Prior to the port reforms which finally culminated in the concession programme of 2006, the Nigerian ports suffered from increasing inefficiency, leading to long turn-around times for ships and rising container dwell time. Moreover, there was an overstaffed and unproductive labour force, increased insecurity of cargo, corrupt practices and excessive port-related charges. The port managers were tied to the apron string of the Federal government which they often go to, cap in hands, to get financial bail- out, especially for capital investments.
During this period, the Nigerian ports system was highly centralized. The Nigerian Ports Authority (NPA) required permission from either the President or the Minister of Transport for virtually all the major decisions. This led to inefficiency and lengthy decision-making process in the Nigerian Ports Sector. Moreover, NPA was responsible for both regulatory and operational functions of the ports. This was clearly a major bottleneck to developing efficiency in the port sector.
This worrisome state of the port industry then necessitated a reform process initiated by the Obasanjo administration, which after lengthy and winding technicalities and formalities, dove- tailed into another long bidding process that eventually produced 25 successful bidders who took over the operations of the 25 terminals into which the six nation’s seaports were balkanised.
The 25 concessionaires took over the terminal operations after the NPA has divested its interests on lease agreement 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.
The landlord model for ports operations which the Federal Government adopted for the concession regime, while allowing the NPA to retain ownership of terminals, gave exclusive rights to the terminal operators 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 infrastructural 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 in excess of $6.54 billion over the period.
A report of a study by the leading accounting firm, Akintola Williams Deloitte painted a gruesome picture of the pre- concession period of the ports.
“The average ship waiting time before berthing was 21 days, vessel turnaround time was five 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 further stated that “The challenges 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.”
However, due to the down turn in the economy, the earlier gains recorded by the concessionaires were filtered away as imports shrank considerably which affected the profit margin of the operators.
The Central Bank of Nigeria (CBN)’s policy on forex restriction on 41 prohibitive items had also plunged the revenue earnings to 40 per cent.
This made them to renege on prompt remittances of the lease fees, thorouput fees and other charges to the NPA.
The terminal operators, under the 2006 concession agreement, are supposed to pay the mutually agreed throughput fees, cargo due, lease fees and other royalties payments to the Federal government through the Nigerian Ports Authority(NPA)
As at December 2015, the 25 private terminal operators who are the beneficiaries of the 2006 port concession have owed a cumulative amount of $4433.4million (about N86.2billion) which they are yet to remit into the federal coffers.
This has made the management of the NPA, led by Ms Hadiza Usman Bala to embark on aggressive debt recovery drive to recoup the debts.
The unfavourable business climate is now putting the investments valued at N200.2billion under threats by the cost of operations which has risen by 328 per cent at the Lagos container terminals alone.
However, the port concession programme was a major revenue stream for the federal government. The concession fee alone for all container terminals in Nigeria with direct investment is estimated at over $1 billion dollars, commencement income of over $44 million, equipment sales of over $53 million and lease fees estimated at over $4 billion dollars.
“In total, the projected estimated income for the Federal Government is at over $6 billion with reduced financial burden on the NPA.
The present NPA management has embarked on aggressive infrastructural revolution to reposition the ports and make them more competitive.
Capital and maintenance dredging of some of the shallow channels at ports such as Calabar and Warri ports have been captured in the 2017 budget to further deepen them to accommodate bigger vessels.
The NPA had consistently dredged the channels up to this period to provide for larger ships, which required deeper channels.
The port channels were about 11million in depth before concession, but the NPA had now achieved a water depth of between 12.5million and 13million while plans are afoot to deepen them further.
“Since the concession to date, on a national scale, over 53million has been dredged and 24 numbers of critical wrecks have been removed. This provides shipping companies the economy of space, with contributes to increased efficiency and consequently productivity.
“All together, the concessionaries had invested over N200billion on the concessional terminals. The terminal operators have invested significantly in the port infrastructure to run the ports to reach efficiency levels it records today.
“Several equipment has been acquired, as most inherited equipment from NPA during the concession are in a state of disrepair. The terminal operators of the container terminal sector have made heavy investments in the procurement of forklifts, cranes, RTG cranes, mobile crane, trucks, trailers and other building infrastructural needs.” an analyst noted.
However, due to some of the observed lapses on the part of the concessionaires, the current NPA board and management is now pushing for the review of the concession agreement to further consolidate on its gains and strengthen its implementation.
Chairman of the Board, Mr Emmanuel Adesoye hinted that those who fell short of the expectations may have their agreement revoked and taken over by serious investors who would comply accordingly with government desires at the improvement of the Ports.
Adesoye said it had been observed that many concessionaires had often times failed to fulfil their contractual obligations with the NPA.
He said this situation would no longer be tolerated because, according to him, revenue meant for the NPA through lease and other fees were not being remitted to the organisation regularly.
Nevertheless, the 2006 port concession has to a large extent recorded an appreciable success despite some observable lapses that could be surmounted if the programme is re-worked.
This is in view of the objective of the concession programme which include reduction in turn-around time for vessels, reduction in cargo dwell time, enhancement of security of ships at berth and cargoes at terminals.
Others are to attract private funds and freeing public resources for social services, create efficient and user-friendly ports and the security of persons in the ports.
However, to the extent these objectives have been met by the programme remains a matter of conjecture, depending on which divide one is.