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Documentary Letter of Credit Discrepancy and Risk Management in the Nigerian Crude Oil Export

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Documentary Letter of Credit Discrepancy and Risk Management in the Nigerian Crude Oil Export Documentary Letter of Credit Discrepancy and Risk Management in the Nigerian Crude Oil Export by Shamsuddeen Musa Aujara A thesis submitted in partial fulfilment for the requirements for the degree of Doctor of Philosophy at the University of Central Lancashire Aplril 2019 STUDENT DECLARATION FORM *I declare that while registered as a candidate for the research degree, I have not been a registered candidate or enrolled student for another award of the University or other academic or professional institution. *I declare that no material contained in the thesis has been used in any other submission for an academic award and is solely my own work. Signature of Candidate: ______________________ Type of Award: Doctorate School: Lancashire School of Business and Enterprise Dedication To my beloved parents: Alhaji Musa I. Aujara and Hajiya Binta M. I. Aujara ii Acknowledgment Glory to the Almighty Allah for blessing me with the patience through the years to undertake and successfully complete my study. I would like to acknowledge the management of the Petroleum Technology Development Fund (PTDF) Nigeria for sponsoring my research. My profound gratitude goes to Alhaji Ahmed Galadima for being instrumental to the success of my PhD. I would like to extend my appreciation to my supervisors, Professor Yahaya Yusuf and Dr. Zakaria Ali Arabi as well as my research tutor Stephen George Willcocks for devoting their time to give appropriate guidance and mentoring in the course of completing this research. My special thanks go to those people who participated directly or indirectly in the course of my data collection at the Crude Oil Marketing Division (COMD) of the Nigerian National Petroleum Corporation (NNPC). I thank you all for your uncountable contributions. I would like to express my sincere thanks to all members of my family who have believed in my ability since my childhood and who have stood determinedly by my side, whenever I needed their support. In particular, I thank dad Alhaji Musa Aujara and my mom Hajiya Binta Aujara as well as my siblings: Kabiru, Hajiya (Faiza), Halima, Zahraddeen, Amina, Maryam, Abubakar, Zainab, Ummalkhair, Khalifa, Hadiza, Babangida, Fati, Musa Jr, Mama and Zuhra. It is obvious that I wouldn’t have been where I am today without your persistent love, prayers and support. My sincere love and thanks go to Alhaji Shuaibu Maigida and his family for their support. My warm thanks go to all my colleagues at the University of Central Lancashire with whom I had personal relationships and memorable academic sessions. My sincere gratitude also goes to my friends and well-wishers. iii Table of Contents Dedication ........................................................................................................................ ii Acknowledgment ............................................................................................................ iii Table of Contents ............................................................................................................ iv List of Figures ................................................................................................................ viii List of Tables ................................................................................................................... ix List of Abbreviations ......................................................................................................... x Abstract ......................................................................................................................... xii CHAPTER 1: INTRODUCTION ............................................................................................ 2 1.1 Introduction ................................................................................................................. 2 1.2 Background of the Study .............................................................................................. 3 1.3 Aim and Objectives ...................................................................................................... 7 1.4 Research Methodology and Methods ........................................................................... 8 1.5 Significance and Contribution of the Study ................................................................... 9 1.6 Structure of the Thesis ............................................................................................... 10 CHAPTER 2: REVIEW OF DOCUMENTARY LETTER OF CREDIT ........................................... 15 2.1. Introduction .................................................................................................................... 15 2.2. The Meaning of Letter of Credit ................................................................................. 15 2.3. Types of Letter of Credit ............................................................................................. 19 2.3.1. Commercial letter of credit ...................................................................................... 19 2.3.2. Standby letter of credit ............................................................................................ 20 2.3.3. Red clause credit ...................................................................................................... 20 2.3.4. Revolving credit ........................................................................................................ 20 2.3.5. Transferable credit ................................................................................................... 21 2.3.6. Back-to-back credit ................................................................................................... 21 2.3.7. Revocable Credit and Irrevocable Credit .................................................................. 21 2.3.8. Unconfirmed Credit and Confirmed Credit .............................................................. 22 2.4. The Legal Source of Letter of Credit ............................................................................ 23 2.5. Environmental Risk in Letter of Credit Operation ....................................................... 28 2.5.1. Customer risk ........................................................................................................... 29 2.5.2. Bank risk ................................................................................................................... 29 2.5.3. Country ..................................................................................................................... 30 2.6. Other Risk Areas in International Trade ..................................................................... 31 2.6.1. Transportation Risk .................................................................................................. 31 2.6.2. Foreign Exchange Risk .............................................................................................. 32 2.6.3. Fraud Risk ................................................................................................................. 33 iv 2.7. Letter of Credit Operation Mechanism ....................................................................... 34 2.7.1. Establishment of Sales Contract ............................................................................... 36 2.7.2. Letter of Credit Application and Agreement ............................................................ 40 2.7.3. Issuance of the Letter of Credit ................................................................................ 42 2.7.4. Advising Letter of credit ........................................................................................... 45 2.7.5. Documentary Groundwork Operations .................................................................... 46 2.7.6. Presentation and Examination of Documents .......................................................... 52 2.7.7. Payment Settlement ................................................................................................. 54 2.8. Documentary Discrepancy Risks in Letter of credit ..................................................... 56 2.8.1. Defective Documents ............................................................................................... 58 2.8.2. Inconsistent Documents ........................................................................................... 59 2.8.3. Shipment Delay ........................................................................................................ 60 2.8.4. Late Presentation ..................................................................................................... 61 2.8.5. Missing Documents .................................................................................................. 62 2.8.6. Letter of Credit Expiry .............................................................................................. 62 2.9. Factors and Causes responsible for Documentary Discrepancies ................................ 63 2.10. The Emergence of Bank Payment Obligation .............................................................. 66 2.11. Summary ................................................................................................................... 68 CHAPTER 3: RESEARCH METHODOLOGY AND METHODS ................................................ 70 3.1. Introduction ............................................................................................................... 70 3.2. Research Philosophy .................................................................................................
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