With regard to the economy, as you know oil and gas revenues are very important to the exchequer in Nigeria, and Finance Minister Dr Ngozi Okonjo-Iweala is looking to diversify the economy. From your position, into what sectors would you feel that the economy of Nigeria should diversify to improve the revenue streams of the country?
Apart from oil and gas, the sector I believe we should diversify in Nigeria is the mining sector, because we have a whole lot of resources that can match the resources that are available even in South Africa that are making them the best economy in Africa. So if we can diversify mining I believe oil will cease to be the main stream of Nigeria’s economy.
When we met with Mines and Steel Development Minister Sada, we sat down and discussed the mining cadastre office with him. What would you like to see the government doing to open up this sector, which is not utilised to its full here in Nigeria? What measures would you like to see take place to improve the operating environment in mining?
There are a lot of policies which are a bit cumbersome right now, not making the investors really find their feet in that sector. If these policies, rules and regulations can really be properly done for investors to have confidence in investing in that sector, I believe people will put in their money and that sector will be developed, because right now if you go into its laws and policies, it is cumbersome and you can only pick something minimal out of it. That needs to be addressed by the government. Once that is addressed, people will feel comfortable investing in mining.
One of the major things that international companies complain about in the mining and steel sector is the actual federal versus state law. If, say, you go to the cadastre office and you get your licence, then normally you will expect to be at the top rate in that block. However you have a lot of states where state law means that there are also the owners of the actual assets within that block. Has Japaul ever come across this situation? How did Japaul overcome that opening up of the area?
By Nigerian law, resources belong to the federal government, and also the issuance of the mining licence, is from the federal government, although with a little input from the states. Also the local people that own the land, the villagers, those who have input, need to give you their consent before you can even go to the government to get the licence for mining. I don’t see any problem in that. We have a mining company also where we mine stone chips and we go through this same procedure and I think there is no issue as far as I am concerned in getting the locals, the villagers, to consent to you to coming to their land and then giving their consent to the government to give you a licence for your particular area of interest. I don’t think there is any issue with that.
Japaul is obviously one of the companies that we have come across that has certain diversified interests. Can you tell us a little bit about the group and like you said the success story coming from $200 billing up today to $150 million. What areas are you working in and what are the most successful projects?
In oil and gas, we are working both upstream and downstream. Upstream, we give vessels to medium-sized oil companies to support the production of crude oil. We charter our vessels to them and we have vessels with different grades and capacities, ranging from $12 million to $40 million apiece, and I think we have about 10 of them. The old ones are being put out now.
We also work in the downstream sector. We have a company called Japaul Energy, which is a sort of backward integration strategy for us, because we already have the vessels and our area of competence, and we just looked at it and said: “If we have been carrying this oil for people and charging in our vessels, why we don’t supply the oil by ourselves? That is what gave rise to Japaul Energy. And Japaul Energy is about 18 months old and has achieved a turnover of about $15 million, in less than 18 months. So it is part of oil and gas.
Also we have Japaul Dredging Services Ltd, which is basically our main area of operation, along with oil and gas, with oil companies where we dredge the locations for them. They get oil from swamps and river-related areas, so you go there to sweep the river bed, to allow it to come to that location, and to service the well where crude oil comes from. So we are basically in dredging, and that part also is oil and gas.
We are in oil and gas, but in different aspects. If you look at all these activities in oil and gas, the central area is still maritime. Dredging is marine equipment, tankers are marine equipment which we use to carry the finished product, the real marine equipment we use to support the rigs for production of crude and gas.
That is one major area that has three subsidiaries doing different kind of activities in oil and mining.
And about mining: mining of stone chips for construction. We have two quarries, one in Ondo State, one in Cross River State. We produce these stone chips and we sell to construction companies and everyone now is interested. And we look back and say: “If we sell some of this product and most of the material is required for the construction of routes, why can’t we put a construction company together?” Most of the equipment we use in mining is also equipment that is used on road construction, such as the bulldozer, the roller, the excavator... So two years ago we started a company, Japaul Infrastructure Services Ltd, and knowing what Japaul is in the market, the first contract we got was of 6 billion naira, which is of about $40 million. We are executing that project now. We are doing a road of about 40 kilometres. We were able to bring Filipinos, Chinese and some local engineers together and it’s a success. We are doing well and we are also using some of our products.
Basically those are the areas of Japaul Group’s operations for now. As we move on, we intend to develop, to grow each area.
There is a lot there. So we are going back to a couple of the points. Firstly if we concentrate on the maritime industry and the vessels, one area that we looked at when we spoke with the Nigerian Ports Authority was the development of the Cabotage Act. Obviously in your line of business it’s very important, that actually by law, you can use Nigerian vessels and you obviously mentioned that you can support the demand at the moment. What plans do you have to expand the demand and how do you find finance for such large-scale ventures?
We have a major challenge in Nigeria as far as maritime finance is concerned. And that is why some of the laws are not really working with wishes that there were really promulgated. The cabotage law is to support the indigenous companies, to make sure that they have work to do with their vessels. And that starts from oil and gas operations, from transportation of wet cargo, transportation of dry cargo, which is shipping carrying containers, then shipping carrying crude oil, petrol, diesel and then real operations, which is our area now in offshore, for crude oil and gas production. That is what the cabotage law is for: to empower indigenous companies to have business to do, so that the foreign dominance can be reduced and some money can return to the country to create opportunities. But the law is not working the way it should because Nigerians don’t have the capacity to acquire vessels. So the vessels they start with are mostly old vessels that are more than 20 years old. These are the ones for which they can borrow money and finance, and then that equipment doesn’t meet the safety requirements of the oil companies of international port authorities. There is basically a lack of funds to buy good equipment.
So in Japaul, when we saw this and knowing the potential in the industry, we had to go to the stock exchange to raise money. Even today Japaul remains the only maritime company on the stock exchange. We raised money. We were able to raise about 22 billion naira: that is about $114 million. About $100 million went to the acquisition of vessels. But then again, we didn’t acquire more than three; it was highly capital intensive.
We had an issue: when we raised the funds, that was when the market was at a peak, the price of everything was at a peak, stock prices were at a peak, and the price of equipment was at a peak. By the time we finished buying, two years later, everything crashed. What we bought for $20 million went down to about $7 million. That was the 2008-2009 crisis. But we are still moving on.
So for Japaul, it was not finance from Nigeria. It is finance from foreign banks, banks from Singapore and Exim Bank in America. They wanted to invest, but they wanted to invest in a company where they could see they could get money back. They came, they did their diligence, checked us, it took them almost nine months. At the end of the day, it was interesting, they called and said: “We can give you facilities. With what we found out, you don’t need a local bank to guarantee you, we will give you the money straight.” That was the US Exim Bank. And Singapore, they did the same. We were the first Nigerian company that was allowed to have $12 million to buy supply equipment and I agreed to pay back gradually over five years without bank guarantees from any local bank.
So we have this advantage that has given us a lot of edge in front of our competitors of what we are known for: we are known for integrity, we are known for creativity in our industry and that has opened many doors for us.
Now, we can go on and on and acquire more vessels, but also you need to check your leverage – that is you should not borrow too much money, otherwise you will work for banks the rest of your life.
That is why we are managing to make sure we do not borrow too much money. The money you borrow, pay up to an extent, and create security for yourself. So by the time you borrow next time, if the loan is $30 million, you can also put in $10 million and get another 20, so the loan of servicing interest will not be too much; because if anything goes wrong, then the amount released is not paid and you will run into trouble. That is the only technicalism why we did not go on acquiring more and more. Because we have the potential – any bank we have gone to, no one has refused us facility; we are not applying to Amcon, we are not on a black list or list of central bank or banks that has defaulted in payment, and we are not involved in the oil subsidy issue.
Would Japaul be open to equity investors coming to buy shares in the company?
Yes, we are open to it. But at the same time you have to be careful with the equity of the company also. We don’t want anyone’s greed to come and rob us of the vision of this group. This is a company that wants to outlive all the promoters, because some people can just be greedy; you have to read the clauses in the equity paper, because maybe if you are not careful, your company could be being taken away from you, and that can destroy the vision. Most times, they want to grab all they can, they want to make money; they don’t care about the dream, they don’t care about the vision and they don’t care about the name.
So we are also being careful to know very well who we get married to. We have some proposals from some equity people – I have some meetings in Dubai, some companies who are ready to put equity into the company – but we want to know who we are getting married to, we must be careful in case their intention is different; if they just want to make money and they don’t care about anything else. We don’t want that.
You mentioned that you have a very strong vision and a very strong feeling of what this group represents. Can you tell us a little bit about what you think Japaul stands for, and what you want Japaul to be in the future?
Our vision is that we want to be the giant in all the aspects of our business endeavours, very simple. This group of companies called Japaul is going to be one of the greatest companies in the world, not only in Africa. That is the vision. That’s why we are not in a hurry. It’s like knowing where you are going to. You know you will get there. When I know that I’m getting to where I’m getting to, I don’t need to deceive anybody. I know that step by step, we will get to where we want to get to. And that’s what we have been doing, and that’s why I am careful with whom I am going to partner, because it can change the whole philosophy and then the whole thing is gone. Money can come in because you are bringing money, and all those values, our core ideologies, can be rubbished. So our vision is to be a giant in all our business endeavours. And the potential opportunities are there.
Everything around us is supporting us. Considering the insecurity in the water, we have been so lucky in not being attacked once in our 15 years of operations. We have been doing business and we know we will get there. So the vision is a good vision and it’s a dream that we want to create a business that will live for a lot of years and that will benefit many and add value to people. Personally being the promoter of this company, I believe in having 5% of what will outlive me rather than having 100% of what will die with me.
The business is entering kind of a period where you really do need to be on your toes, and a lot of what you do is related to oil and gas. We are going to see huge changes in oil and gas because the Nigerian oil and gas sector is going to become more Nigerian, especially what you are doing there, dredging in the swamps. The swamp areas will be owned by Nigerians and operated by Nigerians and the vessels; no more IOCs – they will move offshore more or less. How are you looking at the development of your business over the next two or three years and how are you ensuring that you are joining with the right clients as well as marrying with the right partners in the near future?
We normally run a five-year plan and in each year of our plans we say that we are going to acquire five vessels per year. This means a minimum requirement of $150 million. For last year, although overlapping this year, we were able to achieve that. So this year, we are going to get another five vessels. These are new vessels of $20-25 million. We are adding to our fleet and in the next three years we should have 35 to 40 vessels in our marine fleet.
Another option is to acquire an existing company if I have a good equity investor. With bank support we can acquire an existing company that already has these vessels. Before three years is up we can actually achieve that.
The two options are valid for us now: keep adding five vessels per year or we acquire an existing company that has good vessels that are marketable in our industry. So as far as chartering is concerned, we see us having 40 vessels in the next three years.
As far as dredging is concerned, we see ourselves dominating dredging in Nigeria and then spreading our services to other parts of West Africa. And we have put a lot of effort into achieving this. When we set a target, we come back here to see what we have to do to hit that target.
We have a relationship with a dredging company in the US called US Dredging. They have manufactured dredgers for us and also give us support services. We are going to establish a company that will be manufacturing part of the dredger, which will introduce us to that skill. We will acquire that skill of manufacturing dredgers and maintaining dredgers for other people. So when you are building, running and maintaining dredgers, you are the king of the market. That’s the strategy; we are getting there.
Already those contracts are sealed.
We see Japaul working with others in areas other than dredging – also in chartering, it’s going to be Japaul and others.
In mining, we are talking to South African companies in coming together to mine some other minerals. We are working towards getting licences, which is also slow. If we want to attract people on board, to come and invest, we want to prove to them that what we do is profitable. Mining is profitable if you really know what you are doing and you really bring the right partner. This country is blessed with a lot of minerals. We started with stone chips so that it would create a regular income for the mine to survive. As mining minerals takes time, you have to take your licence, survey it and start planning. So at that time we would be saying how will we be paying, would we be borrowing money... However, the one we have already on ground, can be taking care of everything while we are doing that.
So with that strategy, we know where we are going and we know how to get there. So by the time we are talking, in the next five years, we just see us mining two, three other minerals.
Knowing exactly where we are going and coming back here and plan out to get it!
So this is the vision we are pursuing: to become giants in all aspects of our business.
The corporate danger of over-reliance on one or a few individuals is referred to as the key man risk. Here in Japaul, you have talked of how you have been trying to create something that would outlive you: how have you taken and worked with the local talent, and how did you introduce discipline and the culture across the whole of your company?
I am working towards taking a back seat. So when I am 60 or even 55, I want to take the back seat and see this company going along to achieve that vision. So I know the key man risk will not apply to Japaul. Because what I do mostly is training the talented workers, passing the vision on to them, so that they can work with it whether I am there or not, because that is key. I cannot drive the vision alone, it is not possible. I know that and I have around me some talented directors who are Nigerians and good workers who are excellent in all areas or whatever responsibility that is given to them, and we groom them. They get infected with this vision and they are all in accord with it.
You see people working whether I am there or not. People normally ask: “What do you do to your people so that they work like this, because our staff doesn’t work like this?” It’s the way you treat them. You make your aspiration for the company in line with their own aspirations, what they want to become. You create a clear pathway for them to see that if you are doing what you are doing, and what we are asking you to do, it will take you to your own personal aspiration, and there’s nothing that motivates people more than that: that this is what I want to become.
When we interview people we want to know what their aspirations are, what’s their own plan for their life. After we have checked someone’s abilities and academic qualifications and all that, we want to know what their own aspirations are, what do they want to become in life.
In this way, we want to aline people’s personal aspirations to their position, to their placement in the company. So by the time we are driving you, there is little drive to give to you; you’ll just be running, because an individual will know that by doing this it will take him or her to what and where they want to belong.
Can you tell us a little bit about your background? How did you come into this environment? How did you manage to be able to diversify into mining and energy, and how were you able to get those skills?
I don’t have special skills; I only have managerial skills. When I started in this company, Japaul, I had nothing, about 40,000 naira, in 1997. But the company that I had worked for, for seven years, was a one-man business; he paid me peanuts, because I had no other opportunities for work. However what I saw in this man was that he had what I was looking for to become a business manager; right from secondary school, I always said that I must be a big businessman and that always rang in my head. So when I saw that this guy could bring me to that place, I began learning from him and the business that we were doing, such as contracting – his company had one single small vessel which we used to hire to Chevron. That vessel didn’t actually belong to that company: it belonged to a company who leased it to another company, and that company leased it to Chevron. So I saw this was the only business that was providing a regular income; that is why I chose to be interested in the maritime sector.
I went to the people that owned this vessel and tried to look for businesses for their vessel. People knew that if I got the vessel, they got their money, so I was getting referrals along the lines of: “If you want your vessel to go to port, call Paul…” I was acting as an agent. Those vessels were river equipment, not sea equipment. We used to use them to transport stone chips and sand from land to the river area. I did that for almost three years. So, all my business today is centred round that: stone chips, sand then the vessel. This Japaul Group of Companies is where they have their foundations: sand, mining, dredging. Mining of stone chips, quarry, then equipment, chartering. It has grown from that...
What would be your final message to the readers of World Report?
My message is that Nigeria is not as bad as some people say, as number one. And two: not all Nigerians are dubious and you can’t do business with them. I can proudly say that I can do business with anybody, any foreigner, without any regret. They should also check some of the news that they hear about Nigeria and Nigerians. Some of them are fuelled by a spirit of competition, because some of the companies that sell these news storie, they don’t want other companies to come so they go out and talk about Nigeria. Meanwhile they are here for years, how come they have not left... Every country has its problems, there are thieves everywhere. So just find out who you want to deal with so the investment opportunity can give you an income, that’s my advice.