Nigerian Port Reform and Concession
Background and Introduction
In the 1990s, 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. Furthermore, unlike the usual status of ports as “Cash-Cows”, the Nigerian Ports generally required financial support from the Federal Government, especially for its capital investments.
Before reform, 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.
Engagement of CPCS Transcom
In order to overcome the inefficiency and improve the productivity in the ports sector, the Federal Government of Nigeria embarked on a ports reform program including concession of its terminal operations following the recommendations of a diagnostic study in 2001. To facilitate the reform program, the Bureau of Public Enterprises, with financial assistance from the World Bank, engaged the services of CPCS Transcom International Ltd in December 2003 as the transaction advisors for the port reform. Initially, the consultants from CPCS reviewed previous studies, and carried out the necessary legal, regulatory and financial due diligence. CPCS also proposed a restructuring framework, including a bid tender strategy, a new legal and regulatory framework for the entire port sector in Nigeria, regulatory changes, a human resources plan, a financial plan, as well as business plans for the proposed port authorities.
Regulatory Framework
Based on the proposed new legal and regulatory framework, a Ports Authority Bill and a Ports Commission Bill were drafted. Following stakeholder consultation, the Ports Authority Bill was amended to form two Port Authorities, namely, Lagos Ports and Harbour Authority and the Nigeria-Delta Ports and Harbour Authority. The Ports Commission Bill was also amended to a National Transport Commission Bill (NTC bill), which would form a National Transport Commission to act as the economic regulator and overseer of other regulations for Ports, Inland Water Transport, Roads and Rail sub-sectors. Later, the “aviation” sector was also included in the draft NTC bill to be supervised by the NTC. As of Apriul 2008, the Ports and Harbour Authority bills are with the National Assembly for enactment.
Although the new acts are required to govern the reformed Nigerian Ports sector in an optimal manner, the present Ports Act (1999), provided an adequate legal basis to go ahead with the concession program. Thus, following the necessary approval from the National Council on Privatisation (NCP) and the President of the Republic, BPE initiated the concession process in October 2004.
The key features of the new institutional structure for the port sector in Nigeria include:
· Creation of the two Autonomous Ports and Harbours Authorities
· Creation of the National Transport Regulatory Commission (NTC)
· Limiting the role of the Government (i.e Ministry of Transport)
· Private Operators to perform the Port Operations
The functions of the new port authorities include day-to-day technical and safety regulatory functions, primary rights to the basic and operational infrastructure within their respective jurisdictions, power to coordinate marine activities, general responsibility for overall port planning and development, power to issue licenses (as authorised by and subject to guidelines set by NTC), authority to lease and concession port infrastructure, authority to collect port authority tariffs, etc. Although, as per the present arrangement, the Port Authorities will, at least initially, be performing the marine services (i.e. pilotage, mooring, vessel management etc.), the draft bill has provisions to “outsource” such services from the private sector.
As per the new structure, the role of the Ministry would be limited to the development of port policies, creation of a suitable legal environment, master planning, etc.
The Challenges
One of the major challenges of the reform was the rationalisation of the workforce. After the necessary due diligence and comparative analysis, when CPCS suggested to the Nigerian Government a retrenchment of upto 10,000 of its workforce of 13,000, Labour leaders naturally did not take it lying down. Although the Government was successful in restraining the unions from going to any major strike, the unions initially prevented the “would be” terminal operators from having access to the port premises during their transitional period. In order to expedite the process, President of the Republic, in accordance with a recommendation from BPE and its transaction advisors, formed a Presidential Task Force, chaired by the Minister of Finance and supported by the Minister of Transport. The taskforce also received continuous technical support from the transaction advisors. After year long negotiations with the labour unions, in February 2006 an agreement was reached on the severance package and the retrenchments. Based on the agreement, NPA workforce is now reduced to less than 4,000 from approximately 13,000 prior to commencement of the reform program, thanks to a humane retrenchment package.
The Nigerian Ports Authority, like many other Government agencies which undergo a privatisation process, was apprehensive at the beginning of the process. From the outset, there was close ongoing consultation between the Bureau of Public Enterprises, the transaction advisers and the NPA. Some of the meetings also included Transport specialists from the World Bank and other stakeholders. This consultation process proved highly useful in disseminating information to the NPA about the modalities of the concessioning and restructuring programs. NPA, through these meetings, and through commitments from the highest office of the Federal Government, became committed to the success of the process; it should be praised for its support and of the reform program.
The Landlord Ports
As indicated above, under the new Landlord Port model, the present Nigerian Ports Authority will be divided into two Ports, the Lagos Ports and Harbour Authority (LPHA), and the Port Harcourt Ports and Harbour Authority (PHPHA). The new arrangement is expected to create competition among the terminals in each Port Authority, as well as competition between the two Port Authorities. The two Port Authorities will be supervised by the Ports arm of the proposed National Transport Commission, in terms of economic and safety related issues. LPHA is will control the main Container Terminal in Lagos, five other break-bulk and bulk terminals in the Lagos Port Complex, and the Ports in Tin Can Island, which include a Container Terminal (this terminal, to be operated by French Bolloré group, is expected to create competition with the AP Moller’s Container Terminal in Lagos), a RoRo Port, a break-bulk Port and a bulk port. On the other hand, the PHPHA will be responsible for supervising 14 smaller scale terminals located across the South East and East of Nigeria, specifically in Port Harcourt, Warri, Calabar and Koko.
The new Terminal operators in the Ports of Lagos will be responsible for all investments in the Quay Apron (except the Quay wall), stacking yard, equipment, security wall, lighting etc. The Landlord, on the other hand, will be responsible for the investments in the quay wall, dredging etc. The operators will carry out the cargo handling and stevedoring operations, whereas the landlord will do the dredging, mooring (in cooperation from the operators), pilotage and the overall security of the ports etc (the security within the terminal is the responsibility of the individual terminal). Most importantly, the new arrangement will substantially improve benefits from Nigerian ports to the local and national economy, both directly (as financial benefits) and indirectly (through increasing efficiency in the sector).
Implementation of the Concession
To date, BPE and NPA have successfully executed 24 concession agreements and the terminal operators for those terminals have already taken over their respective terminals. For one remaining terminal, the preferred bidder is already in place and negotiation is almost concluded.