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