It’s time for Nigeria to adopt a more favourable oil export policy. Here’s why
On July 15th, President Muhammadu Buhari, ordered the Nigerian National Petroleum Commission (NNPC) to ban 113 sea vessels from lifting crude oil from Nigerian shores. This decision resulted from a probe, carried out by the Federal Government, which reported that the volume of Nigerian crude that was delivered to buyers abroad was noticeably lesser than the volume of crude lifted from Nigerian shores. Though this decision was rescinded on the 8th of September, it was subject to these Very Large Crude Carriers (VLCC) owners providing a ‘letter of comfort’ assuring Nigeria that their ships were free and would not be used for oil theft within Nigerian shores. This has prompted these vessel owners to boycott lifting Nigerian crude from Nigerian shores, citing the strict conditions in the letter of comfort as ‘unfavourable’. Other vessel owners have referenced exorbitant fees which have discouraged buyers for now. Indian refinery company Hindustan Petroleum Corp (HPCL), one of Nigeria’s crude buyers in Asia, has been finding it hard to book vessels to bring Nigerian crude to their shores according to a report.
Crude oil stakeholders in Nigeria have called on the Federal Government to use this opportunity to review Nigeria’s trade policies and switch from the Free-On-Board (FOB) policy to the Cost, Insurance and Freight policy (CIF). The General Secretary of the The Indigenous Ship Owners’s Association of Nigeria (ISAN) General Secretary, Captain Olaniyi Labinjo, made this assertion when he claimed the boycott by these VLCC owners was a ploy to pressure the Nigerian Government to change its decision because they would not be able to sell illegally. Nigeria is presently the only remaining nation in the World that still uses the FOB policy to transport ‘wet cargoes’ like crude oil.
FOB vs. CIF
The FOB policy means the sellers are responsible for the loading of the crude onto the vessels in Nigerian sea terminals. The buyers are also responsible for the freight of the crude onboard the vessels, the cost of transportation and the risks involved. The NNPC loads crude onto these vessels and is responsible for what happens to the crude until these vessels leave Nigerian waters. However, allegedly, before these vessels leave Nigerian shores, the vessel owners sell them to Nigerian buyers illegally which in turn incur losses to the NNPC; hence, the ban on these VLCCs. The CIF on the other hand, demands responsibility from the sellers to the point of delivery to the buyers. This suggests that if Nigeria switches to this policy it will enable the NNPC to monitor crude oil from the point of delivery to the buyer.
Changing the policy from the FOB to the CIF could see an increase in the number of Nigerians investing in VLCCs and encourage indigenous ship owners. Presumably, the federal government would rather involve Nigerian vessels that could be monitored as opposed to international vessels that cannot. Captain Olaniyi Labinjo further said the government should initiate policies to enable capacity building and to change the carriage of crude on CIF rather than POB. Nigeria was scheduled to export 68 cargoes of about 2.4 million barrels per day this October before this recent setback. Considering this boycott by foreign crude vessel owners, the time for the government to review this trade policy is overdue.
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