US embassy cable - 04LAGOS1106

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. 
 
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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. 
 
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Exceptions 
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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. 
 
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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. 
 
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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. 
 
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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. 
 
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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. 
 
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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