'Com­fort let­ter’: NNPC, ves­sel own­ers head for show­down

Daily Trust - - BUSINESS - By Daniel Adugbo

The re­quest for a ‘com­fort let­ter’ by the Nige­rian Na­tional Petroleum Cor­po­ra­tion (NNPC) as a con­di­tion for lift­ing the ban it placed on 113 oil ves­sels seems to be cre­at­ing a po­ten­tially big­ger prob­lem for the ex­port of Nige­ria’s crude, writes Daniel Adugbo.

The Nige­rian Na­tional Petroleum Cor­po­ra­tion (NNPC), in July, banned 113 oil tankers from lift­ing Nige­rian crude, cit­ing a di­rec­tive from Pres­i­dent Muham­madu Buhari, as part of ef­forts to san­i­tize the coun­try's oil in­dus­try which has for many years been plagued by crude theft and mas­sive fraud.

But af­ter the global as­so­ci­a­tion of oil ves­sel own­ers, INTERTANKO, (In­ter­na­tional As­so­ci­a­tion of In­de­pen­dent Tanker Own­ers) whose mem­bers own ma­jor­ity of the world’s tanker fleet, protested, the NNPC early Septem­ber, lifted the ban but with a caveat that ves­sel own­ers "guar­an­tee to in­dem­nify" the gov­ern­ment against any il­licit use of their ves­sel.

The com­fort let­ter seeks to guar­an­tee the Nige­rian gov­ern­ment and NNPC that ship­pers’ ves­sels will not be uti­lized for any illegal ac­tiv­ity what­so­ever.

NNPC was said to be un­com­fort­able in the past with tanker op­er­a­tors over dis­crep­an­cies in the vol­ume of crude lifted and dis­charged at re­ceiver des­ti­na­tion.

But NNPC’s de­mand would seem to be cre­at­ing a po­ten­tially greater prob­lem for the ex­port of Nige­ria’s crude oil.

Oil traders and ship­ping bro­kers ar­gue that a re­quire­ment un­der which ves­sel own­ers must sign a guar­an­tee that their ships will not be used for theft has made it more dif­fi­cult and ex­pen­sive to load Nige­rian crude, putting some buy­ers off. Some buy­ers are now said to be tread­ing care­fully with Nige­ria.

In fact, an oil trader for one Mediter­ranean re­finer re­port­edly said they "will not touch a sin­gle drop of Nige­rian crude un­til this mat­ter on the let­ter of com­fort is solved."

Ship­ping sources were re­ported to have said that nei­ther Asian nor Greek ship­ping com­pa­nies will call at Nige­rian ports for the time be­ing.

The dis­agree­ment has con­trib­uted to a marked rise in freight rates; the cost of book­ing tankers from West Africa to the United States has in­creased and the in­crease could, it is feared, de­ter oil buy­ers.

Hin­dus­tan Petroleum Corp (HPCL) of In­dia, which bought roughly two mil­lion bar­rels of Nige­rian crude, said the com­pany is still scout­ing for a ves­sel to lift cargo for early Oc­to­ber load­ing be­cause of the "let­ter of com­fort" re­quest by NNPC from ship­pers.

The head of re­finer­ies at HPCL, BK Namdeo, said in a Reuters in­ter­view that the com­pany is find­ing it dif­fi­cult to book a ves­sel to lift Nige­rian crude, hence, it would be cau­tious in fu­ture in de­cid­ing about crude of Nige­rian ori­gin.

"No­body is com­ing for­ward to of­fer the ves­sel and who­ever is will­ing to go to Nige­ria is ask­ing ex­or­bi­tant rates," Namdeo said.

The tanker op­er­a­tors are boy­cotting sail­ing to Nige­ria partly be­cause INTERTANKO, which is one of the largest group­ings in the ship­ping in­dus­try with 207 full mem­bers, 285 as­so­ciate mem­bers and a reg­is­tered fleet of over 3,000 tankers, have cau­tioned mem­bers against sail­ing to Nige­ria.

INTERTANKO, in a Septem­ber 10 brief­ing ob­tained from its web­site, said it had ad­vised mem­bers “against tak­ing any ves­sel on Nige­ria’s list of banned tankers ei­ther into Nige­ria or into its EEZ, de­spite a re­cent let­ter from the NNPC which some are in­ter­pret­ing as a lift­ing of the ban.”

It cau­tioned mem­bers to re­sist sail­ing to Nige­ria de­spite the lift­ing of the ban be­cause, ac­cord­ing to the body, “the penal­ties for any al­leged con­tra­ven­tions of Nige­rian law by these ships are dra­co­nian, in­clud­ing for­fei­ture of the ship and life im­pris­on­ment of the crew.”

The state­ment, signed by its Gen­eral Coun­sel, Michele White said, "This latest NNPC let­ter does rep­re­sent some­thing of a step change and may even sug­gest that all ships are now welcome in Nige­ria pro­vided a ‘let­ter of com­fort’ is re­ceived. How­ever, the lan­guage of the let­ter is vague and we do not be­lieve it can be re­lied on by own­ers to clear the ves­sels on the banned list for trade to Nige­ria.”

INTERTANKO lamented that its letters to the var­i­ous Nige­rian author­i­ties so far re­main unan­swered, adding it would con­tinue to press the Nige­rian author­i­ties for in­for­ma­tion on the al­leged con­tra­ven­tions com­mit­ted by mem­bers’ banned ships.

Any­thing

to

hide?

Why pos­si­bly could the ship own­ers be averse to the "com­fort let­ter" if its mem­bers en­gage in clean oil trans­port busi­ness? Could their ob­jec­tion to the let­ter be seen as an in­di­rect ad­mit­tance of guilt to the al­leged con­tra­ven­tions?

INTERTANKO's Se­nior Man­ager Com­mu­ni­ca­tions and Ex­ter­nal Re­la­tions, Bill Box, did not im­me­di­ately re­ply mails the Daily Trust sent to him on their griev­ance with the let­ter and how far it has gone to clar­ify the point with NNPC.

Oil an­a­lysts cau­tioned that rather than stiffen busi­ness for the crude oil trans­porters, it is the re­spon­si­bil­ity of the gov­ern­ment to cap­ture those steal­ing the oil with­out dis­turb­ing le­git­i­mate busi­ness oper­a­tions.

The Pres­i­dent, Nige­rian As­so­ci­a­tion of Energy Eco­nom­ics (NAEE), Pro­fes­sor Wumi Iledare, urged the gov­ern­ment to rather im­pound ships if they carry stolen crude. “If your reg­u­la­tions make it dif­fi­cult to do busi­ness in your coun­try, peo­ple would look else­where.

That is the name of the game. It is wrong to jump into the con­clu­sion that they have some­thing to hide,” he re­sponded through mail.

An oil an­a­lyst and Pro­fes­sor of Law, Thur­good Mar­shall School of Law, United States of Amer­ica, Emeka Du­ruigbo, said INTERTANKO’s chal­lenge to the pol­icy changes in­tro­duced by the gov­ern­ment in Nige­ria is not out of char­ac­ter.

Du­ruigbo said through mail, “Here in the United States, INTERTANKO has gone to court in the past to chal­lenge reg­u­la­tions that en­croached on its mem­bers’ busi­nesses, us­ing con­sti­tu­tional ar­gu­ments. From a strate­gic per­spec­tive, it could be that INTERTANKO be­lieves that in the ab­sence of a na­tional car­rier, Nige­ria lacks an ef­fec­tive al­ter­na­tive and, there­fore, has no sig­nif­i­cant lever­age in this dis­pute. Nige­ria can­not read­ily call INTERTANKO’s bluff when it vir­tu­ally has no other means of lift­ing its oil, out­side of ves­sels owned by INTERTANKO’s mem­bers. "

He added, "INTERTANKO may have been more re­cep­tive of the changes if the gov­ern­ment con­sulted the or­ga­ni­za­tion be­fore­hand and in­tro­duced the changes in a more col­lab­o­ra­tive man­ner.”

A se­ri­ous cause for con­cern

“Cer­tainly, in the short run, this is a great con­cern. Trans­porta­tion of crude to its fi­nal des­ti­na­tion is a busi­ness sec­tor in the petroleum value chain that is rid­dled with po­lit­i­cal and mar­ket power. The gov­ern­ment in pol­icy de­vel­op­ment must be con­scious of the in­ter­twined na­ture of pol­icy de­vel­op­ment. You must have hear­ings with all stake­hold­ers be­fore putting forth any reg­u­la­tions at all times. Ad hoc ap­proach to gov­ern­ing the in­sti­tu­tion con­tin­ues to be an Achilles heel for the oil and gas in­dus­try in Nige­ria over the years. Hope­fully, the pres­i­dent rec­og­nizes this for what it is worth,” Pro­fes­sor Iledare, who is also the Di­rec­tor, Emer­ald Energy In­sti­tute, Univer­sity of Port Har­court said.

Prof Du­ruigbo noted that INTERTANKO’s ob­jec­tion stems from the usual in­dus­try aver­sion to reg­u­la­tion. He stated, "In ad­di­tion to costs, the busi­ness sec­tor also ide­o­log­i­cally re­sists reg­u­la­tions on the ground of le­git­i­macy. Thus, here INTERTANKO may con­sider the re­quire­ment of a let­ter of com­fort as an il­le­git­i­mate ef­fort by the gov­ern­ment to con­strain the ac­tiv­i­ties of its mem­bers when such con­straints are un­war­ranted."

In­dus­try watch­ers say Nige­ria can­not af­ford to al­low the im­passe drag for long when the coun­try is bat­tling with rev­enue short­ages due to the fall in oil price, and when new re­forms in­sti­tuted by the present NNPC man­age­ment is at­tract­ing po­ten­tial oil in­vest­ment into the coun­try.

ACHIL­LEAS- one of the ves­sels whose ban was lifted by NNPC.credit:marine­traf­fic.com

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