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Critical implications of seaports’ monopoly

By Sadiq Sani Abubakar
08 July 2015   |   2:13 am
A CASCADE of directives in the dying days of former President Goodluck Ebele Jonathan’s administration created eerie feelings in many a department of the country’s life, including the maritime industry.

lagos-port (1)A CASCADE of directives in the dying days of former President Goodluck Ebele Jonathan’s administration created eerie feelings in many a department of the country’s life, including the maritime industry.

One such alleged directive, gleefully carried out by the Nigerian Ports Authority (NPA) ordered LADOL Integrated Free Logistics Zone Enterprise to relocate its $500 million Egina FPSO currently going on in Apapa, Lagos, South-West Nigeria, to Bayelsa State in South-South Nigeria or to any convenient facility in the area.

Now, the only convenient facility that LADOL could possibly relocate its massive Egina Project to is the Onne/Ikpokiri Free Zone, which is exclusively controlled by INTELS.

What this directive connotes then is that LADOL, an INTELS’ competitor, should run its business from INTELS’ facility, under INTELS’ control.
The grave implication of this ominous directive is a tragic economic prognosis for LADOL. It will put a tinge of distress for LADOL and its Egina FPSO facility projected to employ about 50,000 Nigerians in the next five years; a massive project hailed worldwide as a milestone in Nigeria’s local content drive.

Therefore, any strain of the economic hope held aglow by LADOL, the poster child of local content and other free zones, which will be the inevitable grim consequence of this monopoly-inspired directive, will spell failure for Nigerian content law, a revolutionary edict that has attracted over $5 billion investments into the nation’s petroleum industry since its signing in 2010, with a projection of another $10 billion between 2015 and 2016.

In the second arm of the directive, the NPA says that all oil and gas cargoes must be handled at the designated terminals at Onne, Warri and Calabar ports. Again, these three ports are controlled exclusively by INTELS.

Now, what does NPA mean by ‘oil and gas cargo’? This question becomes very critical because the term ‘oil and gas cargo’ was neither mentioned in the contract between the sea ports and terminal operators on the one hand, and NPA and Bureau of Public Enterprises (BPE) on the other; nor was it in the 2004 Oil and Gas Export Free Zone Act (OGEFZA).

Indeed in Section 1(1) of OGEFZA, the President designates the Onne/Ikpokiri area of Rivers State as an Export Free Zone. There was no mention of ‘oil and gas’ anywhere.

This monopoly-coated move to hand over oil and gas cargo to one organization was totally rejected by Jonathan’s predecessors, former Presidents Olusegun Obasanjo and significantly, Umaru Musa Yar’Adua. These rejections were based on the clear dire economic consequences a monopoly would have on the ports and the nation generally. Despite the patriotic stance taken by Obasanjo, late Yar’Adua and the House of Representatives in 2012, the oil and gas cargo issue sizzled again.

On April 22, 2013, Ports and Terminal Operators Nigeria Limited (PTOL) sent a petition to the House Committee on Marine Transport to the effect that vessels carrying cargoes to its terminal were being diverted to Onne terminal controlled by INTELS Nigeria Limited because such cargoes were wrongly and strangely tagged ‘oil and gas cargoes’, causing PTOL to lose millions of dollars and naira.

The House Committee held a public hearing on the matter on April 30, 2013 where INTELS, NPA and PTOL, all made presentations. At the end, the committee upheld the House Resolution of 2012 – that operators should be free to choose ports of discharge for their cargoes within designated ports of Onne, Calabar, Port Harcourt and Warri. Thus, they asked that the status quo prevailed while INTELS’ attempt to justify the ‘oil and gas cargo’ theory fell flat on its face.

As late as September 18, 2014, the Senate Committee on Privatization waded into the same simmering issue after a protest letter from the Seaport Terminal Operators Association of Nigeria, (STOAN).

In its letter to the Minister of Transport, the Senate committee stated clearly that: “Terminals in Eastern Ports, in particular, are all general cargo terminals ……………That the Lease Agreements contain the operations which each Terminal is entitled to undertake and none was designated for any special purpose. The distinction as to oil and gas cargo therefore does not arise under the terms of the Lease Agreements”. The Senate committee, importantly, concluded, “that the diversion of oil and gas related cargoes from one port to another and /or one Terminal to another is contrary to the concession agreement and the spirit of competition and efficiency which the ports reform seeks to engender”. It then urged the minister to advise NPA to adhere strictly to the terms of the extant Lease Agreements.

Despite the committee’s charge, NPA continued with its diversion of vessels to INTELS’ ports forcing the committee to write the Honourable Minister of Transport for a second time practically warning the Minister and directing him, as a matter of utmost urgency, to urge NPA to carry out its observation. The committee directed the Minister “to submit a position paper on the reasons a particular terminal operator is being favoured at the expense of others in relation to the handling of a particular type of general cargo that has been termed “oil and gas” cargo as against the agreement signed with all parties to the concession with the Federal Government”.

Sadly, it is this same interpretation and implementation of the concession agreement by the Minister of Transport and NPA that former President Jonathan gave a seal of approval by his directive of April 27, 2015. Ironically, it was the same issue which the Senate Committee on Privatisation patriotically condemned twice, that the Senate now reversed itself to endorse when on May 7, 2015, it passed the amendment to the Oil and Gas Export Free Zone Authority Act (OGEFZA).

In a position paper presented to the Joint Senate Committee on Trade and Establishment and Public Services, on the Act to amend OGEFZA, on September 24, 2014, Mike Igbokwe, (SAN), captured the economic implications of Jonathan’s directive and the amended Act. In his words, “the discriminatory exclusion of the Port Harcourt Ports and Western zonal ports from the ports of discharge of ‘oil and gas related cargoes’ will adversely affect them financially, and make it impossible for them to fulfil their obligations to NPA and the Federal Government and frustrate them out of business”.

These seaport and terminal operators pay as much as U.S. $11 million – U$12 million annually as lease fees. They had invested massively in oil and gas related cargo handling equipment, specified costly plants, and assets based on the nature of cargo, and which they must maintain at heavy costs.

To crown it all, the NPA imposes on the terminal operators the obligation to guarantee minimum tonnage, handle and achieve 90% of forecast or projected volume or as contained in their technical proposals. Failure to achieve this would result in payment of penalties.

Jonathan’s directive will inevitably reduce the cargo coming to and being handled by the seaport and terminal operators and thus render them financially incapacitated.

They will therefore not be able to meet the minimum throughput they had projected, as their fortunes will take an abysmal slide. And thousands of Nigerians gainfully employed in their firms will be thrown back into unemployment. This, certainly, would not be the prayer of any government.

President Muhammadu Buhari should dig deep into this looming maritime catastrophe and act now. If the OGEFZA amendment, passed by the Senate in a seeming voodoo legislative session had also been passed by the House of Representatives, it would mean that INTELS would have taken complete control over facilities owned by its competitors.

The nation, wittingly or unwittingly, would have created a full blown foreign monopoly and tragically, place it on a monstrous but impregnable pedestal – to the awful detriment of its economy.

• Dr. Abubakar, a public affairs commentator, wrote from Abuja.