NIGERIA: PORT PRIVATIZATION YIELDS MIXED RESULTS

UNCLAS LAGOS 000132

SIPDIS

SENSITIVE
SIPDIS

STATE FOR AF/W
DOT FOR KSAMPLE

E.O. 12958: N/A
TAGS: EAIR ECON EINV NI
SUBJECT: NIGERIA: PORT PRIVATIZATION YIELDS MIXED RESULTS


This cable contains business propriety information.


1. (SBU) Summary: During visit of Nigeria Desk Officer and
EconOff of Lagos ports on March 11, efforts to modernize and
clean up the Apapa Container Terminal have born fruit in some
areas. The privatization of the Lagos ports that began in
2006 has introduced greater efficiency in operations,
management, and services delivery. Despite these innovations,
import bans and dearth of exports threaten the business
prospects for private terminal operators and restrict the
possible benefits. While the privatization can yield great
gains, the Government of Nigeria still needs to provide a
good regulatory and trade environment for companies and the
economy to see the full benefit from privatization. End
Summary.

Apapa Privatization Unleashes Port Potential
--------------


2. (U) A tour of Apapa Container Terminal by visiting AF/W
Nigeria Desk Officer and EconOff on March 11 demonstrated the
effective management and efficient operation by private
terminal operator A.P. Moller Terminals (APM). The company's
Chief Commercial Officer, Ramji Krishnan, cited training as
the number one challenge to improving management and
operation. After the company's takeover of operations as a
concessionaire in April 2006, APM was confronted with a host
of issues, from repairing and replacing non-working
machinery, such as cranes, to removing a mosque from the
terminal. Krishnan noted the port had been in such poor
condition that it took nearly two years to manually clean the
six inches of grease from the terminal floor. After an
eighteen month facelift and a USD 100 million investment,
Apapa Terminal has emerged as a modern port facility with a
computerized operating system and greatly improved
productivity and functionality.

E-Clearance Streamlines, Expedites Cargo Handling
-------------- --------------


3. (U) Currently at Apapa Terminal, all internal operations
are coordinated electronically, namely scheduling custom
exams, verifying payment and receipt, and generating delivery
orders. APM contends that, as the next step forwards,
investment in IT solutions is imperative to actualizing
business potential and meeting custom regulations, while
reducing corruption and enhancing transparency in the cargo
delivery chain. APM pointed to the electronic
interconnectivity that it has established recently with local
partners as a case in point. In theory, the import
e-clearance system should enable consumers to process import
documents and clearances through banks, customs, and the
Nigerian Ports Authority (NPA) within hours. However, it
remains to be seen whether electronic interconnectivity can
deliver on this promise given the existing structural and
regulatory bottlenecks.

Import Bans Threaten Gains from Privatization
--------------


4. (SBU) Krishnan noted that despite significant progress,
government import bans and stringent customs inspections have
caused cargos to be diverted to neighboring ports in Benin
and continue to limit the company's profitability. Moreover,
the dearth of Nigerian exports results in cargo containers
leaving
Nigeria empty. Barring a reduction in import bans and an
increase in exports, Krishnan projected that APM,s
operations might become unsustainable in two years.


5. (SBU) Krishan noted that a Dangote sugar factory still
operates on the terminal grounds. Unlike other facilities
that previously clustered the terminal and were removed
post-concession, the factory remains given its pre-existing
contract with another GON,s government entity. The factory
is an example of the structural hurdles faced by private
terminal operators when confronted with the myriad of
government entities involved in business contracting.


6. (U) Comment: Modernization and investment in the terminal
operations have improved port efficiency. Based upon APM,s
experiences, investment in IT solutions can neither resolve
nor bypass the structural and regulatory bottlenecks faced by
operators. APM has lived up to its end of the privatization
bargain by bringing management and operations closer to
international standards. Further progress depends upon GON
actions to eliminate import bans and to create incentives to
promote exports. End Comment.


7. (U) This cable was cleared with Embassy Abuja.
BLAIR