Ports Concession: Positive example of a public-private partnership model 

lagos-port

 By Obiajulu Agu 

The nation’s seaports will continue to play a critical role in Nigeria’s growth and socio-economic development. The ports serve are gateway to the nation’s economy – providing direct and indirect jobs to hundreds of thousands of Nigerians. The ports support Nigeria’s export drive and are also critical to the importation of goods for which the country cannot establish a comparative advantage in producing locally.

The concession of the ports terminals under varying leaseholds in 2006 saw the Nigerian Ports Authority (NPA) divesting itself from cargo handling and other terminal operations. Consequently, under that “landlord model” of port management, the NPA retained responsibility for the provision and maintenance of common user facilities such as ports internal road networks, main gates, waterfront security, and marine services.

The NPA is also the technical regulator of the ports.

The ports concession, which recorded 25 concessionaires with leases on terminals ranging from 15 to 25 years, aimed at attracting private sector investments for much-needed upgrades in the system, in order to align it to world-class standards to boost efficiency and revenue. Being the famed “gateway to the nation’s economy”, the Federal Government obviously intended to utilise the port concession to radically improve the state of the ports, thereby boosting capacity
and promoting Nigeria’s economic growth and development.

The landlord model for ports operations the Federal Government adopted for the concession regime, while allowing the NPA to retain ownership of terminals, gave exclusive rights to the terminal operators, “the concessionaires”, to invest on, operate, and maintain facilities within designated terminals. In effect, the landlord model reduces the financial burden on the Federal Government of managing the ports, as the terminal operators cater for both infrastructure development at their respective concessions, while each of them pays to the Federal Government, through the NPA, annual concession fees in the form of lease fees and throughput fees. The estimated revenue to government from the ports terminals concessions is estimated at $6.54 billion over the period.

Prior to the Ports Reform Programme, notably the concession peg, the system contended with major challenges that rendered it grossly inefficient. Aptly capturing the former parlous state of the Nigerian ports system, a recent report of a study by the leading accounting firm Akintola Williams Deloitte stated: “The average ship waiting time before berthing was 21 days, vessel turnaround time was 5 days while dwell time for cargo was as high as over 30 days. The ports had poor infrastructure (roads, rail, quay, buildings, equipment, and yard) and were heavily congested leading
to insecurity and pilferage, delays in cargo clearance and inefficiencies in cargo handling largely due to manual processes.”

The industry report by Akintola Williams Deloitte titled: Public Private Partnership (PPP) as an anchor for diversifying the Nigeria economy: Lagos Container Terminals Concession
as a Case Study
 stated that, as a direct impact of investments by terminal operators, the ports have witnessed increased ship traffic and throughput, leading to a 400 per cent rise in container throughput from 400,000 twenty-foot equivalent units (TEUs) in 2006 to 1.6 million TEUs in 2014.

The document noted: “The investments have also led to the eradication of ship waiting time at the container terminals, as ships now berth on arrival. Vessel turnaround time has been reduced to from five days to 41 hours while average dwell time for cargo clearance went from over 30 days to just 14 days.

“In addition, due to improved security and lighting of the terminals, the ports now run a 24 hours and seven days a week operations. This has been made possible by the investments and transformations made at the ports by the terminal operators.”

The ports concession, according to the report, saves Nigerian importers and exporters about $800 million (N244 billion) annually, which, hitherto, was paid to shipping companies as congestion surcharge.

Overall, ports concession is a positive example of a PPP model that
is supporting the diversification and growth of the Nigerian economy.

The study by Akintola Williams Deloitte stated poignantly: “The challenge faced at the ports are mostly borne by the terminal operators who invest heavily into the ports yet earn little relative to the size of the investments made.”

The report blamed the high cost of doing business at the nation’s seaports on the Nigeria Customs Service (NCS) and other government agencies, claiming that Customs processes are responsible for not less than 82.1 per cent of the charges incurred by consignees.

Akintola Williams Deloitte reported that its value chain analysis of a 20-foot container laden with cargo worth N44.42 million ($100,000) imported into Nigeria from China, revealed that about N6.5 million would be required to ship the consignment in, clear it out of the port, and deliver it to the consignee’s warehouse.

The document explained that, of this amount, about N5.3million, representing 82.1 per cent, is paid to the NCS as Import Duty, Comprehensive Import Supervision Scheme (CISS) administrative surcharge on imports, 0.5 per cent surcharge for ECOWAS Trade Liberalisation Scheme (ETLS) of the Economic Community of West African States (ECOWAS), seven per cent Port Development Levy and Value Added Tax (VAT).

The firm stated that various actors and their respective earnings in the value chain include shipping companies, the NPA, terminal operators, clearing companies and haulage services providers. It said shipping companies are responsible for 13.8 per cent of the port cost (N897,000); terminal operators 1.8 per cent (N117,000); Customs 82.1 per cent (N5.3 million); transporters 1.1 per cent (N71,500); and clearing agents (N78,000).

The report noted that, in spite of their huge investments, meagre earnings, and the burden of bearing most of the challenges at the ports, terminal operators contend with their terminals being used as “cheap storage warehouse alternatives” by cargo owners. In the words of the report: “The current policy provides for a free three days storage after which a charge of N900 is applied per day and regulated by the NPA. Importers take advantage of the low storage charges offered by the terminal operators to store their imported goods at
the terminal as opposed to a site warehousing facilities that charge as much as N60,000 per day.”

It is tragic that the terminal operators are not getting the expected returns on their whopping investments in the system. Checks revealed that the blame for the tragedy rests squarely on the Federal Government. If the terminal operators’ efforts boosted throughput to unimaginable levels, Federal Government policy-induced dislocations have seen a huge dip in throughput at the ports in the past couple of years. Industry watchers posit that the respective import trade policies on rice, vehicles and fish importation were not properly packaged in the framing and implementation, resulting in a drop in the imports through Nigerian ports. Invariably, imports destined for Nigeria are being shipped to the ports of neighbouring countries and trucked overland. Any wonder that two of Nigeria’s biggest seaports, the Lagos Port Complex (LPC) and the the Tin-Can Island Port Complex (TCIPC), both in Apapa, Lagos State, are operating at 35 per cent and 40 per cent of their respective installed capacities.

Curiously, the Federal Government promotes a ports taxation system that is heavy-handed, albeit anachronistic, such as the continued retention of the one per cent CISS administrative surcharge that used to be service providers for the pre-shipment and destination inspection regimes; VAT on import duty; and the seven per cent Port Development Levy that may have been justified before the concession regime when the NPA had full responsibility for operations of the ports. There are a slew of other levies that were ostensibly crafted to generate funds for the development and growth of local substitutes to curb importation, including the National Automotive Council (NAC) Levy, and Sugar Levy, among others.

A truly reformist programme is dynamic and not conclusive, as it is constantly reviewed and finetuned to have it achieve the best of its purposes and aims. Therefore, the Federal Government must urgently rescue the terminal operators from the current insufferable state they have found themselves in because they expressed an article of faith and invested heavily in the Nigerian ports system. Their rewards should not be the raw deal they are currently getting. Their rewards and that of all stakeholders must be an equitable system that covers all, be they public or private interests, and promoting good public private partnership (PPP).

 

Mr. Agu is the Managing Editor of the online medium MARITIME MATTERS, www.maritimematters.com.ng. He wrote from Lagos. 

  

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