By Ifeyinwa Obi
Jegede Abiodun Paul, is the Group Managing Director of Japaul Oil and Maritime Services Plc;. In this interview, the Chattered Maritime practitioner and oil magnet who spoke on a n umber of industry issues decries that most local banks in Nigeria do not understand shipping and as such foot-drag when it comes to providing long-term financing for local players.
He says about 5 million more jobs can be created with this noble initiative.
How long has Japaul been in operation?
Japaul has been on for 18 years now. We started business in 1997. It first started as an agent for owners and managers of vessels. We later started owning vessels.
And after the first one we were able to buy another one until Japaul became a public quoted company in 2005. And from that time, we have had series of vessels both civil vessels and other vessels and as at today, Japaul has seven subsidiaries. We have dredging company, mining company, construction company.
2014 operational year
Well, every company has its own peculiar issue. In oil and gas that we operate mainly, there have not been many activities because there are no new investments in upstream because the international oil companies are not investing in new assets. They are rather divesting; they are selling out their assets because of social problems in the country like oil theft.
They are stealing the crude oil and there seems to be no solution to that. Now, Chevron is selling its assets, Total too is doing the same because of this problem of theft. And that automatically reduces the international oil companies activities, and the local companies that bought these assets are yet to get on the stream with regard to return on their investment. Apart from that , there is also delay in signing the Petroleum Industry Bill, which they are all waiting for because that is going to affect a whole lot of investment decisions of the international oil companies. So, as long as they are waiting for that, I do not think there will be reasonable investment in oil and gas, rather there will just be maintenance on what they already have.
The marine one . We have been increasing our fleet and we have been working with all the international oil companies. The construction arm of our group is by the government, although that is not a fully owned subsidiary. It is like an associate company.
Dredging has been slow because of the divestment as we dredge mostly for international oil companies and the areas we dredge are the areas they are selling.
How 2012 fared and secret of good profit in 2013
What happened in 2012 actually was that we were trying to write off a whole lot of assets that we thought had been over valued in our books. Because there is this introduction of International
Financial Reporting System (IFRS), which introduced a whole lot of ways and manners which assets should be valued in the books.
So, we did a lot of revaluation and we said there was no point carrying these big assets value that did not really represent their value. Like some of the equipment that we bought they had depreciated and the book value did not really match them if you wanted to sell them in the market.
So oil companies were no longer patronizing those vessels. And these old vessels were carrying very huge amounts in our books. So there was no point carrying unrealistic values. So, we decided to write off a whole lot of junk off in our record. So, what happened in 2012 was not an operational loss, they were book write offs. For instance, say this thing in 2011 was N20 million but when we now looked at it, it was not worth more than N5 million at the time of revaluation. So a whole N15 million has been written off. So we operated normally in 2013 and we improved on our way of rendering services and out position was positive.
There are a whole lot of challenges, especially in our own environment. There are challenges that have to do with personnel. Getting the right people to do the job is a major challenge.
Today, too many graduates are out there but when you want to recruit them, out of 100 people you may not get one that meets the standard or expectations.
This has led us to be looking for expatriates to do the job because our business is technical in nature .
Another challenge is culture of African people leaving beyond their means. I’m saying this because if you see a person that is working in a company and he is earning N300,000 thousand monthly, and he is living a N1 million per month life, the extravagance life sends the wrong signal. This issue has become a problem to all the employees and the same thing applies to public offices.
So, the mentality must change. People leaving in the western world for instance are not superior to us in the way we think. It is just our mentality that needs to change. If we change, you will be amazed how this country can change for better.
Another thing that is happening in our industry, especially as it concerns the stock exchange is that our investors do not understand maritime business. That is why you see people dumping Japaul’s shares. They do not know that vessels take time to bring money but that it is a sure investment. Vessels can stay for 45 years and will still be bringing money for you. But our investors in Nigeria are used to banks that will declare big profit today and close shop in a short while.
Assessment of Nigeria’s maritime industry
The maritime industry in Nigeria is very green and vast. You know there are maritime services in offshore, which is our area of operation. There are maritime services in the area of shipping, that is movement of cargos and there are different kinds of shipping.
There is shipping on wet cargo, those are the petroleum products and Shipping of bulk cargos, those are rice, cement and the rest. So, in those areas, if you check Nigerians participating in that industry, if you put in a percentage, in offshore, we are not having more than 15 percent participation.
In shipping, real shipping of cargo, I do not think we have 4 to 5 percent. We have Cabotage law, which states that Nigerians should have the bulk of the job. We have local content law which says give it to Nigerians. But these laws are just good on paper because the infrastructure to make the law work is not there.
And why the infrastructure is not there is because there is no finance to make the infrastructure available.
So, that becomes a major challenge in the industry where majority of Nigerians are not participating. You cannot just wake one day and say you want to go and buy a ship. A ship can be N100 million dollars because it can carry a lot. So, you see us just growing slowly despite all our aggressiveness. Despite our persistence, we are still crawling.
And it is an industry that can provide a whole lot of employment and can increase gross domestic product of this country. So, there is a lot in the maritime industry, a lot of opportunities yet untapped.
Nigerian banks are traders. They prefer businesses that generate interest in a short while.
But in maritime, it is not a business of one year. Even in one year, two years you are still building the vessel and may not be able to get returns on investment.
The vessel has a minimum life span of 25 years and if you are lucky you can get your money back in seven years, plus two on construction making it like nine or ten. So no bank in Nigeria can agree to that long time investment.
It is difficult for them because they will tell you that the money they are having is for short term deposit. Most banks in Nigeria do not understand maritime. The only bank that I know that really understand maritime is Standard Chartered and it is a foreign bank. Nigerian banks will tell you that they need contract for this vessel so that they will know where the money is coming from. Then the oil companies that want to give you the contract will say we want to see the vessel first to know the kind of contract to give you. The bank will say they want to see the contract and the oil companies will say they want to see the vessel. In such situation where do you go to? So, it is a chicken before egg or egg before chicken issue.
Why Cabotage implementation is not working
It is not as if it is not working, it is working within our capacity . It is working and I must give credit to the Transport Minister. He is really pushing. He is doing a lot of reforms, introducing some measures to make sure that Cabotage works.
The indigenous companies that they want to help do not have the financial muscle to buy the asset that will make the Cabotage work.
There are still some things that government also need to do to bring about certain reforms that can support the industry.
Also the indigenous companies too need to do some things to complement government’s effort so as to move the industry forward. The indigenous players need to come together with one voice and let government know certain things in terms of reforms that they need to make in the maritime industry. For example, foreign companies that dominate the maritime industry in offshore, when they bring in vessel, they bring in vessel on temporary importation. Maybe a vessel that worth say 30 million dollars, they say we are foreign company we just want to use this vessel in your country for three years. They pay maybe less than one percent, say about N10 million for example . They post just paper to cost it.
But if a Nigerian company is bringing the same vessel of 30 million dollars, they will pay tax, pay import duty about 12 percent of that vessel. So, 12 percent of 30 million dollars goes to Customs. That means you are paying over three million dollars to Customs while a foreign company that already has financial muscles is paying nothing to Customs.
How can we be competitive?
A Nigeria company is importing spares for the ship maintainance and you are charging 100 percent tariff. So, both the Nigerian company and the foreign company are paying the same thing. That means there is no concession. Even in the Cabotage law, the Cabotage law is saying that for all turnover of people participating in this maritime industry, you must remit 2 percent of your turnover of maritime business to NIMASA account.
In that case , there should be a reform in such a way that if you are a foreign company you bring 5 percent and if you are a local company you bring half percent. That will empower indigenous company to compete favourably.
But look at those import duties for example, how can we ever compete? We cannot because when they borrow money in their own country they borrow at 5 percent, 6 percent per annum. But when we borrow here, we borrow at 22 percent. This is a foreign company borrowing money at 5 percent in their country and bringing the same vessel after which they will be paying less to Customs, deceiving us that they are going to use it for 3 years.
After the first year, they will renew, second year they renew it again and they keep renewing it. They will not pay debt. So those are the reforms that need to come in place to help indigenous companies to grow. But if they engage the players, they will make policies that will favor the industry. That is why the Nigerian Indigenous Shipowners Association (NISA), is a voice that could make it clear to government on how best to go about it.
In year 2025 we want maritime industry to contribute 10 percent to GDP . It happened in US, they have total control of their maritime industry. It happened in Europe – Germany, Netherlands, and many other counties.
We can copy what other countries have done and experiment here in Nigeria. It can work. So, you cannot blame government really. Those of us operating in the industry need to speak with one voice and let government know the problem.
The CVFF fund
That is the 2 percent we are contributing to the Cabotage Vessel Financing Fund.. From our income, we have been contributing 2 percent to NIMASA. The money that we have contributed so far, as at my last check, was going to about $90 million dollars. According to the records in Nigeria, we have over 125 indigenous companies, so how are you going to share the money . I have not applied but some of our colleagues have applied. For years now, they have not gotten anything. But when the Minister was addressing us some time ago, he said that they would release some money . But what did they apply for? Five million dollars. That money cannot buy you vessel alone. But the way they did it this time is that they gave it to commercial banks to warehouse and then the commercial bank will lend it out on long term but within the approved interest rate. But I have not seen anybody that has gotten the money. But there are ways we can use that money to benefit the industry. There are foreign fund providers that can provide fund if you have your own contribution. So instead of saying, let us share that money. We can make it available as 10 percent contribution.
We we can use that money to get 1.5 billion dollars. And tell the government that they should look for companies that are really serious. Companies with good track record.
Then we will set up management committee that will be managing the vessel. The vessel will make the money back. If they pay that one and the investor sees that they have paid, they can bring in more money to acquire more vessels. And in a period of five, ten years you will see that Nigerian companies will take hold of the industry. With this, the economy will be better for it, jobs will be created and the potentials in the industry will be realized. It is possible because it is a matter of giving comfort to those fund providers.
They will make the fund available, after all they are going to be the ones that will build the vessel for us. Some of the shipyards that do not even have business and then you are bringing business to them, saying build this vessel for us, we will pay you over five years. They will be glad to do so. So, NIMASA or the government will back us to say, yes we will make sure that they pay you. That is all. You will see what will happen in the industry, unemployment will reduce because a lot of people will be employed. We have proved it to the government before that this can provide 5 million jobs and 5 million jobs is not a small thing. So
that is how that fund can actually help the industry to grow. And there are ways we can do it, we have seen it happen. If we then have that vessel the local content law will work, Cabotage law will work.
Programmes/projections for 2015
With regard to the maritime industry, our own project is to keep increasing our fleet. We have up to 35 vessels of different kinds. We have 12 vessels of sea going ways and the rest are river going, tug
boats, barges and all that.
Japaul in 10 years time
Japaul is going to be a giant in the industry. We want to have a good percentage (market share) of the industry and then we also want to support others to grow because there are too many things in the industry for all of us to benefit from. In the next five years, we see ourselves having more than 40 to 45 sea going vessels, which means investment of more than one billion dollars.