Stakeholders Challenge Minister Over $500m War Risk Payment

The Financial Burden of War Risk Insurance in Nigeria

Stakeholders within the maritime sector, particularly those associated with the Sea Empowerment and Research Centre (SEREC), have highlighted a significant financial challenge facing Nigeria. The country pays an annual sum of $500 million for war risk insurance, which amounts to $1.5 billion over the past three years. This figure has raised concerns about the economic impact on the nation's resources.

War risk insurance is a form of coverage designed to protect against losses caused by events such as war, terrorism, or other similar threats. It typically includes protection for damage to property, goods, or vessels resulting from conflicts, invasions, or civil wars. Despite its intended purpose, the cost of this insurance has become a substantial burden for Nigeria.

Dr. Eugene Nweke, founder of SEREC and former National President of the National Association of Government Approved Freight Forwarders (NAGAFF), emphasized that while there are claims suggesting potential savings of up to $400 billion annually if these premiums were eliminated, the relationship between the current $500 million payment and the estimated savings is not directly proportional. He noted that further clarification would require more specific and up-to-date data from authoritative sources like the Nigerian Maritime Administration and Safety Agency (NIMASA).

Despite the recent claim by the Minister of Marine and Blue Economy, Adegboyega Oyetola, that Nigeria has recorded zero piracy attacks in the last three years, SEREC acknowledges that the financial burden of war risk insurance remains a pressing issue. The agency commends NIMASA’s efforts to eliminate these premiums, citing improved security and reduced piracy in Nigerian waters as key factors.

However, challenges persist. Ship owners still pay between $5,000 to $8,000 daily to hire security vessels bound for Nigeria. SEREC notes that although NIMASA has invested over $200 million in the Deep Blue Project to enhance security in Nigerian waters, insecurity continues to affect port costs. For instance, despite the reduction in piracy, maritime security operators have increased offshore shipping charges by $1,500 due to rising operational expenses.

The economic burden of piracy extends beyond the shipping industry, affecting global trade and commerce. Stakeholders argue that the costs of implementing advanced security measures, such as armed guards, surveillance systems, and Ship Security Alert Systems (SSAS), are significant. These measures can range from $5,000 to $8,000 per day for hiring security vessels, with additional setup and ongoing costs for equipment.

Another notable concern is the impact of maritime security costs on port operations. Before the Deep Blue Project, ships arriving at Lagos ports paid around $2,500 at the Lagos secure anchorage zone. Although this charge was terminated, insecurity still affects the cost of doing business at Nigerian ports, with costs being passed on to consumers.

The Chairman of the Nigerian Port Consultative Council (NPCC), Mr. Bolaji Sunmola, highlighted the economic losses due to the failure to effectively implement the Cabotage Law, which aims to promote indigenous tonnage and restrict foreign vessels in domestic coastal trade. This law, enacted in 2003, has remained largely unenforced, leading to significant economic losses.

Alhaji Aminu Umar, Managing Director of Sea Transport Services Nigeria Limited, emphasized the opportunities in Nigeria's maritime sector. He stressed the need for the government to create an enabling environment for Nigerians to invest in the sector.

Understanding War Risk Insurance (WRI) is crucial. WRI is an additional surcharge imposed by international shipping companies on cargo bound for Nigeria. It comprises two components: war risk liability, covering people and goods aboard the vessel, and war risk hull, covering the vessel itself. Introduced during the peak of the Niger Delta insurgency and piracy, WRI has led to billions of dollars in losses for Nigeria.

Recent calls from Dr. Dayo Mobereola, Director General of NIMASA, urge international cooperation to remove WRI on Nigerian-bound cargo. He emphasized that Nigeria's commitment to maritime security has significantly reduced piracy, making the current premium unjustified. NIMASA seeks collaboration with countries like Denmark to address these issues and reduce freight costs.