Understanding the Economics of SAA to Vessel Owners, FG

SPECIAL REPORT

By Osaro Osunbor

In recent times, one issue that has dominated the centre stage of the Nigerian maritime industry is that of the Secure Anchorage Area (SAA) in Lagos Port operated by an indigenous firm, Ocean Marine Solution Limited (OMSL).

The seaming controversy surrounding the operation of the scheme, which was initiated to salvage the damaged image of Nigeria as it concerns the safety of vessels travelling along the nation’s coastal region has been inundated with a lot of falsehood to gain cheap publicity and sympathy in some quarters.

This is done more often at the neglect of the true economics of the reality on the ground.

The False Economics and Narratives

Anyone who has followed the debate as to the operation of the Lagos Port SAA project will realise that the Minister of Transport, Rotimi Amaechi, and his subordinates-the Managing Director of the Nigerian Ports Authority (NPA), Hadiza Bala Usman and, to some extent, the Director-General of the Nigerian Maritime Administration and Safety Agency (NIMASA), have always painted a picture of “humongous” monies being made by OMSL in executing the project.

For instance, the minister, while answering questions on national television on the SAA recently, described the project being operated in full collaboration with the Nigerian Navy as one “laced with fraud.”
Answering a question on why he thinks security services being offered by OMSL under the chairmanship of Captain Well Hosa Okunbo, via the SAA is not important, in response, Amaechi asked the reporter rhetorically, “What security was he providing? He charges each vessel on the waters $2,500, then after that $1,500 everyday. He doesn’t pay back that money to the federal government.

“He makes $17million from that activity. Who approved it? Nobody!”
Speaking of the alternative solution he has to offer, he said, “As Minister for Transport, I said no; we can provide that security. $195 million was approved by the federal government to a company that is training Nigerians that will take over the waterways, and take care of the security; then Okunbo is now saying: no, no, I must do it; he can’t. I wonder why our personal interest will override national interest. I wonder what kind of country we belong to.”

While doing all he can, to fault that project, the minister challenged the OMSL chairman to come forward with the approval letter, he got from the federal government to provide maritime security on the nation’s waterways.

“If you said Captain Hosa was doing it, how come we are currently ranked number one in the world in terms of insecurity in the maritime sector? When we came, we were number three, but now we are number one in the world.”

The Real Facts

Meanwhile, even as the focus of this write-up is not to fault the minister’s choice on the acclaimed financial gain, his refusal to go ahead and explain to his viewers what it takes to maintain the ship involved in the project may not have been deliberate, but perhaps an expression of his ignorance of how companies are run.

Again, while the minister’s proffered solution appears to be very economical and cheap on the surface, after all, the country just has to spend $195million in training personnel for his preferred Israeli company, Messrs HLSI Security Systems and Technologies, he failed to tell Nigerians the long-run financial implications of such deals.

While one is not canvassing the idea that the government should have a way of benefiting from OMSL’s financial gains if it, indeed, does exist, we must not forget that huge investment was first put in place before the perceived returns.

Those familiar with the SAA project, which is a partnership between OMSL and the Nigerian Navy say the vessels acquisitions and operational logistics are at no cost to the government and never mandatory for the ship; rather, it involves ship that desires the service (A willing buyer- willing seller arrangement).

Amaechi, a man who was once quoted to have said that he did not like money, seems to have now changed his mind and has refused to understand that the money being charged by OMSL which he believes should be shared is used for operational costs as well as to provide bunker fuel.

Furthermore, it would seem very irrational for the minister and NPA MD not to, at the least, investigate and understand the security architecture under their purviews by inviting all stakeholders (and not) to unilaterally award a contract without knowing or understanding the implications for national security and local investment which was already on the ground.

These may have motivated operators who are also vocal to state vehemently that the economic value of the SAA operation cannot be overemphasised.

Reacting to the recent threat by the Minister of Transportation, Rotimi Amaechi, to scrap the security initiative, which a joint committee of the National Assembly had applauded after investigation of its activities, some key players in the industry charged all the parties involved in the dispute to resolve the matter amicably in the interest of the nation’s maritime economy.

One of those who expressed concerns over the threat to scrap the service of OMSL on the SAA, while opting for a foreign security firm, is Dr. McGeorge Onyung, President of the Ship Owners Association of Nigeria (SOAN).

To this end, it is best stated that SAA, as an economic benefit, should be replicated on other locations and why OMSL should be encouraged to even take over and manage the deep blue project because of the humongous investment by the federal government, which might be another failed project.

Real Economics

Interestingly, the operators of the Lagos SAA, OMSL has always pointed to the fact that its main objective behind the initiative is “National Interest.” To this end, the company has modestly offered it by charging a minimal cost to cover operations and maintenance. Recall, the company’s chairman, Captain Hosa Okunbo, during his presentation at the hearing by the National Assembly joint committee that investigated its activities, said, “The company has always operated on the charges incurred by funds collected from a ship operating under the SAA.”

Meanwhile, an investigation has further revealed that it costs vessels that patronise OMSL-operated SAA an average of $11,500, which works out to be $2,500 for the first day and $1,500 for the remaining days in a seven-day period, which is a maximum period that most vessels berth at SAA for the service provided.

This is against having three mercenaries costing the shipping company a whopping $225,000 on a one-month voyage at a cost of $2,500 per mercenary, which works out to at least $7,500 a day over a total one-month voyage of 30 days from Europe and much higher from farther destinations like Singapore and the United States and the Far East. To this end, it leads to saving of at least $213,500 as against an initial whopping cost of $225,000 before the SAA was introduced by the Navy and OMSL.

It should also be noted that the SAA traffic in a day has not been more than 20 vessels at any particular time. At each vessel paying a stipend of an average of $1,650 per day, it works out to be $33,000 per day as earnings to OMS and with eight vessels operating in the SAA. To this end, operational cost and that of hiring these vessels average $4,150 per vessel if the vessels were to be hired by NPA or the relevant Agency.

These same vessels are hired to the oil companies for at least $8,500 per day.

It will interest stakeholders to understand that NIMASA, under the supervision of Federal Ministry of Transport is hiring similar vessels with a contract running at $10,500 for each vessel per day and they currently have six of such vessels working with NIMASA for enforcement at a total cost of $63,000 which has no security bearings, and coming at almost double the cost of OMSL in rendering this very critical and security arrangement. This brings to fore the fact that, indeed, OMSL is on a national assignment rather than perceived misconception of profit-making as the cost of $4,150 per vessel earned is to enable OMSL offset its running cost.

The said amount can best be seen as a stipend compared to costs of attacks and import losses that may occur from pirate attacks, which led the shipping companies to embrace the idea of SAA operation.
Therefore, while the SAA operations continue to undergo criticisms by government agencies, they (the concerned agencies) refuse to accept the obvious and clear fact that the operational and maintenance costs must be offset, and such fund has to be included in the charges.

Unfortunately, what is more worrisome in the developing situation is the fact that before the decision to sack OMSL was carried out, stakeholders were not consulted; otherwise, it would not be in the interest of any(one) to suggest the latter.

Concerns are constantly brewing over the fact that, Nigerian waters are vast and ports such as Port Harcourt, as well as other coastal areas, are constantly being ravaged by sea pirates and operators are unavoidably in need of SAA replication to weather the storm, which is costing Nigeria not only an economic disadvantage but also reputational snares across international mention (frontiers).

Operators, however, call for the need to set up similar services in Warri and Port Harcourt axis to reduce piracy and increase revenues to government as well as decongest the Lagos Port, which is now a safe haven for ships because of OMSL. The benefit of the SAA is also in reducing the exorbitant price of shipping.

The Need to Encourage Local Entrepreneurs

Globally, specifically in nations where the desire for economic development and growth is the driving force behind national policies, prominence is given to local entrepreneurs who venture into terrains that have to do with security.

For instance, the Nigerian Local Content Act (2010) was enacted to encourage the same. If this truly is the case, why is the Minister of Transport more interested in getting a foreign firm to come and take charge of Nigeria’s territorial waterways instead of encouraging a local investor who staked as much as $400million in purchasing vessels?

Better still, the deal has the blessing of the Nigerian Navy whose mandate it is to secure the waterways. If the Navy is satisfied with the business offerings just as the owners of vessels patronizing the SAA are, why should we go for a foreign alternative at an initial cost of $195 million to the government for mere training? Who are going to be trained by the Israeli company, the Navy or NPA security staff members? After the training, who will acquire the vessels and warship that will be required for their operations? Why place emphasis on the termination of the contract between OMSL and the Nigerian Navy, which is at no cost to the government when there is no immediate alternative?

If money is the issue, why not dialogue with the parties involved to work out something (agreeable terms of expanded collaboration)?

Many questions keep surfacing while trying to probe the rationale behind the quest to destroy the existing maritime security structure that has worked well for Lagos Ports.

However, one cannot but submit that those opposed to SAA must consider the economic benefits of encouraging local entrepreneurs over and above foreign ones. Where else can Nigerian businessmen gather the necessary skills and experience to grow? Practice, they say, makes perfect. There is no better time to practice than now.

The example of Aliko Dangote is proof that, given the opportunity, Nigerian entrepreneurs, against all odds, can excel. This is why the government must ensure that willing and competent local investors are encouraged to venture into critical sectors of the economy. That way, employment, capacity building, invention, research and other components that bring about economic development would be achieved. Just as it is becoming obvious that the government alone cannot provide everything, the government must not be driven by the falsehood of looking for money (and) kill initiatives that can substantially support the growth of the maritime sector.

Operators React

Speaking on the issue via telephone with our reporter, Dr. McGeorge who is also the Managing Director of Jevkon Oil & Gas, Nigeria Limited, said his association was very concerned about the safety of the nation’s waterways.

He stated that if the nation’s waterways were not safe, we would lose business, stressing that the country remained a very important vessel destination in Africa.

He, therefore, called the parties involved to come to a roundtable discussion and tackle the grey areas with a view to resolving them in the national interest.

Responding to the question of his associates’ position on the issue, he said, “Our position has always been that we need a sustainable solution to security in our waters.”

On the danger of the absence of definite security outfit and impact on his members, he said, “We are ship owners; we have high tickets bank transactions on… and we carry heavy loans to acquire our ship and we do not want our business disrupted by hoodlums, charlatans, and pirates; so, we would support any action by whoever, whether it is government, whether it is private, public that is going to ensure that our waters are safe from pirates so that we can conduct our businesses properly.”

Expatiating on why it’s vital to ensure safety for the sector’s operation, he said, “Shipping is 90 per cent of global trade transactions; and, without shipping there is no shopping.”

Dr. McGeorge, who stated that the association had written to President Muhammadu Buhari, explained that they called his attention to the need to resolve the “confusion going on in our waters and that the president should intervene urgently. That he makes sure he calls all warring parties to order so that we can have a safe ocean to do our business.”

SAA- A National Service Provider

Speaking further, he said, “What I am trying to tell you is this: Ocean Marine Solution is a member of our association. We are Ship Owners Association of Nigeria. He is one of our key members and that is what is stated in that letter and they are providing a service for which we are benefiting and we have taken a position with the Senate in a public hearing and that position is that they are doing a good job and the Senate agreed with us.

“So that’s our position; they have put an investment of 400 million dollars in a shipping domain where we are still struggling in financing kits and so on. So, we should not allow such a business to die because if it does, so many people will be out of work and the progress we have made in shipping development will be lost.

“As a president of ship owners association, all I can say is that let everybody calm down, and let everybody come to the drawing board and proffer a proper solution.

“I am not ignorant of the fact that NIMASA and Ministry of Transport had invested money to bring another set of security apparatus; we are still waiting; we have heard about the news and we welcome that news but we are saying that if the aim is for security, then they should be an integrated security arrangement that will not be marred with any kind of confusion. In other words, it will be straight forward for everybody so that all parties can dialogue.

“Security is security; the aim is to make sure that our waters are secure with everybody and I don’t think it is what only Ocean Marine Solution can do and I want to say categorically that Ocean Marine Solution is not the only company that is providing security arrangement for especially the oil-servicing industries with an arrangement with the Nigerian Navy.

“There are many other security agencies that have the same arrangements with the Navy. It’s not only Ocean Marine Solution that has that arrangement; so, I can’t see why they cannot allow all the security agencies involved to work together.

“For me it is the Navy who initiated the strategy and then leveraging with NIMASA and Ministry of Transport, they can as well now integrate a proper security structure in our waters and I don’t think it is rocket science it is something that can be done.”

According to him, if our waterways are not safe, the country will lose business. He warned that Nigeria is a predominantly an importer- nation, stressing that apart from crude oil, the country hardly exports anything.

His words: “Everything that comes to us here comes through the ocean and it is those ships that bring us all those goods that we are thriving on here. Traders or any kind of persons doing any business rely on shipping; so if we are not able to have those ship come, then even our economy will be (negatively) impacted.”

Also speaking in the same vein, Chief Executive Officer of First Planet Energy, Mr. Kennedy Rhima said that the continuous engagement of Ocean Marine Solution Limited would bring about the safety and security of vessels in the Lagos Pilotage district.

He however called for closer collaboration between the Nigerian Ports Authority, NPA, the Nigerian Navy and other stakeholders involved in the matter.

Rhima was of the opinion that any attempt to stop the security services being provided by Ocean Marine Solution could spell doom for ship calling at the Lagos ports.
He said: “The matter has been controversial; the safety and security of both vessels and personnel manning these vessels should be the goal of parties involved.
“I will urge Captain Okunbo to liaise with the relevant agencies involved and straighten whatever needs to be straightened.”

US Travel Advisory on Nigerians

Meanwhile, last week, the United States warned her citizens of what it called the risks of travelling to Nigeria.

The warning tagged: “Reconsider travel to Nigeria,” listed proposed threats its citizens are likely to face if they visit the country to include, “crime, terrorism, civil unrest, kidnapping, and maritime crime.”

The US Embassy then went ahead to list the areas with increased risk potential in the coastal region as follows: Akwa Ibom, Bayelsa, Cross Rivers, Delta, and Rivers states (with the exception of Port Harcourt), adding the restriction in this area was due specifically to crime, civil unrest, kidnapping, and maritime crime.

Interestingly, Lagos which is the commercial capital of Nigeria and a coastal city was exempted from the list even though it habours the largest seaports, a situation some experts have attributed to the SAA initiative that has reduced the cases of maritime crime in the region since its implementation.

National Assembly Exonerates OMSL of Fraud

Once again, to challenge the Minister’s claim of fraud, late last year, a joint committee of the Nigerian Senate and the House of Representatives on the Nigerian Navy, Marine Transport and Finance investigated claims of the illegality of the operations of OMSL at the SAA in Lagos seaport. The committee came out with a clean bill of health for OMSL and offered useful suggestions on how to advance the sector.

The committee recommended among others, “That Ocean Marine Solution Limited (OMSL) should be commended for its genuine national interests in investing over four hundred million ($400,000,000) dollars into the security at the Secured Anchorage Area (SAA) in particular and the Nigerian waterways in general by providing the needed platforms and logistics for the Nigerian Navy to effectively perform 24/7/365 patrol operations as well as to provide the required protection for vessels waiting to berth at the Lagos ports.”

On the issue of defrauding the nation, the committee said, “That since no fraud is found in the operations of the OMSL and is operating at no cost to the government, OMSL should be allowed to continue its operation at the SAA until such a time when a better and more cost-effective system is put in place by the government.

And, “That the Nigerian Navy should be properly funded to enable it to procure needed vessels to clear the over one hundred and fifty (150) vessels deficit to enable them to carry out their constitutional responsibilities without over depending on Private Maritime Logistics Support Companies (PMLSC).”

Looking at the Mirror

While it is pertinent to reflect at decisions before taking them, some industry watchers have attributed the unfolding scenario to a lack of understanding of the importance of the service(s) being rendered by OMSL to the nation’s maritime industry in particular and the Gulf of Guinea in general, others believe that it is propelled by the Nigerian factor.

Those who hold the latter view wonder why some individuals after the decision by the nation’s Senate, are insisting that it is not bound by such.

What this portrays in its entirety is an attempt to create a face-off between the agency and the National Assembly. Those knowledgeable about such confrontations argue that the outcome is usually not favourable to the national interest.

Interestingly, the management of OMSL has remained calm over the controversy as it has refused to join issues with anybody except for the invitation of the National Assembly it had to honour.

Moreover, in what some has described as working for national interest, OMSL has continued to provide security service at the anchorage to the admiration of ship owners and operators that anchor their vessels at the designated area.

Hence, recent happenings are perceived as despising the National Assembly and trying to flex muscles with the lawmakers, as the move is a violation of the stand of the lawmakers as reflected in the committee’s submission.

As advised by operators in the maritime industry, there are indications that the management of OMSL is willing and ready to partner the Nigerian Ports Authority on the Secure Anchorage Area for the greater interest of the nation and its economy.

Stakeholders are however of the opinion that if the security arrangement in the Lagos Pilotage District is replicated in the Eastern and Southern ports, it will curb the issue of insecurity currently being experienced in that axis and boost the economy of both flanks and, in turn, benefit the Nigerian economy as a whole. So, why threaten what is saving the economy?