Why 32 years old tariff won’t make Nigerian ports competitive

After 32 years of operating an unsustainable tariff template, the NPA recently adopted a 15 percent upward review of its tariff to meet it’s need for facility upgrade, human capital development and port modernization. in this report, TOLA ADENUBI looks at why current economic realities make the review compelling. Excerpts

SINCE 1993, the Nigerian Ports Authority (NPA) has operated a tariff regime that had stood at a fixed rate despite rising inflationary trends that has left Nigeria’s quest for modern port management difficult.

During this period, Nigerian ports have struggled to compete favourably with its peers in the West African sub-region, losing cargoes to these ports even when 70 per cent of the cargoes that are shipped to the region are destined for Nigerian markets.

Compelled by the exigency of bringing Nigerian Ports up to speed with those of its peers in terms of infrastructure and equipment, the NPA recently announced that it has secured necessary approvals for a 15 per cent upward review of its tariffs.

The 15 per cent upward increase, which will cut across all NPA rates and dues, is premised on the urgent need to address the undesirable reality of aged and weak Infrastructure, obsolete equipment and slow Port capacity expansion which has continued to diminish the performance and indeed competitiveness of Nigerian Ports.

Globally, Port authorities depend on revenue from operations to stay alive to their responsibilities. Such responsibilities include construction and maintenance of Port infrastructure, dredging of waterways channels, provision of aids for safe navigation, provision of modern marine crafts for efficient harbour services, automation and digitisation of port transactions, port security, energy efficiency and training and retraining of its employees.

The global index of Port rating and competitiveness which the international trade community relies on for its choice of countries to do business with derives its data from how well the aforementioned responsibilities are addressed.

Coming at this period of global economic upheaval and scramble for markets, this belated tariff review, borne out of necessity, constitutes a critical success factor in Nigeria’s quest to win back cargo handling businesses and its accompanying benefits which she had lost to her maritime neighbors.

 

WHY THE REVIEW

The value of the 32 years old tariff has since been eroded by spiking Inflationary trend which is currently at about 35 per cent.

No business in the world is stuck at using a 32 years old pricing template for its 2025 transaction as this is largely unrealistic, unsustainable and cannot help in the drive towards competitiveness and efficiency

The last time NPA tariffs were increased was in 1993 when the exchange rate was N4.7k to 1US Dollar and government revenue through the tariffs have consistently suffered decline due to the attendant effects of the naira devaluation.

Findings showed that the rates were simplified in 2001 to provide a handy tariff compilation for the public. The same tariff was unbundled in 2006 at the commencement of port concession to differentiate the NPA charges from the ones to be collected by the terminal operators with regards to cargo handling operations

The rates inherited by terminal operators have inbuilt adjustment mechanism, which is being taken advantage of by the private operators and have enjoyed the support of Nigerian Shippers Council. In the face of these, the NPA’s rates remained static.

Sister government agencies like the Nigeria Customs Service (NCS) operating within the same maritime ecosystem have always adjusted their duty rate in line with prevailing exchange rate and market reality at any point in time, while freight rates have also been adjusted by very high margins over the years. In all of this rate adjustments, the NPA rates have remained static.

With inflation biting hard on economic realities, port management cost like wages, fuel and other areas of expenditure have all gone upward without a commensurate rise in NPA charges over the years.

The need for funds to ensure improved port infrastructure, robust ICT for Port Community System, procurement of Tug Boats and other operational platforms to achieve efficiency are other compelling factors that meant that the 15 per cent hike in NPA tariff has become inevitable.

Furthermore, the need to apply more funding to outer port facilities and jetties like the Kirikiri Lighter Terminal and development of other critical port facilities across the country were becoming strenuous when based on the old tariff template.

 

TARIFF REVIEW BENEFITS

Although long overdue, a quick win benefits of the NPA tariff review is the immediate boost it gives to the Authority to fast track the commencement of actual works on its concluded Port reconstruction and modernization plans.

Secondly, the tariff review provides the necessary guarantees to fund the acquisition and urgent deployment of the Information Communications Technology (ICT) backbone of the PCS which is the precursor to the implementation of the National Single Window

Furthermore, the increased revenue generation arising from the review buoys the Authority’s capacity for critical maintenance works to open up the Eastern Ports for increased vessel and cargo traffic such as the reconstruction of collapsed Escravos Breakwaters and challenged aspects of Rivers, Onne and Calabar Ports respectively.

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WILL REVIEW INCREASE COST OF DOING BUSINESS?

The 15 per cent upward review of NPA tariff is not expected to affect the cost of doing businesses at the ports since it does not affect rates like: Throughput Fee, Lease fees, Rents on NPA Landed Properties, Service Boat operations, Hourly towage and mooring charges.

Aside collection of unreceipted fees by state and non-state actors in and around the ports, other factors that affect cost of doing business in Nigerian ports are amount collected by terminal operators as throughput fees.

Also, the terminal operators pay the NPA Lease fee for running the ports on behalf of the authority and the authority has stated that this will not be affected by the 15 per cent upward review.

Also, the NPA has revealed that Service Boat operations, hourly towage and mooring charges will also not be affected by its 15 per cent hike in its tariff, thus reassuring port users that there is no way the tariff review will add to an increase in the cost of doing business at the ports.