The Nigerian maritime sector continues to struggle under the weight of an inefficient and out-dated regulatory regime, coupled with endemic corruption. But could the possibility of a decommissioning boom be a much-needed catalyst for change?
As the largest offshore producer of oil and gas in Africa, Nigeria should be able to claim a highly efficient, maritime-friendly environment.
Certainly one might expect so, given the maritime industry is expected to pump US$56.8Bn in capital expenditure into the country between now and 2025, according to research by Swire Pacific Offshore.
Yet, the country – or rather it’s officialdom – keeps shooting itself in the foot through mismanagement, red tape and missed deadlines that continue to hamper its infrastructure projects. As a result, the offshore support fleet is seriously handicapped by chronic inefficiencies in Nigeria’s ports, including the main one of Lagos.
At Nigeria’s annual maritime conference in mid-2017, SIFAX founder and chief executive Taiwo Afolabi described the country’s ports in the following damning terms: “The huge infrastructure deficit has led to deplorable access roads, faulty cargo scanners, a non-existent rail system, non-functioning truck bays and other [problems].”
He continued: “Our sector cannot continue to reel under the burden of infrastructural decay if we want to contribute meaningfully to the economy and fulfil the [maritime] industry’s potential.”
He is far from the only domestic critic. In a late 2016 report entitled Nigeria: Reforming the Maritime Sector, the Lagos Chamber of Commerce and Industry estimated that trillions of local-currency revenue was being lost each year because of inefficiencies and infrastructural shortcomings in the nation’s ports.
“The world has told us that our maritime domain is sick and almost moribund, that we are not a maritime nation that can be relied on for maritime trade”
As the report pointed out, the nation’s ports, including the Port of Lagos, are bedevilled by slow border clearance, time-consuming and inefficient yard-handling systems and -- an endemic problem in an infamously corrupt country -- a well-established network of “informal payments” to customs and various government agencies. It takes an average 14 days to clear TEUs from Nigeria’s port, compared with the two days that is considered efficient elsewhere.
In late 2017, following an expensive but fruitless campaign by Nigeria’s Maritime Administration and Safety Agency (Nimasa) to be re-elected to the council of IMO, Ship Owners Association of Nigeria president Greg Ogbeifun noted bluntly: “The world has told us that our maritime domain is sick and almost moribund, that we are not a maritime nation that can be relied on for maritime trade.”
Backing up Mr Ogbeifun’s gloomy view, the World Economic Forum’s latest annual Quality of Port Infrastructure Rating gives Nigeria a 3.0 on a seven-point scale, placing it narrowly ahead of laggards Mauritania (2.7) and Sierra Leone (2.8), also in West Africa. (Ivory Coast comes out on top with a score of 5.2.)
These ratings are important and give a good indication of the costs of operation for shipping companies. “Port infrastructure has a significant impact on freight costs,” noted PricewaterhouseCoopers in an April 2018 analysis entitled Strengthening Africa’s gateways to trade. “According to the World Trade Report, handling costs for low-scoring ports are typically three times higher than those of high-scoring ports,” it explained. For comparison, countries in the eurozone rate an average 5.1.
Red tape is a big part of the problem and one of the reasons Nimasa is opposed to proposals to create yet more maritime organisations. Director general Dr Dakaku Peterside acknowledged this when discussing the issue in July: “I have been receiving a lot of complaints by shipowners that different government agencies board their vessels to request documents; this [often] result in duplication of duties and increases the delay in turnaround times.”
Still, there is little sign of much urgency in rectifying the problem. As PricewaterhouseCoopers noted, the construction of two greenfield ports in Lekki and Badagry is currently way behind schedule; the terminal at Lekki, including a 1,200 m quay, was supposed to be in operation by 2016, with International Container Terminal Services as the main operator but the group terminated the contract in 2017 citing delays. Similarly, Badagry, with a quay length of 7 km, was due to start up in 2018 but is also behind schedule.
“It appears that limited progress has been made,” noted PricewaterhouseCoopers.
And all the while Nigeria is losing out. Many operators prefer to berth at the competing port of Contonou in Benin, avoiding Nigerian ports because of “cumbersome regulations”.
Despite the government’s attempts to boost the local shipping industry, Nigeria’s maritime fleet remains overwhelmingly foreign-owned and operated. A 15-year-old cabotage law, for instance, has largely proved a failure. Designed to boost business for locally-owned ships in the coastal trade, the law lacked teeth and has been weakly enforced.
Signs of progress
Yet some progress is being made. The government has launched a campaign to train up a pool of talent that, it is hoped, will provide the crews for a revived domestic shipping industry. And although there is little evidence of reforms among the existing ports, the federal government plans to develop the Ibom deep-sea port, located in the free-trade zone in the south of the country. Bidding for Ibom, which is intended for very large vessels, closes in late 2018.
Further, oil and gas giants such as Shell are doing their bit to develop local talent to work on the rigs and elsewhere. Working with Esso, Total and Agip under a production-sharing contract with the NNPC, the Anglo-Dutch group is producing oil from the Bonga North West field lying at a depth of more than 1,000 m in the Gulf or Guinea. The key contractors there are Aker Solutions, FMC Technologies, Invensys/Sidler, Saipem and Weltek.
The partners have made a long-standing commitment to developing deep-water engineering skills in Nigeria. Among other initiatives, they have upgraded local contractors’ facilities and provided specialised training in the broader energy industry.
Bonga North West is one of the results. “More than 90% of the people who designed and built the project were Nigerian,” Shell points out. “[The partners] awarded all five of the major engineering and construction contracts for Bonga North West to companies that were either indigenous, have local staff, or invest in the country.”
One of the largest vessels of its kind in the world, the Bonga FPSO, is a 300 m-long giant held in place by 500-tonne anchors linked by 20 km of mooring lines. In a typical arrangement in the Gulf of Guinea, the oil does not go through Nigerian ports but is piped underwater to the FPSO. From there the oil is loaded onto tankers and shipped around the world.
Meantime, Shell will soon be heavily involved in developing Nigeria’s abundant gas reserves.
“Our sector cannot continue to reel under the burden of infrastructural decay”
A dominant operator in the Nigerian oil and gas sector is the China National Offshore Oil Corporation (CNOOC), one of the big three Chinese oil giants. On top of the US$14Bn that CNOOC has already poured into Nigeria, in July the state-owned group announced it would invest another US$3Bn into its oil and gas operations. According to CNOOC chief executive Yuan Guangyu, Nigeria is the company’s “most strategic and important business undertaking”.
There may also be decommissioning opportunities in the future. Although Nigeria has not yet seen a major decommissioning project and lacks legal and practical guidelines to guide operators, some of the offshore infrastructure is approaching its dismantling date and the country should be prepared. At the last count, there were over 170 structures, mainly platforms, off the coast that at some point will need dismantling.
“The country has yet to come to terms [with the fact] that oil is a diminishing commodity,” points out economic forum Financial Nigeria, in a study entitled Prospects of decommissioning oil and gas installations in Nigeria. “There is a global consensus that the end of the oil age is not a matter of whether, but of when.”
And as the world consumes less fossil fuel, the study adds, “a rare opportunity might be presenting itself for the development of a decommissioning sector in Nigeria’s oil and gas industry.” It would therefore be opportune for indigenous suppliers to start building up their decommissioning skills.
Under present legislation, which is more than 50 years old, decommissioning requires the complete removal of any infrastructure. But, as Financial Nigeria points out: “The difficulty with the extant regulations is that they treat onshore and offshore facilities alike, without considering the special nature of offshore facilities.”
Like much else in Nigeria’s maritime sector, decommissioning processes need urgent attention.
Need for security
The most pressing problem currently facing the offshore support industry is security. For years now, the Nigerian Administration and Safety Agency has been working with the military and navy to reduce wholesale theft of oil and tackle piracy, especially in the Gulf of Guinea, where pirates threaten and harass vessels. But the agency has not had much success.
In the first three months of 2018, according to the International Maritime Bureau (IMB), eight out of the 11 vessels that came under fire on the world’s oceans were in Nigeria’s territorial waters. “The Gulf of Guinea is a major area of concern [that is] consistently dangerous for seafarers,” said IMB director Pottengal Mukundan, adding “Signs of kidnappings are increasing.”
The Nigerian government is working on a series of laws designed to crack down on piracy, something which it must do in a hurry to meet the concerns of foreign operators engaged as joint-venture partners to boost gas supplies. In mid-July, the Nigerian National Petroleum Corporation (NNPC) signed seven critical gas development projects that are projected to deliver about 3.4Bn standard cubic feet a day by 2020. One of the biggest operators, Shell has taken on three of the projects.
“In the first three months of 2018, according to the International Maritime Bureau, eight out of the 11 vessels that came under fire on the world’s oceans were in Nigeria’s territorial waters”
The “big seven” gas projects are considered vital for the country and there is a plentiful supply. According to BP’s research, the nation’s gas reserves are probably the largest in Africa at 5.2Trn m3. The fuel is seen as more environmentally friendly than oil and it would provide the power for a future manufacturing industry that is almost non-existent.
If long-overdue reforms to the onshore oil and gas industry are taken as a guide, the good intentions may actually deliver this time. Following decades of corruption, wholesale theft of oil, politicking and violence, peace has finally broken out in the Niger Delta after local pressure groups, government agencies and foreign operators worked out arrangements that look like keeping the oil flowing.
As Shell Nigeria Gas managing director Ed Ubong, among others, pointed out, the future of the big seven projects pretty much depends on such guarantees holding up.