EFFECT OF PORT REFORM ON CARGO THROUGHPUT LEVEL AT ONNE SEAPORT NIGERIA

ABSTRACT

This Thesis focuses on the impact of reforms on port performance using Onne and Rivers ports as a reference point. It analyses the pre and post reform eras of the ports in terms of their performance. The reforms took effect from 2006 after the Federal Government of Nigeria concessioned the ports to private investors. Parameters such as Ship traffic, Cargo throughput, Ship turn round time, Berth Occupancy and personnel were used as variables for the assessment. Secondary Data were collected from the Nigerian Ports Authority and Integrated Logistics Services Nigeria (INTELS) for the period 2001 to 2010 and analyzed using two techniques, a two-sample t-test toevaluate the difference between sample means and Data Envelopment Analysis to assess the efficiency of the ports.The findings show that the reforms resulted in significant improvements in cargo throughputas compared to the pre-reform era. The t-test shows that average Port throughput has increased significantly since the reform(concessioning) came into effect.Data envelopment analysis revealed a continuous improvement in the overall efficiency of both Ports since 2006 when the new measure was introduced. Average Ship turnaround time improved in the ports due to modern and fast cargo handling equipment and more cargo handling space which were provided. There is an increase in Ship traffic calling at the ports, resulting in increased cargo throughput and berth occupancy rate at the ports of Onne and Rivers. The reform also led to more private investment in the ports’ existing and new facilities and the introduction of a World Class service in port operation. This study concludes that the ports of Onne and Rivers are performing better under the reform programme of the Federal Government of Nigeria. It finally recommends the introductionof an integrated intermodal transport system for an effective and swift transfer of cargoes to and from the hinterland. Also, there is an urgent need for a regulator to appraise the performance of the reform programme from time to time as provided by the agreement and for the full adoption and utilization of management information system (MIS) to aid performance efficiency.

 

TABLE OF CONTENTS

PAGE

Certification ———————————————————————————–ii

Dedication ————————————————————————————-iii

Acknowledgements —————————————————————————iv

Abstract —————————————————————————————-v

List of Tables ———————————————————————————ix

List of Figures ——————————————————————————–x

 

CHAPTER ONE:INTRODUCTION

1.1 General Background ——————————————————————–1

1.2  Statement of the Problem ————————————————————-6

1.3 Objectives of the Study —————————————————————-7

1.4  Research Questions  ——————————————————————–8

1.5  Research Hypotheses  ——————————————————————8

1.6  Significance of the Study  ————————————————————-9

1.7 Scope of the Study ———————————————————————-9

1.8 Limitation of the tudy ——————————————————————-9

1.9  Brief Description of  Onne and Rivers Ports —————————————-9

1.9.1 Port Harcourt Port (Hard Quays) —————————————————-10

1.9.2 Onne Port Complex ——————————————————————-10

1.9.3 Federal Ocean Terminal (FOT) ——————————————————11

1.9.4 Federal Lighter Terminal (FLT) —————————————————–11

 

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.0 Introduction —————————————————————————–12

2.1 Conceptual Framework —————————————————————-12

2.1.1 Port Privatization ———————————————————————13

2.1.2 Commercialization ——————————————————————-16

2.1.3 Corporatization ———————————————————————–16

2.1.4 Port Performance Measurement —————————————————-17

2.1.5Performance Measurement Studies Using Data

Envelopment Analysis (DEA) —————————————————–18

2.1.6 Privatization ————————————————————————–21

2.1.7 Devolution —————————————————————————-22

2.2Port Reforms in other Countries ——————————————————22

2.2.1 Colombia and Argentina Ports —————————————————–24

2.2.2 India Jawaharlal Nehru Port Trust (JNPT), Mumbai —————————-26

2.2.2.1 The Pre-reform Scenario ———————————————————-27

2.2.2.2 Evolution of Port Reforms Policy in India ————————————–28

2.2.2.3 Impact of Reforms ——————————————————————29

2.2.2.4 Performance Indicators ————————————————————29 2.2.3 Reforms and Infrastructure Efficiency in Spain’s

Container Port ——————————————————————————–32

2.3 Empirical Review ———————————————————————–33

2.3.1 Early Port Performance in Nigeria ————————————————-33

 

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Data Collection ————————————————————————-37

3.1.1 Research Design ———————————————————————-37

3.1.2 Primary Data ————————————————————————–37

3.1.3 Secondary Data ———————————————————————–37

3.2 Methods of Data Analysis ————————————————————-38

3.2.1 DEA Application to Seaport Efficiency Measurement ————————–38

3.2.2 Paired Sample t-test ——————————————————————40

3.2.3 Cargo Throughput (Metric Tonnes) ————————————————41

3.2.4 Berth Occupancy Rate (BOR) (%) ————————————————-41

3.2.5 Turn Round Time (TRT) (Days) —————————————————-42

 

CHAPTER FOUR: PRESENTATIONAND ANALYSIS OF DATA

4.1 Data Presentation ————————————————————————-44

4.2 Data Envelopment Analysis (DEA) of Onne and Rivers Ports

Efficiency Level from 2001 – 2010———————————————————49

4.3 DEA Comparative Analysis of Performance of Onne& Rivers ports– ———-51

4.4 Test of Hypothesis ————————————————————————54

4.5.1 Discussion: Cargo Throughput ——————————————————–61

4.5.2 Berth Occupancy Rate (%) ————————————————————-64

4.5.3 Vessel Turn Round Time —————————————————————67

4.6 New Port Performance Indicators ——————————————————-68

4.6.1 Port Related Employment in the Region ———————————————69

4.6.2 Emergence of more Companies ——————————————————-70

4.6.3 Information and Communication Technology (ICT) in Port ———————-71

 

CHAPTER FIVE: SUMMARY, CONCLUSION AND   RECOMMENDATIONS

5.1 Introduction ——————————————————————————–72

5.2 Summary of Findings ———————————————————————72

5.3 Conclusion ———————————————————————————-75

5.4 Recommendations ————————————————————————-75

5.5 Contribution to Knowledge —————————————————————77

5.6 Area for Further Study ———————————————————————77

References ———————————————————————————–78

 

 

CHAPTER ONE

INTRODUCTION

1.1 Background of Study

Ports always play a strategic role in the development of domestic and international trade of a country whether it is a developing or developed country. However, in a globalized world where distances are becoming squeezed, ports play an active role in sustaining the economic growth of a country.

In the modern world of a fast growing technological era, ports are playing the role of an industry, not just passive actor in transportation but also in complete supply chain management. This is why it is said that “ports are more than piers” that is, more than just infrastructure or a complex infrastructure (Prakash, 2005). Today in any context and in any country, it is essential that ports provide efficient, adequate and competitive services. If they fail, ship-owners who find them too costly or too slow will go elsewhere. Hence if ports do not provide cost-effective services, imports will cost more for consumers and exports will not be competitive on world markets, national revenue will decline as well the standard of living of all people. Nigeria has a total of eleven ports and eight oil terminals organized in three zones of Western, Central and Eastern zones. The central zone with its headquarters in Warri, the Western Zones with headquarters in Lagos and the Eastern zone with its headquarters in Port Harcourt are predominantly oil terminals, although Warri, Sapele, Koko, Port Harcourt, Calabar and the Federal ocean terminal are important general cargoes (Chioma, 2011).

Ports not only a chain in transportation for inter-change, but they function as selfsustaining industry that is linked with domestic and international trade. At some places, ports also act as a foreign exchange earner not only in the form of transshipment or hub port but as part of supply chain management by providing logistics services to the industry. That is why a port needs to be treated as an industry. The management of a port should not only be concerned with the demand and supply of throughput but with institutional framework, application of technology, marketing strategy and ultimately economic impact of the development and implementation of projects or programmes (Prakash , 2005).

Ndikom (2006) summarizes that a port is a gateway to the nation’s economy and that shipping is a primary logistic service of critical importance. There are 2,814 international ports catering to freight traffic in the world (Trujillo 2005). Port traffic increases at an average rate of 3% per year. Nearly 90% of goods exchanged through international trade in the world rely on maritime transport along the logistics chain that takes them from their origin to their destination. A large share of that trade would not exist without their port infrastructures which are the interface between maritime transport and land transport or Inland navigation (UNTAD, 2002).

Chioma (2011) opines that the seaports are very important to the Nigeria’s trade as practically all imports and exports move through the ports. The importance of the seaports is attested to by the fact that approximately, 99% by volume of Nigeria total imports and exports are sea-borne. Nigerian ports control 60% of imports in West and Central Africa. The seaports provide an overwhelming economic advantage over all other modes of transport considering the huge tonnage of goods; it can carry over long distances. The ports have contributed to regional economic integration in the West African sub-region and have served as the major determinant of how economic activities are distributed. The maritime industry is a major long term determinant of national growth.

All these define ports as economic and service units of notable importance in the global economy. That is why ports are at the center of all intermodal policy decisions.

The Nigerian port system is not different. It follows the world trend in the industry adopting new maritime transport technologies as they emerge and searching for organizational forms which allow them to improve on their efficiency and ease their integration in the transport component of the logistics chain.

Global maritime transport has considerably changed in the last decade. Maritime transport is growing at a high pace. Container traffic is the fastest growing segment of maritime transport. Shipping companies have invested in ever growing containerships in order to benefit from economies of scale: the threshold of 10,000 TEU’s per vessel was surpassed, whereas, ten years ago, the largest vessels carried 4,400 TEU’s (panamax). As a result of increased competition, mergers and takeover have taken place in the recent years to establish “MegaCarriers”. This trend of larger ships will increase pressure for better port facilities and for significant improvement in port productivity (Harding, et.al, 2007). This has forced many world ports to reform as to place them in position to cater for this global transport trend.

There is multiple government agencies, shippers, transport companies and logistics service providers involved in the activities of the port, all involved in the management of the port in one way or another. Because of the complexity of port business, there is no simple answer to the question of what is the overall best practice in port management. This has brought about an increasing attention being, given to the quality and efficiency of cargo handling and processing services offered with the result that public monopolies have been replaced by competitive private sector providers through concessioning (Onwuegbuchulam, 2012).

Efforts to improve port performance require a co-operative action by both the public and private sector. Most required is private sector involvement to ensure an improvement in the quality of services offered. The private sector should take the lead where there are sufficient infrastructure and appropriate regulatory environment. Unlike the case of Ports in Asia and Western Europe, Nigerian Ports are unattractive to Shippers as a result of several crises such as corruption, congestion of cargoes, insecurity of cargoes and excessive charges (Akinwale, and Aremo, 2010). It has been reported that Nigerian Ports are among the slowest and most expensive ports in the World by the end of the 1990’s (Leighland and Palsson, 2007).

The Nigerian port industry was marked by some features that made them inefficient, ineffective and unattractive to shippers. These manifested in:

1. i) High congestion rate of cargo in ports. ii) Poor turnaround time for cargo and ships.

iii)      Insecurity of cargo. iv)           Unproductive labour force.

1. Multiple government agencies in ports with usually overlapping functions.
2. Corrupt practice in ports.

• Excessive charges /tariffs on cargo and so on.

Due to these problems in our ports, costs of imported goods were high and exports cannot compete in the international market hence leading to a downward trend in our balance of trade. Productivity and economic indicators sharply declined.

To attain the requirement of a modern and efficient port system, to serve the demands and opportunities of modern trade and sea freight, the Federal Government of Nigeria decided to reform the port system. They decided to adopt the landlord port model because of its inherent advantages.

Landlord port model is an institutional structure whereby the port authority or other relevant public agency retains ownership of the land, as well as the responsibility for maintaining the approach channels and navigation aids (UNTAD, 2001). Under this model, the port authority does not engage in any operational activities. According to Ndikom (2006), this concept does not mean selling out valuable assets such as land, water and infrastructure to the private sector; rather the government still maintain the ownership of these strategic assets and concession them to private operators for a limited period of time.

In other words, it is a model that involves the grouping of berths and their related facilities such as sheds, and storage areas into operational units under separate management.

The objectives of the port reform include, among others;

• To improve efficiency of operation and management of ports.
• To achieve reduction in cost
• To facilitate further development of the nation’s transport infrastructure.
• To eliminate congestion and facilitate the emergence of Nigeria as the hub for West

African sub region.

The Bureau for public enterprise (BPE) engaged Canadian Pacific Consultant Services

(CPCS) Transcom, Canada as a legal restructuring and concession advisers to

1. i) Propose legal and regulatory framework ii) Formulate the restructuring process iii)           Prepare a concession plan iv) Assist in the bidding process and negotiation with the selected bidders.

CPCS Transcom in April 2004 came up with the restructuring programme forming, the crux of the port reform programme hence port concessioning. The restructuring programme involves the following:

1. Transferring all cargo handling equipment to private operators
2. Privatize all marine operations    iii) Create four new autonomous port authorities – Lagos, Calabar, Port Harcourt and Delta.
3. Transfer Core Assets to the New Authorities
4. Retrench all surplus labour in Nigerian Ports Authority (NPA) vi) Sell remaining non-core assets vii) Wind up NPA when the process is complete.

 

1.2           STATEMENT OF THE PROBLEM

The globalization of the world economy has ever increased the importance of the role for transportation. In the transportation arena, the port plays a key role in the process because of the utilization of economy of scale advantages, as compared with other traditional methods of transportation.

Port technology had to change at a faster rate to commensurate with the pace of technological changes in shipping, for instance from handling of bulk palletized cargo to containerization. Ships and ports have never so technically advanced, never been so sophisticated, never been more immense, never carried/contained so much cargo, never been safer and never been as environmentally friendly as they are today. In order to support the global and regional trade development, Nigerian ports have increasingly been under pressure to improve on efficiency and productivity by ensuring that port services are provided on an internationally competitive basis.

Recognizing the importance of adequate port facilities and efficient shipping service in facilitating domestic and international trade in Nigeria, the port reform has focused on:

1. Rehabilitation, expanding and improving existing port facilities.
2. Developing new port if need be to stimulate regional socioeconomic development.

• Acquiring a wide range of cargo handling equipments and port facilities including infrastructure and superstructure.

1. Institutional strengthening and capacity building.

In addition, the port reform seeks to rehabilitate and improve the inland waterways, landing stages, navigational aids and ship building and repair facilities.

The performance of a port can be evaluated by observing both its utilization and the speed and reliability of movement of cargo; and services through the port. While there are a number of activities involved from entry to departure of a cargo into/out of the port, it is important to measure the performance of the ports or the total movement of cargo. This includes the throughput of the port, ship traffic, berth occupancy, ship turnaround time etc. Efforts to improve performance will require identifying activities that introduce excessive costs or time on operations.

The pertinent question is to ask if the port reforms have succeeded in easing the bottlenecks to the port development thereby attracting more cargo to Nigeria ports, reduce congestion and generally enhance the productivity and efficiency in port operation. So far, how has the port reform fared, judging from the annual throughput/quantity of cargo that has passed through the ports since the inception of the reform programme? An answer to this question will also give a clue to the level of efficiency in the operations in the ports regarding ship traffic Berth occupancy, ship turn round time and so on.

 

1.3          OBJECTIVES OF THE STUDY

The research aims to assess how port reform has fared in attaining its major goals of increasing efficiency and raising throughput in Nigeria with reference to Onne and Rivers ports. It aims at answering the simple question; “How much have we benefited from the port reform?”

It seeks to evaluate productivity in Onne Ports and Rivers ports during the pre-reform and post-reform era by determining if there exist any positive improvement in the performance level in the Port since the Introduction of the reform, hence developing an efficiency index for the ports which will help policy makers and stakeholders to have a quantitative idea of how the reforms have impacted the ports productivity.

Also it seeks to assist the port stakeholders to evaluate the port reforms in its effort to reduce congestion, and increase efficiency in Nigerian ports, hence to understand the benefits or consequences of the reform programme in the ports as it will capture the relationship between the port productivity indicators (cargo throughput, ship traffic, ship turnaround time and berth occupancy) and the port reform. The specific objectives of the research are:-

(a) To determine the impact of Port Reforms on the efficiency ofOnne and Rivers ports.

(b)To identify the impact of reform on port productivity (Cargo throughput) in Onne and Rivers Ports

1.4          RESEARCH QUESTIONS

• How has the Port Reform in Nigeria impacted on the efficiency of the Onne and

Rivers ports?

• How has the reform in the Port sector impacted on the Port productivity (Cargo throughput) of Onne and Rivers ports?

1.5          RESEARCH HYPOTHESES

Ho1: There is no significant difference between the efficiency of the Onne and Rivers ports before thereform era and after the reform era.

Ho2: There is no statistically significant difference between the means of cargo throughput before the reform era and after the reform era at Onne and Rivers Ports.

1.6          SIGNIFICANCE OF THE STUDY

The globalism and dynamism experienced in the maritime industry all over the world has made it very important for the maritime sector of any nation to be fully developed in accordance with the current trends in the Industry. The study exposes the need for port reforms to be encouraged and alternative ways to boost the efficiency of the Maritime Industry. Port managers need to know the strategic models for assessing the performance of their portsand the relevance of reforms so as to have a sound basis for making policies. It will also serve as a guide to the government in future policy making.

1.7          SCOPE OF THE STUDY

The study covers the reform in the port sector in Nigeria with focus on the Eastern Ports of Onne and Rivers Ports.

 

1.8 LIMITATIONS OF THE STUDY

The researcher encountered certain limitations majorly due to time, logistics and financial constraints. Also, there were difficulties in obtaining data from various offices as the record keeping of most offices were poorly managed. There were also problems in aggregating the data as an efficiency measure because port production varies due to the uniqueness of each port; for instance, due to difference in port ownership or management style, location attributes, types of cargo handled etc.

The port officials were evasive to the questions asked during interviews as they feared that their answer could be used against them as they inferred that they have experienced. Therefore, the correctness of some of the answers is not certain.

1.9    BRIEF DESCRIPTION OF RIVERS PORTS

Rivers port as used in the research work comprises the Following;

1. Port Harcourt Port
2. Okirirka petroleum jetty
3. Crude oil terminals of Bonny, Ima, Okwori, Obe,E.A Offshore, Erha, Brass, Okono,

Bongaetc

1. Other Jetties including Bitumen Delmar, Ibeto, Saipem, Kidney Island, Haastrup, Aker

Base, Marine Base, Magcobar etc.

 

1.9.1 PORT HARCOURT PORT (HARD QUAY)

This is located at the capital of Rivers State and lies along the Bonny River, about 42miles (66Km) upstream from Gulf of Guinea in the South Western of the Niger Delta. It was founded in 1912 in an area traditionally inhabited by the Ijo people. It majorly served the export of coal from Enugu coalfield after the establishment of the rail link in 1916. Palm products, columbite and Tin from Jos, peanuts from the Northern states, and since 1958, petroleum products from fields in the eastern Niger Delta. It also served the industries in the region. The

Port Harcourt port has a depth of about 7.8meters and quay length of about 1877meters. Port

Harcourt was named after Lewis Viscount Harcourt, who was the Secretary of the State for the British Colonies.

 

1.9.2 ONNE PORT COMPLEX

Onne Port Complex is situated in the heart of Niger Delta, Nigeria’s main Oil and Gas production area. It was created to supplement Port Harcourt’s port capacity and traffic.The Onne Oil and Gas free zone, located south of port Harcourt on Bonny River in Rivers State, was established by the Federal Government of Nigeria to provide an Oil Service Centre and Support Base to serve Nigerian onshore and offshore fields, whilst also providing easy access and dutyfree distribution to the entire West African and Sub-Saharan oil and gas industry.The Onne Oil and Gas free zone was established by Government Decree No.8, issued in the Official Gazette No. 12 on the 29^th march, 1996 declaring an area of some 26square kilometers in Onne/Ikpokiri of Rivers state as dedicated “Oil and Gas Free Zone”.

The port is made up of Federal Ocean Terminal (FOT) and Federal Lighter Terminal (FLT).

 

1.9.3 FEDERAL OCEAN TERMINAL (FOT)

Quay Length    ———————- 1,320 meters

Draft              ———————- 10 meters (low tide)

Industrial area ———————- 500,000 square meters

Warehouse      ———————- 46,000 square meters

 

1.9.4 FEDERAL LIGHTER TERMINAL (FLT)

Quay Length     ——————- 1,675 meters

Draft 1 & 2        ——————- 8 meters (low tide)

Draft 3 & 4        ——————- 10 meters (low tide)

Industrial area    ——————- 400,000 square meters

Warehouse area ——————- 33,000 square meters

Industrial area under development — 900,000 square meters

It is important to note here that the West African Container Terminal (WACT) located at FOT Onne has a Container stacking area measuring about 165,000 square meters and berth length of 570 meters; managed and operated by Maersk Sea land.

EFFECT OF PORT REFORM ON CARGO THROUGHPUT LEVEL AT ONNE SEAPORT NIGERIA

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