The Nigerian National Petroleum Corporation (NNPC) has given reasons why it prefers to use the Free-on-Board (FOB) system to export Nigeria’s crude oil to their respective destinations and not the Cost, Insurance and Freight (CIF) system.
The NNPC, according to a statement it sent out yesterday in Abuja, explained that despite the value erosion inherent in the FOB sale arrangement, prevailing security situations and the need to guarantee steady revenue into the Federation Account had informed its preference for the system.
The corporation justified its preference for the FOB during a high-powered meeting of stakeholders in the maritime industry which the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, and NNPC’s Group Managing Director, Dr. Maikanti Baru, attended.
The meeting according to the statement signed by the Group General Manager, Public Affairs of the NNPC, Mr. Ndu Ughamadu, was convened to generate ideas on how best to export Nigerian crude oil to attract maximum benefits for the country.
It had as its theme: “Free On-Board (FOB) and Cost, Insurance and Freight (CIF) Incoterms Framework for Export of Nigerian Crude Oil and Gas”, and was organised by the NNPC in conjunction with the Nigerian Maritime Administration and Safety Agency (NIMASA).
While Kachikwu, stated in his welcome address that various attempts in the past to transit from the FOB to CIF system of exporting Nigeria’s crude oil had failed and that there was no better time than now to comprehensively revisit the issue to determine which of the systems best serves the interest of Nigeria, Baru, however noted that the corporation was mindful of past experiences the country had with the Nigerian Airways and Nigerian National Shipping Line, in making its choice.
According to Baru, under CIF, petroleum cargoes are legally the property of the federal government which could pose a danger to the country’s earning as creditors could procure court orders to confiscate crude oil cargoes as a means of securing payment of Nigeria’s indebtedness to them.
He noted: “The experiences of Nigerian Airways and the Nigerian National Shipping Line both of which had their vessels/crafts and cargoes confiscated on court orders obtained by creditors is unpleasant to recall.
“Due to these peculiarities, we find it most appropriate to transfer the potential risks associated with the ownership of the cargo to the buyer at the load port in Nigeria which FOB incoterm allows. Government/NNPC’s liability ends as the crude oil passes from loading hose at the vessel’s manifold to the loading vessel. The buyer pays for freight, marine insurance, unloading and transportation from the load port in Nigeria to the destination,” he explained.
He also said the NNPC was, however, not unmindful of the value erosion inherent in the FOB sale arrangement, and that the corporation was open to new ideas on the proper mix that could enable synergy and collaboration amongst different stakeholders to guarantee security of federation revenue as well as guard against associated risks involved in delivery of crude oil and gas to customers.
The statement also quoted the Director General of NIMASA, Dr. Dakuku Peterside, to have said that while there was no correct answer to the issue of freight system to adopt, there was need to be open-minded about possible alternatives that could help in the quest to diversify the economy.
Peterside, reportedly urged participants to be guided by national interest in their discussion while exploring all possible opportunities.
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