President Muhammadu Buhari recently approved the disbursement of the Cabotage Vessel Financing Fund (CVFF) which has Dollar and Naira components of $350 million and N16 billion respectively as at last check. In this report, TOLA ADENUBI examines modalities for applicants and why many might not qualify.
The CVFF was established alongside the Nigerian Coastal and Inland Shipping (Cabotage) Act of 2003, to empower indigenous ship owners to take control of the nation’s coastal and inland shipping business, otherwise known as Cabotage trade. Following approval of disbursement by President Muhammadu Buhari, applicants of the fund are expected to make an equity contribution of 15 percent while the Nigerian Maritime Administration and Safety Agency (NIMASA) will make an equity contribution of 35 percent; and 50 percent will be provided by the commercial banks.
Since the roll out of the modalities for applicants, many operators have raised concerns over the yardstick for disbursement, stating that it is not achievable for many indigenous operators.
15% equity
The 15 percent equity contribution expected from indigenous ship owners have been an issue of discussion for many operators. While some think it is fair enough, others think it is near impossible.
Speaking with the Nigerian Tribune on the matter, a former President of the Nigerian Shipowners’ Association (NISA), Mallam Aminu Umar, stated that the 15 percent equity contribution from indigenous shipowners applying for CVFF is fair enough.
According to Mallam Aminu Umar, “I think the 15 percent equity expected from indigenous shipowners is fair enough. If you look at commercial banks, they do nothing less than 15 percent. Many banks do 20 percent.
“If CVFF is 15 percent, it is far better than what the banks do for equity contribution. Since the Act says equity contribution from operators must be 15 percent, I think it is fair enough. I know everybody will want something lower, but i think what obtains as of today is fair enough.”
Also speaking on the issue of 15 percent equity, the Chairman, Board of Trustee of NISA, Chief Isaac Jolapamo said that raising 15 percent equity is near impossible for shipowners because many of them have gone bankrupt due to years of inactivity in Nigeria’s Inland coastal trade.
In the words of Chief Isaac Jolapamo, “We will be telling NIMASA that we cannot raise the 15 percent equity expected from intending applicants of the CVFF because for years, many of us have faced economic hardship due to lack of inactivity in Nigeria’s coastal trade.
“Many of us have been out of jobs for years, where does NIMASA expect us to raise the 15 percent equity inputted into modalities of disbursement of the CVFF?
“Yes, provision of the 15 percent is part of the guidelines made by government towards the disbursement of the CVFF. If we are asked to raise 15 percent of $10m, that will be difficult for us to do. Economically, things have not been easy with some of us.
“Our Committee that is working on CVFF disbursement have been told that in the upstream, the Nigerian Content Development and Monitoring Board (NCDMB) does not demand provision of any equity from operators. So, we are also looking at that line because it is achievable. We are looking at a situation where indigenous shipowners won’t have to provide such equity.”
Bank Collateral
For many operators, a ship should be enough collateral for any commercial bank involved in the CVFF disbursement. Speaking on the banks demands for collateral, Mallam Aminu explained that he doesn’t expect the banks to demand for anything higher than a single digit interest rate.
“A ship is an asset and should ordinarily stand as a collateral for any commercial bank when shipowners engage them for loans. And I don’t expect the banks to ask for anything more than a single digit interest rate when giving shipowners loans as support. I don’t expect the banks to do more than a single digit interest rate that is not more than 8 percent. With the rising exchange rate of the Dollar, the banks shouldn’t do more than 8 percent when engaging qualified applicants for the CVFF,” Mallam Aminu told the Nigerian Tribune in Lagos.
In his own view concerning bank demands when shipowners approach them for loans, Chief Jolapamo explained that banks have not always encouraged indigenous shipowners to get loans, and he is not expecting anything different from the selected banks that will disburse the CVFF.
“This is Nigeria, and the demands from commercial banks can be discouraging. The banks will ask for collateral that are almost impossible to bring. Ordinarily, the ship that has a job should be enough for the collateral, but the commercial banks won’t want just that.
“This is the major reason why many indigenous ship owners have gone bankrupt in the past. Many have struggled to meet up with bank loans and have forfeited properties that they ought not to have forfeited. With the process of CVFF disbursement ongoing and the banks bringing in 50 percent of the fund, we just hope the agreement won’t have stringent conditions attached. If the banks bring in stringent conditions, then many of the indigenous shipowners won’t be able to meet with such demands and the purpose of the CVFF disbursement would have been defeated,” Chief Jolapamo stated.
As time ticks on when the CVFF will eventually be disbursed, operators in the nation’s maritime industry remain divided over conditions attached to the fund disbursement even as some think the fund might never get disbursed.
In the words of an operator, “Government is not sincere about the disbursement of the fund. If government is sincere, then they won’t attach so many conditions to the fund disbursement.
“All these conditions are coming during an election year. Election is just around the corner, so government knows what they are doing. I can bet it with you that we will keep talking about CVFF disbursement until a new government comes into power by middle of the year and probably discard the funds disbursement idea for other priorities,” an indigenous shipowner told the Nigerian Tribune.
