Cablegate: Nigerian Domestic Shipping Law Takes Effect

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 04 LAGOS 001106

SIPDIS

STATE PASS TO EXIM, OPIC AND TDA
KABUL PASS TO SROSS
TRANSPORTATION PASS TO MARAD

E.O. 12958: N/A
TAGS: EWWT EPET EINV ECON PGOV NI
SUBJECT: NIGERIAN DOMESTIC SHIPPING LAW TAKES EFFECT

REF: LAGOS 634

1. SUMMARY. Nigeria's sweeping Cabotage Act took effect
on May 1, requiring all vessels used for domestic trade
to be Nigerian built, owned and manned. Nigeria has
little capacity to meet any of the three requirements,
and one-year waivers are allowed under the law. The
GON has done little to implement the law through
administrative guidance and processes, and an exception
for fishing vessels is being carved out even before
regulatory schemes have been enacted. Oil executives
are dismissive of the law's impact on their industry,
asserting that waivers will be easily obtained as
government officials know all too well that Nigeria's
indigenous industry cannot support the law's reach.
While intended as a protectionist measure to boost
indigenous participation in shipping and in petroleum
services, there is no reason to believe that in the
near term this legislation will be widely enforced or
that it will have the desired effect of strengthening
Nigeria's fledgling shipping industry. END SUMMARY.

2. Nigeria's Cabotage Act of 2003 took effect May 1,
2004. Another example of Nigeria's growing
protectionist proclivity, the law restricts the use of
foreign vessels used in domestic trade on Nigerian
waters in an attempt to encourage indigenous firms to
participate in Nigeria's shipping industry. Most
analysts agree that Nigeria's current registry of
Nigerian-owned vessels is inadequate to handle the
domestic coastal trade market. For example, recently
published figures from the Nigerian Maritime Authority
(NMA) indicate that as of December 2003, 1,258 vessels
were engaged in off-shore oil operations, only 22 of
which were Nigerian-owned. Likewise, two Nigerian
papers recently cited a report on petroleum product
movement through the Lagos port complex indicating that
of 266 tanker vessels engaged in coastal trading in
2003, only 44 were Nigerian-owned. (Because of limited
jetty facilities, large international tankers bringing
fuel to Nigeria transfer their cargoes at sea into
smaller tankers for offloading onshore.)

3. Further, the Nigerian shipbuilding industry is far
under-capacity in respect to the number of vessels used
to move goods and people on Nigerian waters. We do not
have figures as to the number or types of ships being
built in Nigeria, but the local newspaper BusinessDay
recently published a list of eleven shipyards with
dockyard/slipway capacity ranging from 250 to 25,000
tons. Seven had capacities under 2,000 tons.

4. Some growth is reported in the domestic shipping
sector. A new industry group has been formed in Lagos,
the Indigenous Shipowners' Association of Nigeria
(ISAN), and some Nigerians are entering the shipping
industry, particularly as Nigerian-owners of cabotage
vessels. For example, a new Nigerian-Norwegian joint
venture, Vigeo Farstad Shipping Ltd., is reportedly
operating six offshore oil supply vessels. Japaul
Ltd., a Port Harcourt shipping firm with a reported 18
vessels, has announced it will attempt to raise capital
for expansion by going public on the Nigerian Stock
Exchange (NSE), a still novel but sound approach to
capitalization as Nigerian bank interest rates remain
high and loan maturities short.

5. American oil company executives repeatedly have told
us they are unconcerned about the cabotage law and they
anticipate getting waivers for vessels that do not meet
the law's requirements. (COMMENT: Oil companies are
already working with the GON to meet local content
requirements in contracting (reftel), so it may be that
they simply view this law as more of the same. END
COMMENT.) Oil services companies could be most
directly affected by implementation of the law, but
also seem unconcerned.

6. The Nigerian fishing industry's imports of American
vessels and parts and equipment may be most affected by
the law if it is not amended. Manjit Sadarangani,
owner of Atlantic Shrimpers Ltd., told Commercial
Attache and Econoff that he wrote several letters to
the GON arguing the Cabotage Act contradicts the
Nigerian Investment Promotions Decree of 1995 by
attempting to restrict foreign ownership of vessels
transporting passengers or cargo. He said he further
argued that since fishing vessels do not transport
passengers or cargo, they should not have been included
in the Cabotage Act's reach. Sadarangani said industry
representatives presented their arguments to President
Obasanjo directly in early May, and that the president
ordered fishing vessels be removed from the scope of
the Cabotage Act. (NOTE: The Embassy sent a letter to
the GON in mid-May raising concern over the reach of
the Act and the possibility that the protectionist
measure may discourage foreign investment in the
shipping industry, further stifling its expansion
rather than promoting it as intended. END NOTE.)

7. We reviewed the Coastal and Inland Shipping
(Cabotage) Act 2003 as published in the Federal
Republic of Nigeria Official Gazette, No. 88 Lagos, 3
October 2003, Vol 90, and an analysis published by KPMG
in January 2004. Paragraphs 8-18 summarize Nigeria's
Cabotage Act of 2003.

--------------------------------------------- ----
Only Nigerian-Made Vessels of Nigerian Owners and
Operators May Ply Nigerian Waters
--------------------------------------------- ----

8. Only vessels built and registered in Nigeria and
that are wholly owned and manned by Nigerian citizens
may transport cargo and passengers within the waters of
Nigeria. Further, foreign vessels or tugs cannot tow
within Nigerian waters except when rendering assistance
to persons, vessels or aircraft in danger or distress.
A foreign-made vessel rebuilt in Nigeria may be
operated in Nigerian waters if all of the rebuilding
work, including construction of major hull and
superstructure components, was done in Nigeria.
Nigerian waters include coastal, territorial, inland,
and island waters, or any other waters within the
Exclusive Economic Zone of Nigeria.

-----------------
Petroleum Sector
-----------------

9. Several sections of the law apply specifically to
the petroleum sector. Any vessel, tug or barge used to
transport materials or supply services to and from oil
rigs, platforms and installations located onshore or
offshore must be owned wholly by a Nigerian citizen.
The law also applies to the transportation of goods or
persons to and from an exhaustive list of oil-related
facilities and operations.

----------
Exceptions
----------

10. The only exceptions to the Act are for certain
salvage vessels, vessels used for pollution
emergencies, vessels used for ocean research by
Nigerian authorities, and vessels sponsored or operated
by foreign governments for scientific research.

--------
Waivers
--------

11. The Minister of Transport may waive provisions of
the Cabotage Act if there is no Nigerian-owned vessel
suitable and available to perform a specific activity.
Likewise, the Minister may issue a waiver if no
Nigerian shipbuilder has the capacity to construct a
vessel of a particular type and size needed, or if
there is no qualified Nigerian officer or crew
available for specific positions needed. Waivers will
be valid for one year only, and will be issued first to
joint venture shipping companies and their vessels
where the Nigerian partner holds at least 60 percent
equity in the joint venture, and where that equity is
held free from any foreign obligations. Waivers may
then be issued to vessels owned by any shipping company
registered in Nigeria.

---------------------------
Licenses to Foreign Vessels
---------------------------

12. A foreign-owned or foreign-crewed vessel
participating in the domestic coastal trade must carry
a license. A person who resides in Nigeria may apply
for such a license on behalf of a foreign-owned vessel
if a waiver condition and other administrative criteria
are met. Licenses shall be granted for a fee, which
must be published. A tariff will also be imposed on
vessels obtaining licenses. A license to a foreign-
owned vessel shall be valid for no more than one year.

------------
Registration
------------

13. Every vessel in the domestic coastal trade must be
registered in the Special Cabotage Register kept by the
Registrar of Ships. The Minister of Transport is to
continually collect information regarding the
availability, characteristics and uses of Nigerian
vessels, and record that information in the Special
Register. Unless a condition for waiver is present,
any vessel to be registered must be wholly owned by
Nigerian citizens or owned by a company of at least 60
percent Nigerian ownership.

14. "Bareboat vessels" to be registered include
passenger vessels, crew boats, bunkering vessels,
fishing trawlers, barges, off-shore service vessels,
tugs, anchor handling tugs and supply vessels, floating
petroleum storage vessels, dredges, tankers, carriers,
and any other craft or vessel used to transport
persons, property or any substance on, through or under
water.

15. A vessel under a finance agreement may be
registered if the term of financing is at least three
years and the financier meets Nigerian citizenship
requirements under the Act. The financier's interest
in the vessel may lie only in an investment rather than
operational capacity, and the financier cannot derive a
majority of its aggregate revenue from the operation or
management of the vessel.

16. Foreign-owned vessels already engaged in the
domestic coastal trade will be allowed temporary
registration for the duration of the contract for which
a vessel is employed. Vessels over 15 years old at the
time the Act comes into effect will be allowed only
five more years of service, and must meet seaworthiness
requirements of appropriate agencies.

-------------------------
Penalties and Enforcement
-------------------------

17. Penalties for violations of the Cabotage Act
include fines up to 15 million naira and forfeiture of
vessels. A unit will be created within the National
Maritime Authority specifically to enforce the Act.
Officers assigned to the unit may stop and board a
vessel reasonably believed to be in violation of the
Act, and may detain the vessel and its officers.
Officers may search vessels with warrants, and seize
anything onboard that may serve as evidence of a
violation of the Act. A search may be conducted
without a warrant if exigent circumstances make it
impractical to obtain a warrant. Under exigent
circumstances, an enforcement officer may issue a
detention order without a court order if the officer
reasonably believes that the vessel was involved in a
violation of the Act. Such a detention order should be
registered in court as soon as practicable.

-----------------------
Cabotage Financing Fund
-----------------------

18. A surcharge of two percent will be assessed on all
contracts for vessels engaged in coastal trade, to be
deposited into the Cabotage Vessel Financing Fund and
used to promote the development of indigenous ship
acquisition capacity. The National Assembly may also
assess a charge applied toward the Fund.
HINSON-JONES

© Scoop Media