Article

by Graham Thorpe

Nigeria continues to be a high-volume issuer of L/Cs, one of the largest in Africa. The format of these has rapidly evolved, having been mapped out by government import regulations and, especially since bank rationalization, to meet the competitive demands of the market place.

Most readers will recall the event of early January 2006 when, in what seemed to be an overnight development, the wording of Nigerian L/Cs was structured to meet the new government regulation concerning destination inspection. Previously, goods destined for Nigeria were inspected prior to shipment; now instead they were to be inspected upon arrival.

This was a huge and important step forward for the country, but the changes introduced had a far-reaching impact that many advising banks and corporates found some difficulty with, for example, a requirement for documents to be attested by a local chamber of commerce.

However, with worldwide support, the goal of destination inspection was soon achieved, and we began to see a regular L/C format from Nigerian issuing banks, covering most import L/Cs. This largely standard format (oil L/Cs are different) follows the guidance circulars on the subject of destination inspection as published on the Central Bank of Nigeria web site http://www.cenbank. org/documents/policycirculars.asp

Discrepancies

Although there has been a largely successful move to destination inspection and the format is now accepted, we still see repetitive discrepancies in documents. This may be caused by the wording of L/Cs sometimes not sufficiently describing exactly what is required and perhaps by beneficiaries making their own interpretation of the requirements. The commentary that follows is intended to help explain the components that cause most of the discrepancies. It is based on the author's involvement in clarifying destination inspection requirements and also by the handling of L/Cs issued by many Nigerian banks advised to exporters worldwide.

The circulars from Central Bank of Nigeria directed Nigerian banks to call for various documents under L/Cs, and banks have accordingly followed that direction. This has resulted in almost every L/C (for goods) incorporating a standard list of documentary requirements and additional conditions.

Ongoing experience suggests that parties dealing with Nigeria need to pay particular attention to the following:

CCVO

This is often simply referred to just as CCVO, but it is a Combined Certificate of Value and Origin Form C16 for Exports to Nigeria.

Following are some examples of how the CCVO is called for in an L/C, extracted from L/Cs issued by different banks in Nigeria. These banks all request the CCVO, but they have asked for it in slightly different ways. Following are some examples:

- COMBINED CERTIFICATE OF VALUE AND ORIGIN (CCVO) CONTAINING FORM M NO., ADEQUATE DESCRIPTION OF GOODS, DESTINATION PORT, SHIPMENT IDENTIFICATION, SHIPMENT DATE, COUNTRY OF ORIGIN AND OF SUPPLY IN ADDITION TO PFI DETAILS

- 3 ORIGINAL AND 3 COPIES CCVO (FORM C16)

- 1 ORIGINAL COMBINED CERTIFICATE OF VALUE AND ORIGIN (CCVO) AND 3 COPIES

- COMBINED CERTIFICATE OF VALUE AND ORIGIN (CCVO) IN 3 ORIGINALS IN FORM C.16 FORMAT SHOWING A BREAK DOWN OF FREIGHT, FOB AND CFR VALUES

- 3 ORIGINAL PLUS 1 COPY OF COMBINED CERTIFICATE OF VALUE AND ORIGIN (CCVO) COMBINED CERTIFICATE OF VALUE AND ORIGIN (CCVO) MUST CONTAIN THE FOLLOWING DETAILS:

- FORM M NO., DESCRIPTION OF GOODS, ACTUAL PORT OF ENTRY, DATE OF SHIPMENT, COUNTRY OF ORIGIN AND COUNTRY OF SUPPLY

- THREE ORIGINAL COMBINED CERTIFICATES OF VALUE AND ORIGIN (CCVO) OF THE FEDERAL REPUBLIC OF NIGERIA.

Sometimes we only see the detail of the document being called for in the additional conditions section of the letter of credit, for example:

47A: Additional Conditions

- THE FINAL INVOICE AND COMBINED CERTIFICATE OF VALUE AND ORIGIN (CCVO) MUST STATE THE ADEQUATE DESCRIPTION OF GOODS, PORT OF DESTINATION, SHIPMENT IDENTIFICATION, DATE OF SHIPMENT, COUNTRY OF ORIGIN, COUNTRY OF SUPPLY

- THE COMBINED CERTIFICATE OF VALUE AND ORIGIN (CCVO) MUST BEAR THE FORM 'M' NO. PORT OF DESTINATION, SHIPMENT IDENTIFICATION (E.G., BILL OF LADING NUMBER, VESSEL AND VOYAGE NUMBER, AND SHIPPING MARKS), COUNTRY OF ORIGIN AND SUPPLY.

Although it can be argued that the document called for should be examined, the problem is that it is an import form that the authorities expect to be properly completed in the specific format of Form C16. Therefore, it is perhaps in the seller's best interest to ensure that it is.

The matter of the "Country of Supply" (in this context) often causes difficulty, because many exporters specify it as the country to which the goods are being supplied (Nigeria) instead of the country from which the goods are being supplied.

Manufacturer's certificate

A manufacturer's certificate is called for in various ways in Nigerian letters of credit, as shown below. However, difficulties are encountered when the supplier is not the manufacturer and with some goods that are not manufactured, for example, fish in the sea!

Following are some examples of how the manufacturer's certificate is called for:

- TWO ORIGINAL AND ONE COPY OF MANUFACTURER'S CERTIFICATE OF PRODUCTION STATING MANUFACTURING STANDARDS ADOPTED. I.E., DIN, ASTM, ISO, ETC.

- 1 MANUFACTURER'S CERTIFICATE OF PRODUCTION (STATING THE MANUFACTURING STANDARDS ADOPTED E.G., ISO, IES, ETC.) AND 5 COPIES MANUFACTURER'S CERTIFICATE OF PRODUCTION IN THREE ORIGINALS STATING STANDARD ADOPTED

- MANUFACTURER'S CERTIFICATE IN 3 ORIGINAL AND 2 COPIES.

The expectation is that the manufacturer's certificate will show which standards, such as ISO for example, have been followed in manufacturing the goods. Whilst some presenters decide to simply replicate the words used in the documentary credit to ensure compliance with the L/C, that in itself can cause a problem. If a document simply states the words STANDARD ADOPTED, this may comply with the requirements of the L/C; however, the absence of detail makes it impossible to identify the standards under which the goods have been manufactured, which can be deemed to be a discrepancy

What is recommended is a document from the manufacturer indicating the standards used in manufacture. If such a document is not appropriate to the circumstances, beneficiaries need to seek an early amendment to the L/C.

Direct documents

Since goods are now inspected upon arrival, the inspection process requires documentation. That has resulted in a requirement for L/Cs to be structured with a clause that usually requires certain documents to be sent by the exporter directly to the L/C issuing bank within 14 days of shipment, and to give evidence of that in their documentary presentation under the L/C. (Note: since the preparation of this article, the CBN has amended the 14-day requirement to 21 days.)

Following are some examples of how this has been done:

- BENEFICIARY SHALL SEND THE FOLLOWING DOCUMENTS BY COURIER DIRECTLY TO X BANK WITHIN 14 (FOURTEEN) DAYS AFTER SHIPMENT AND A CERTIFICATE TO THAT EFFECT WITH ORIGINAL COURIER SERVICE AIRWAY BILL ATTACHED. DOCUMENTS ARE:

(i.) COPY OF AIR WAY BILL

(ii.) ONE ORIGINAL AND ONE COPY OF COMBINED CERTIFICATE OF VALUE AND ORIGIN (CCVO)

(iii.) ONE ORIGINAL AND ONE COPY OF MANUFACTURER'S CERTIFICATE OF PRODUCTION STATING MANUFACTURING STANDARDS ADOPTED

(iv.) ONE ORIGINAL AND ONE COPY OFPACKING LIST

(v.) ONE ORIGINAL AND ONE COPY OF COMMERCIAL INVOICE.

- A CERTIFICATE IS REQUIRED FROM THE BENEFICIARY CONFIRMING THAT THE FOLLOWING DOCUMENTS HAVE BEEN SENT DIRECT BY COURIER TO X BANK

1 ORIGINAL CLEAN ON BOARD OCEAN BILL OF LADING

1 COPY OF PACKING LIST.

1 COPY OF COMBINED CERTIFICATE OF VALUE AND ORIGIN (CCVO).

1 COPY OF MANUFACTURER'S CERTIFICATE OF PRODUCTION.

- ONE SET OF COPIES OF DOCUMENTS IN FIELD 46A SHOULD BE SENT BY COURIER DIRECTLY TO X BANK WITHIN 14 DAYS FROM DATE OF SHIPMENT AND A CERTIFICATE OF COMPLIANCE SENT TO US THROUGH OUR CORRESPONDENT BANK.

- A CERTIFICATE ISSUED BY THE BENEFICIARY STATING THAT ONE ORIGINAL AND ONE COPY COMBINED CERTIFICATE OF VALUE AND ORIGIN (CCVO), ONE ORIGINAL AND ONE COPY MANUFACTURER'S CERTIFICATE OF PRODUCTION STATING STANDARDS ADOPTED, ONE ORIGINAL AND ONE COPY PACKING LIST, ONE ORIGINAL AND ONE COPY LABORATORY TEST CERTIFICATE AND ONE ORIGINAL AND ONE COPY CLEAN/SHIPPED ON BOARD BILL OF LADING HAVE BEEN FORWARDED TO X BANK BY AIR COURIER NOT LATER THAN TWENTY ONE DAYS AFTER SHIPMENT DATE.

In some instances, beneficiaries are reluctant to allow a set of documents that include an original shipping document to sent direct, particularly to applicants. In many cases, we have found that the presenter has not complied with this L/C requirement, resulting in a discrepancy.

We also encounter situations in which the presenter considers that the presentation of documents supersedes this requirement. In doing so, it may argue that the section indicating the number of days for presentation of documents overrules the 14-day (or currently 21-day) requirement. This is incorrect.

Ideally, a set of documents should be prepared in advance to facilitate destination inspection, which will hopefully avoid delays in the clearance of goods.

Financial structure

We have seen significant changes in the financial structure of Nigerian L/C transactions. Until a couple of years ago, the vast majority of confirmed operative L/Cs were typically secured by cash cover placed with the confirming bank. As confirming banks have seen financial security improve, they have extended "clean" confirmation lines to Nigerian L/C issuing banks. In such cases, the L/C issuing bank does not need to provide cash cover.

Previously, most Nigerian L/Cs were payable at sight upon presentation of documents. But recently there has been a huge increase in the number of usance L/Cs. This, in turn, is leading to more and more requests from beneficiaries for "discounting" during the usance period.

The current event on the horizon for Nigerian L/Cs is the implementation of UCP 600. We are waiting to see what changes (if any) will be introduced in the L/C structure.

Graham Thorpe is Head of Trade Finance at FBN Bank (UK) Ltd. FBN Bank (UK) Ltd is a UK incorporated and FSA authorized and regulated bank ( www.fbnbank.co.uk) processing L/Cs from Africa, including many Nigerian banks, which are advised/confirmed to beneficiaries worldwide. Mr Thorpe's e-mail is g.thorpe@fbnbank.co.uk