Nigeria should take charge of STS operations on its waters — Omatseye

On Live Conversations- a show produced by Maritime Television – Mr Temisan Omatseye, former Director General, Nigerian Maritime Administration & Safety Agency (NIMASA) and former President of the African Shipowners Association (ASA) speaks on how COVID-19 has affected the shipping industry and the lessons the shipping industry should learn from the experience.

According to Omatseye, Nigeria is hit hard by the lack of indigenous vessels. He says it is now a matter of national security and speaks on why the nation cannot afford to shut down oil wells while predicting that the post COVID-19 world will witness a shift from the demand of crude to gas.

What was the state of shipping in Nigeria before COVID -19 pandemic?

Well basically, as you maybe aware, Nigeria has a coastline of almost 840 nautical miles and not only that; we have about 84,000 nautical miles, which covers, from our coastline to the 250 nautical miles EEZ. And by virtue of that, we do have a very large coastline and with that, it is expected that we should be able to have a very strong maritime industry most especially, as you would realise, Nigeria was exporting at one time about 2,000 barrels of crude a day and not only that, we have a major gas export through the Nigeria LNG. Nigeria in itself is a major importing nation so we do import a lot of stuff, and we do export quite a bit of raw material as well. So, when it comes to the logistics- that is supply chain management, Nigeria is big in that sense because we do have a lot of cargo, which we export, and we do have a lot of cargo, which we import. The business in Nigeria is quite good but the unfortunate aspect of it is that Nigerians have not been able to be part and parcel of the maritime sector most especially because of the capital intensiveness of the sector.

If Nigerians have not been part of the industry, then, what has been happening given that some Nigerians work with IOCS and the cabotage law came into being over 15 years now?

I believe there are two types of shipping, the major shipping which are the tanker operations, which covers basically wet cargoes like crude oil and all the rest, and also looking at the big tankers that also carry LPG or LNG and the rest. Then you have the dry cargo, which is also the bulk carrier like the large vessels, which carry containers, the large container carrying vessels and the rest. You have the bulk carriers, which carry the bulk of things. Then, you now look at the onshore side of things, which is basically the industry that supports the oil and gas, which has basically the platform supply vessels, the anchor handling tugs vessels and all the other vessels that support the oil and gas. I see that as only a subset of the shipping industry. There are quite a bit of Nigerian participation so you have very large companies who have PSVs now they are bringing in subsea whatever to support the oil and gas industry. But then, I talk about the other side of shipping which basically is what you get when you go to any aspect …when you call a ship owner, a ship owner is guy who if you go to Greece, he is not talking about owning supply vessels, he is talking about owning of the Tsakos group that owns about 100 tankers, you have the Onassis group, I mean, there are many of them.

When you talk about the participation, the IOCs are there, cabotage has been passed but we have an unfortunate situation. Like I said earlier, shipping is capital intensive and by virtue of that you require funding and not only funding but also long term funding. Another unfortunate part of it is that, as time has gone over the last 15years, the IOCs have up-ed the scale of their operation. Before you used to have the normal PSVs that go there, now, because of safety issues, they have moved from GP-1 to GP-2 and of course, those vessels are more expensive. These vessels also require specialist skills of manpower to run them. So, on the deck of a DP-1 or DP-2, you have maybe like two or three captains on the deck. One captain goes manoeuvring the vessel, another manoeuvring the DP, another manoeuvring so, those are specialist skills and we do not have the manpower to run those kinds of vessels.

You said the Cabotage Act is strong and progressive but the issue is implementation. How is this so?

Yes, the Act is quite strong. It was basically mirrored on the Jones Act of United States but unfortunately; you cannot shut down the industry if you do not have capacity. The issue of waivers, which was supposed to go for one year, has continued for the last 15years because you do not have the capacity to support. There has to be a deliberate policy in this Cabotage Act.  Like I always say, we know that we would be producing oil in the next 15-20years, what should be happening in Nigeria which they did not do, which I think we are running behind time now is to say, I know for the next 15 years, because an IOC like an Exxon Mobil or Chevron would have a strategic plan for the next 15 -20years, which means they know exactly what kind of asset they will require. What should have happened is that based on that assets requirement, there should have been a shipping plan in place for acquisition and writing of those assets over 15 years. What that does is that it basically reduces your interest rate; it reduces your repayment and also allows you to develop capacity within that 15 years period. The problem we have is because the right hand does not know what the left hand is doing. The oil companies are running their show the regulator of the maritime sector is playing catch up, and every time the maritime regulator wants to hit on them, they begin to slow down revenue and they say Nigeria is not getting revenue because the regulator so, the regulator is being shouted at to shut down and stop doing his enforcement law because they are saying his affecting revenue so, which comes first, the chicken or the hen, that’s where the problem is.

Do you see any hopes for the indigenous shipping sector when it comes to the freighting of crude?

In just looking at the Cabotage trade alone, that is moving of cargoes from offshore because Nigeria imports majority and as we all know, Nigerian refineries are not working so, we have what we call the DSDPs which I believe is going to end very soon because Nigeria has deregulated its downstream… the petroleum product so, that is going to be impactful. What I am saying quite is simply is this, if we look at the amount of crude oil we allocate for the refineries which we send out to be refined which they call Direct Sell Direct Purchase which they now re-import back the petroleum products, that is already loss because in the first instance we are selling the products which goes out there at FOB and at the end of the day, we are importing the petroleum products on CIF, so, that in itself, is loss freight to Nigeria. That money which we are using as freight rate could be used to develop and build a national fleet. We also have the issue of the importation of the product so when the product comes into Nigeria, the vessels, because in Nigeria, we have river ports, we do not have a deep sea port, these vessels come in with very deep drafts, they are pulling in about 14 metres of water. The deepest port we have is Lagos and Lagos channel is just 12.5metres but the length of the vessel is long so even if the vessel comes in, it cannot turn around and go out again and you cannot bring it all the way backwards. In any case, it is pulling in too much water so what naturally happens is that a lot of STS operations have to be done offshore Lagos or wherever the case maybe at the ocean or our national waters. So when that is done, when the vessel comes in, there has to be an STS operation. Now forgetting what is losing on freight coming into Nigerian waters, by virtue of the STS operations, just basically because you have to bring the vessel to the terminal alone, now you have to offload them, do an STS operation to the daughter vessel which is the smaller vessel with the draft to bring them into the port. Now, in just moving the kind of cargo which they are bringing in now, about 1.5trillion tonnes of petroleum products a month, in moving that kind of product every month, you are looking in the region of an annual spend of nothing less than one billion dollars and that is just on pure freight rate. I am not talking about other expenses like bunker, ship chandelling, I am just talking about pure freight rate and that is taking about into consideration that moving cargo from Lagos to Calabar, because all the vessels come into Lagos to load because they do not go to the Eastern ports because of the issues of piracy, 5 degree East, war risk premium so everybody comes to offshore Lagos. So, the guys who need product in Calabar, Port Harcourt, Warri, everybody takes their vessel from Lagos and sails there. So if we just take what the current rates are for cargo going to those areas, right now, the rate going to Calabar is about 30,000USD per day and a minimum of 10 days so, each cargo that goes to Calabar is 300,000USD because the minimum time is 10days charter. Port Harcourt is about 25,000USD per day, Warri is about 20,000-22,000USD per day so, you can imagine the amount of products that are moving, vessels that have to move and it has to move else if the mother vessel comes and has you wait, you have to pay demurrage on those things which is an additional cost over and above the cost of the petroleum product.

In what way has COVID -19 affected shipping in Nigeria?

As a matter of fact, it is quite scary because right now, they are no takers for crude oil around the world because the world is basically on lockdown. Most industries are shut down; everybody is at home, so nobody is producing but you cannot afford to shut down the wells because to reopen the wells again will cost you millions of dollars. As a matter of fact, some of our wells in Nigeria are so old that it might be impossible to restart them again. We were supposed to effectively store these products on vessels, so you need to keep producing but store them on vessels, VLCC of 300,000-350,000 tonnes so that they can remain there. By virtue of that, the rate of international VLCCs has gone up by over 300% because everybody is producing into storage. Now, I am sure you have recently that everything went to the negative; everything went to the negative because all storage spaces are full and so, people are now paying for people to take their crude oil. Now, for us in Nigeria, we have the same problem because we only have onshore storage. What could have happened was that if we had the right laws in place, we could have had a system, like what the American president did, a law to commandeer vessels but you cannot commandeer vessels that you do not own.  So, right now, what would have happened was that if we had developed over time and owned at least 30-40 VLCCs, our oil fields would have continued to produce and we would have just used that as temporary storage while the world gets its acts together but we do not have that so, COVID-19 has exposed us terribly. It is no longer an issue of economics now, it is an issue of national security because right now, we cannot afford to shut down our wells because our major inflow of dollars and revenue for the national government is the Oil and Gas industry and if we shut down, we have a problem and the world will not be the same after COVID-19, because what is going to happen is that people have realised that they can survive without oil so the will move and guess where they will move to, they will move to Gas, we will have cleaner fuel, people are going to move to solar because, the world will not be the same again. And Nigeria, I do not know how prepared we are, how ready we are but we have not lost out be rest assured but we should use this to learn. The production of gas is only a part of it. Logistics that is supply chain management makes up 60%-70% of production. Do you know it cost more to move a product from offshore Lagos to the terminal than it takes to bring a product from offshore Europe to Nigeria? These are the kind of issues we need to begin to look at.

If you were to do three things to move the shipping industry forward right now, what will they be?

I will take charge of STS operation in Nigeria. First of all, I have no control over the import vessels right now because I do not have it but I would allow for a situation whereby we can receive vessels, the vessels come in and we just manage our own distribution network here. Overtime, we begin to build up. Secondly, we change our trade terms from FOB to CIF so that what happens is that we have the first right of refusal. If there is a Nigerian vessel, then Nigerian vessel uses it. If there is not, then we call in the foreign vessels. What that allows is that once the bankers see that there is cargo available, they will give you the money to buy the vessels. We may not have the manpower but when we own the vessels, we can impose at least five seafarers on board each vessel and over the next 10years we would have trained our Nigerian seafarers to man the vessels. Government has to invest in it. Why are you putting 37b USD in a foreign United States bank as your foreign reserve when you can take that and invest in assets that will give you a return on that money and keep your money within your country? It does not make sense.