Cash crunch, NPA and its lessees

By Bolaji Akinola

These are tough times for government and private businesses. Even publicly quoted companies are not smiling at all. There is cash crunch in the economy. Now cash crunch doesn’t necessarily mean that a company is going bankrupt – it simply means that they an organisation is running low enough on cash so that it starts to have an impact on its operations.

The Nigerian Ports Authority (NPA) no longer directly provides services at the port. It has since leased out various portions of the port to third parties to manage and provide services that used to be provided by government. For the provision of marine services, NPA formed special purpose vehicles – Lagos Channel Management, Bonny Channel Company and Calabar Channel Management Company – to provide pilotage, towage and dredging services at the port while for terminal handling and stevedoring operations, NPA entered into what is known as “lease agreements” with the various lessees while it retained the role of lessor and technical regulator. The concession lease agreements range from 10 years to 25 years depending on the nature of the facility.

In these agreements, NPA gave the exclusive right to the private companies (the concessionaires or lessees) to operate, maintain and where necessary, carry out investments on port facilities, within designed premises at the nation’s ports for a given number of years and on terms and conditions agreed on, between the NPA and the respective concessionaires.

The port concession agreement was a smart move by government to relief the NPA of financial burdens typically incurred on capital expenditures, overheads, patronages, stealing and wastages. NPA does not have to carry such burden anymore while it has been able to maximise revenue collection through the effectiveness of the private sector. Port efficiency has also improved considerably.

The three types of fees payable under the various concession agreements are commencement fees payable immediately after the execution date; fixed annual payment of a sum as specified in the agreement payable in installments; and throughput fees payable on total volume of cargo handled on vessels that used the leased premises or property. These fees are paid to NPA in dollars. NPA abhors naira. Lol.

This arrangement worked fine while the naira-dollar exchange rate was relatively stable. The problem now is that naira has lost over 100% of its value over the past ten years and 50% value in the last one year. Forget the Central Bank of Nigeria band of N197 – N199.50; nobody gets dollar to buy through the official foreign exchange window. What this means is that while a lessee or concessionaire required say N130million to pay NPA $1million in 2006, it had to cough out N200million one year ago to make the same payment. The situation is worse today, as a whopping N300million is required by the operator for the same payment.

And to compound the operators’ woes, volumes have been declining. The various terminals lost volumes in the region of 14% to as much as 50% last year, depending on the type of cargo they handle.

The combo of naira depreciation, drop in volume and rising inflation has created a perfect storm for operators, resulting in the inability of some of them to meet their dollar payments to NPA. The situation is not getting any better at all as the federal government, faced by its own share of the cash crunch, pounds pressure on its various agencies to turn in more revenue. NPA naturally becomes a target in an era of aggressive revenue drive. I saw this scenario clearly in a public notice NPA published on Monday.

It read: “The Nigerian Ports Authority hereby give notice to all holders of leases all over the country to come forward and settle fully their rental obligations within four weeks from the date of this publication. This includes all categories of lessees with any outstanding payment.

“Failure to comply within this stipulated period will be viewed as a breach of the lease covenant for which the lease may be terminated.

“All holders of new leases who have not met the lease terms and fail to comply with this deadline should consider such leases terminated.”

No one can live in denial of present day realities in the country, just as no one can deny NPA its legitimate revenue.

My appeal therefore is that government should allow NPA collect the naira equivalent of dollar payments due to it at CBN rate. After all, we don’t spend dollars in Nigeria. Whatever goes into the federation account will eventually be converted to naira before or after it is allocated to states, local governments or for federal government’s use.

I don’t think we should kill the goose that lays the golden egg. It is important that those running the various concessions remain in business. Their ability to pay staff salary, meet their overhead costs and continuously invest at the port must not be impaired. The stance must be such that will produce a win-win outcome for all.


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