Five things to know about the N72.4bn CVFF

By Samson Echenim

Perhaps, the hottest current development in the Nigerian maritime industry is the disbursement of the Cabotage Vessels Financing Fund (CVFF). Although without the input of any accounting consulting firm, against the advice of some industry experts, the minister of Transportation, Rotimi Amaechi has disclosed that the CVFF currently

stands at $200 million (about N72.4 billion). A committee headed by Dakuku Peterside, director-general of Nigerian Maritime Administration and Safety Agency (NIMASA) has been set up to fine-tune the guidelines for disbursing the fund to ship owners who qualify for the loan. Here are things every stakeholder need to know about the CVFF.

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The CVFF is not some kind of government money, or free money from heaven.The fund was created by the Coastal and Inland Shipping Act, 2003, popularly known as Cabotage Act.  Part VIII of the Cabotage Act is concerned with the CVFF and spells out how the fund is realised. Schedule 43 (a-d) of Part VIII of the Cabotage Act states: “There shall be paid into the Fund, a surcharge of two per cent of the contract sum performed by any vessel engaged in the coastal trade; monies generated under this Act including the tariffs, fines and fees for licences and waivers; such further sums accruable to the fund by way of interests paid on and repayment of the principal sums of any loan granted from the Fund.”

Also, there are primary lending institutions (PLIs), which are commercial banks accredited to the CVFF. They contribute 50 percent of the total value of the CVFF. The PLIs to the CVFF are Fidelity Bank, Skye Bank (now Polaris Bank), Sterling Bank, and Diamond Bank (now Access Bank).

Manager of the fund

The fund is not expressly managed by NIMASA as many seem to erroneously hold. The PLIs manage the fund, while NIMASA provides fund administration and fund corporate governance. The Federal Ministry of Transportation (FMOT) is the 3rd party to the CVFF and has oversight functions, while the obligor (i.e. an applicant that has accessed the fund) is the 4th party. This arrangement ensures that the fund is managed purely as a commercial facility to ensure success of the fund for growth of Cabotage trade in the country. Schedule 44 of Part VIII of the act states that “the fund shall be collected by the National Maritime Authority (NIMASA) and deposited in commercial banks and administered under guideline that shall be proposed by the Minister and approved by the National Assembly.”

Purpose and beneficiaries

According to the act, “The purposes of the fund shall be to promote the development of indigenous ship acquisition capacity by providing financial assistance to Nigerian operators in the domestic coastal shipping.”

Schedule 45 of the Cabotage Act states that “the beneficiaries of the fund shall be Nigerian citizens and shipping companies wholly owned by Nigerians.”

The fund is therefore meant for the facilitation of the acquisition and ownership of vessels to be employed in the domestic/coastal trade by indigenous companies and Nigerian citizens, as well as facilitation of vessel charters.

It is also meant for “the development of shipyard/maritime infrastructure to facilitate vessel construction, repairs and maintenance,” as well as “other shipping auxiliary projects relating to the development of local tonnage capacity and shipyards.”

The act identifies Nigeria’s cabotage trade areas to include Nigerian inland waters and lakes, Nigerian coastal waters, Nigerian territorial waters, Nigeria’s exclusive economic zone and islands (natural/artificial) within Nigerian waters. The businesses and crafts include “platforms, rigs, floating workshops and other such structures and any carriage in, under, or on Nigerian waters.”

How much can a ship owner get from the CVFF?

A ship owner can get not more than $25 million and shall have maximum of seven years to pay back completely.The CVFF to is be disbursed in US dollars to beneficiaries on a single-digit interest rate of 5.6 percent, 0.25 percent processing fee, according to information on recommendations from NIMASA.

Qualification for accessing the CVFF

Not all indigenous shipping services providers that is trading on Nigeria’s cabotage area will get the loan. The law which establishes the fund also leaves recommendations for accessing the fund. Except these recommendations are twisted by the disbursement committee, companies wanting to access the CVFF loan must have been paying Cabotage dues  of two percent surcharge, license and waiver fees. The company will have existing contract with international oil companies. This is a deciderator.

Having been analysed by the PLIs, the shipping company must be considered to have positive cash flow and must have bankable feasibility reports which shall be subject to independent verification by NIMASA and the PLIs.

The company should provide its succession plan and must meet with other key risk acceptance criteria of PLIs namely: a competent and developed firm of directors, cognate business experience, good track record and comprehensive company structure.

Indigenous shipping companies seeking to borrow from the CVFF are also expected to observe full and complete compliance with Cabotage Act and the CVFF guidelines, including domiciliation of company’s account with PLI of their choice. They shall provide full condition survey report on vessel to be procured, (for existing vessels) and legal mortgage on vessel to be procured.

Other conditions to meet include “comprehensive insurance of procured vessel; vessels must be built in Nigeria or has waivers, the company must be owned by Nigerians or have at least 60 percent Nigerian Joint Venture participation, vessels must be manned by Nigerians or has waivers and vessel must be registered under the Cabotage Special Register of Nigerian Ship registration Office in NIMASA and must be Nigerian flagged.”

While acquisition of used vessels with loan obtained from the CVFF may not be discouraged, the general principle in ship market is that the vessels should be serviceable so age is not paramount. However, the vessel under consideration must not be more than 10 years old, and these may involve reconstructed or reconditioned vessels. The administrative agency also recommends that in the case of refinancing, the value of loan shall be restricted to 80 percent of the original cost of the equipment/vessel being refinanced or its market realisable values whichever is lower. The tenour of date of acquisition from the date of the refinancing request should not exceed 12 months.