want to be on top of his priority list, what will it be?

He needs to organize an all-inclusive stakeholder engagement townhall session within the industry, so that he can bring himself directly in contact with critical players. We should get to meet him, know his plans for the industry, know his vision, vis a vis the 10-year strategic roadmap that has been in implementation by the board for the last seven or eight years. It’d be good for the ES to hear where we are coming from, what is the status of the industry, or what he would like to see moving forward. That would be number one top of mind. We haven’t, in the last few years, seen long term contracts or long term tenders, which should enable Nigerian-owned shipping companies bid for opportunities, and engage financiers to enable them purchase assets.  Without long term contracts coming out. It is difficult for any Nigerian ship owner to go out there and begin to invest blindly, or work on speculation that there will be opportunity after investment. The new ES of NCDMB should be looking at how he’s engaging with the IOCs, NOCs, or NUIMS (the NNPC’s investment arm) to see how are we making these terms more favourable for the deepening of local content in Nigeria.

I would also be looking at the currency split for contractor payment in the industry. We’re thankful for the unification of the exchange rates, but I argue that we should be paid a higher percentage of currency in USD as opposed to what’s currently the regulated, because the majority of our cost, our financing costs, maintenance costs are forex. OEMs don’t reside here; they are foreign organizations. We would appreciate a move from 60% 40% to maybe 80, 90% USD and 10%, or 20% in Naira. And then lastly, the reinstatement of the equity investment scheme, which NCDMB had rolled out as one of their initiatives to achieve their strategic roadmap. That equity scheme saw the emergence cylinder manufacturing plants, the financial support of modular refineries, etc., so I think is a worthy initiative which was suspended. I think it’s something that he should consider resuming now that he has taken over office.

How will Nigeria maritime industry, most benefit, from the African Continental Free Trade Agreement [AfCFTA], with the current mode of practice?

Nigeria has a unique opportunity to establish herself as the maritime hub for Subsaharan Africa, through the African Continental Free Trade Agreement. Nigerian shipowners can confidently go into cargo operations. Right now, we have lots of cargo ships that come into the country. And I’m not talking about cargo tankers carrying oil and gas products. I’m speaking about non-oil related sorts of cargo ships. We have thousands of them caught up in ports but none of them belongs to any Nigerians.

If the Africa free trade agreement comes to fruition, Nigerian shipowners will see a line of sight to that investment, and the agencies can take advantage of  a lot of supporting services;  owning the ship, port agency, insurance brokerage, etc. There’s a whole ecosystem that will support the shipping industries, emergence or dominance, in essence, in executing the AFCTA.

If that enabling environment is created and we have, for example, the Cabotage Vessel Financing Fund (CVFF) disbursed by NIMASA, Nigerian ship owners will be able to acquire those self-propelled barges or container ships that can do regional trade, because borders will be opened up and barriers and obstacles between African countries will come down. There will be Visa free entry into most African countries by citizens of other African countries. As more of those barriers disappear, trading becomes easy and acceptable and the product of the trade must move some way, somewhat.

Whether Nigeria is poised to key into the opportunities is the question that needs to be answered, and what are we doing intentionally? Are we preparing our ports to receive and also to take out? Right? Are we preparing our own standard and quality control checks to be sure that whatever we take out compete globally? Are we creating products that can be alternatives to other products that come from other continents, so that Africa can begin to consume what Africa produces, because we have the markets, we have the mineral resources, we have all it takes to feed ourselves, without importing from other continents. Nigeria is well positioned, but we just have to have the right strategy, the willpower to implement and not compromise, and then focus on excellence.

The barriers to Free Trade are not yet down. Given that reality, how would you advise someone who is interested in investing in maritime sector to navigate his way?

You have to understand what is currently on ground and get a sense of where the market is. There must be a business case for what you are doing. The opportunities may not show themselves in full form, those countries are importing something. And Nigeria does export some things, how much of that is going to other African countries? And how is your carrier, is it sufficient for any business owner to go into that sector? Tiny drops of water make an ocean. Start with tiny steps, little steps and before you know it becomes an ocean.

In your work in the hydrocarbon industry, does your investment pivot more to downstream supply than Upstream operations?

We are a midstream service company, servicing the upstream in terms of logistics. We do more upstream.

Your citation at a recent award says that you increased your company’s ownership of vessels. Has the market responded favourably to your initiatives?

Demands drive expansion. We will continue to look for opportunities to expand our fleet. With divestment of oil assets from international oil companies to Nigerian players over the last decade or more, the locals have continued to mature and improve standards for corporate governance. We anticipate some of them advancing more offshore so we need to do more shallow water operations, as they can extend to offshore locations. We want to be ready to support that kind of expansion for  oil companies that are consistent. A good track record makes your company the preferred partner for any oil company to work with.

Two years ago, you were concerned about the drop in oil prices and reduced supply of gas in the oil industry. Have things improved in the hydrocarbon sector now?

The prices of crude oil have stabilized. The numbers haven’t really changed significantly in the last maybe year or so. People can project a bit better. So that concern is no longer there. For Nigeria, the key worry is how do we increase crude oil output to meet our OPEC quota? How do we increase our production because we don’t make as much money as we project to make? It’s a country specific problem.

In the 18 months since you called for more investment in intermodal transport infrastructure, especially railways, as a means of transporting commodities in and out of ports, a new set of railway routes have been opened. Are these to you, satisfying outcomes, so far?

The previous Minister of Transport, Rotimi Amaechi, had a significant focus on establishing railways. The focus now has to be on cargo, not just people carriers. The congestion at the Apapa ports speaks to a massive opportunity in the railway transportation space, to evacuate the armada of containers coming in and ease the truck movement into certain areas of the port to reduce that congestion. I don’t believe in reinventing the ‘railway wheel’. Examples abound around the world of how a properly structured intermodal functioning port looks like. The managing director, working with the Ministry of the Economy, have the right intention; they just need to have the right plan and have the right strategy.

You recently said: “Transactions such as receiving of vessels and interactions between the ports authority ought to be modernised for greater efficiency”. Can you provide a little detail as to what you mean by that??

It’s just about efficient operations. The more ships are able to come in and offload within a good turnaround time the better for any port. That is how the efficiency of a port is evaluated. It also determines its viability and profitability. A port might belong to the government, but it’s a profit centre.  Automation and digitalization are increasingly ways of improving operational efficiency of organizations. If you’re not automating everything, to point of tracking, with a dashboard that shows you where they are, how long they come in, what is required when they come in, and overall instituting a one stop shop, where you detect lagging indicators, you are not ready to become efficient. When you invest in real automation and digitalization and move most of the processes from manual to automated, you reduce the margins for error and also minimise the opportunities for inefficiencies.

To be concluded.

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