Sunday, 21 August 2016
Deep seaports everywhere, but which of them will be viable?
It appears some state governors are trying to outdo each other in the establishment of so-called deep seaports in their domains. Lagos State is pushing hard for the Lekki deep seaport and Badagry mega-port while Ondo and Ogun States have been championing the joint development of the Olokola deep seaport for about a decade. Akwa Ibom State joined the fray about four years ago under its erstwhile governor, Godswill Akpabio with the proposed Ibaka (or Ibom) deep seaport, while Ben Ayade of Cross River State, immediately assuming the governorship of his state in 2015, became a strong advocate of the Calabar deep seaport.
One begins to wonder if these governors have done their homework on the viability or otherwise of the proposed deep seaports. Why will any state, in this period of austerity, expend as much as two billion dollars on a facility that might not yield good future returns or add significant value to the economy of the state or better the lives of its citizens? I honestly do not believe that any deep seaport outside Lagos will be viable. There will not be sufficient cargo volumes to support such facilities in the next 50 years. This is clear enough from the current underutilization of existing port facilities in the country, especially those facilities outside Lagos. For instance, while the ports in Lagos have capacity utilization of about 50 – 60% at present, the ones in the South South – Warri, Port Harcourt and Calabar – have about 25% capacity utilization. The exception will be Onne Port which is fairly busy. Even the so-called Olokola port; can it honestly compete with the ports in Lagos or the ports of fellow West African countries such as the Autonomous Port of Cotonou or the Port of Lome for cargo?
I think rather than establish these mega white elephant projects, the governments of Akwa Ibom and Cross Rivers States should join hands with the Federal Government to address the shortcomings of the Calabar Port so that it can attract business and compete with other ports in the sub-region. The shortcomings of the Calabar Port include shallow draft, which has made it impossible for large vessels to berth, poor port access road and the restriction imposed by the Ikom bridge.
The question is, does Nigeria require a deep seaport? Yes it does, but one is enough for now and I believe Lagos remains the most viable state to host such facility.
Container throughput at Lagos ports is expected to hit two million twenty-foot equivalent units (TEUs) by 2020 whereas the maximum capacity that the ports and the Inland Container Depots (ICDs) in the State can accommodate is 2.2 million TEUs. Lagos ports alone handle 90 per cent of the cargo in and out of Nigeria. With this expected growth in container volumes, the combined capacity of Apapa Port fully-developed and Tin Can Island Port and all the Inland Container Depots (ICDs) in the Lagos area is expected to be inadequate within the next five years. The same situation also applies to general cargo terminals.
A new port will therefore be needed to keep up with the demand for capacity, as the existing ports are surrounded by the city and cannot be further expanded.
At present, two new seaports are at various stages of development in Lagos State. Leading global terminal operator, APM Terminals and its consortium of partners are developing the new Badagry mega-port project and Free Trade Zone while Indian firm, Tolaram Group, is spearheading the Lekki Port project being developed within the Lagos Free Trade Zone.
Since the existing ports in Lagos will run out of capacity in the next five years – a new port has become imperative but certainly two new deep seaports will be an over kill. So which of the two new ports will be sustainable? The natural location, the supporting infrastructure and the support of stakeholders are key success of a Greenfield port. In choosing the location of a Greenfield port, the factors that must be considered include natural deepwater and harbour and supporting navigational channels with commensurate draft.
Other factors include lower risk of encroachment of city development in the immediate future, connection to multimodal infrastructure for evacuation of cargo by road, rail and barge, government support to the investors with policies that will protect investments, presence of adequate supporting services and review of cargo clearance processes to support faster cargo evacuation and reduce dwell time.
Both Badagry and Lekki have natural features for a port. Natural harbours have long been of great strategic naval and economic importance. They reduce or eliminate the need for breakwaters which would ordinarily cost a fortune to construct. Some examples of natural harbours are New York City harbour in the United States; Kingston Harbour in Jamaica; Subic, Zambales in the Philippines; Sydney Harbour in Australia; Pearl Harbour in Hawaii; San Francisco Bay in California; Visakhapatnam Harbour in Andhra Pradesh, India; Killybegs in County Donegal Ireland; and Halifax Harbour in Nova Scotia, Canada. Unlike Lekki which is more of a residential area; Badagry has been used before now as a port especially in the days of slave trade.
The proposed Port at Lekki is surrounded by the lagoon and you can go in and out of the port area through only one way. Because the Lekki axis is largely a residential area, vehicular traffic in and out is very heavy without the added burden of trucks plying that route. What will happen when trucks join the fray on the road is better imagined. Due to this constraint and in the absence of a rail system, evacuation of containers from the Lekki Port to the Western part of the country will be very difficult if not impossible. You can’t move goods up north either except a new bridge the size of the Third Mainlaind Bridge is constructed around the lagoon. Trucks evacuating goods from the port however can head for the Eastern part of the country but then, they will have to travel almost 100 kilometres to link up the Benin-Ore road. Movement of goods out of the port through barges is not an option either because Lekki is backed by a very broad and shallow lagoon making barging difficult.
Badagry is devoid of the logistics constraints confronting Lekki. The lagoon, which terminates just before Badagry, will form one of the boundaries of the Badagry mega-port. The lagoon is not a problem for the port as a bridge already exists over it. Access road in and out of Badagry is much better than Lekki. The little congestion being experienced on the Badagry expressway is already being addressed by the Lagos State Government through the construction of six lanes on each side. There is also a road link from Badagry through Agbara which can take trucks to the northern part of the country and which by-passes the heavily crowded Okokomaiko-Mile 2 axis. Badagry also has a higher potential for barging with its narrow but deep lagoon. From a logistics perspective therefore, Badagry is superior to Lekki but one must quickly add that neither Badagry nor Lekki has rail links at present.
From a commercial perspective; it is necessary to consider how to move patronage from the existing facilities to the new port. The inertia of freight forwarders, importers, exporters and other stakeholders to move their structures and operations from existing port facilities to a new satellite port is a significant challenge associated with new ports. This major challenge can be seen with regards to the operation of the Batangas International Seaport in the Philippines which commenced operation about 10 years ago and despite several government incentives, is still struggling. The Port of Manilla was hugely congested and Batangas, located 70 kilometres away, was built to take pressure off it. For the first two years of operation, no ship called at Batanga and till date, the port handles less than ten percent of Manilla’s cargo.
Lekki Port’s business strategy, anchored on getting shipping lines to call at the port with the believe that this will compel patronage, has been proven time and again that shipping lines don’t actually control where cargoes go. It is overly simplistic to assume that once you offer shipping companies certain level of incentives, then the port will come alive. Despite reduction in wharfage, berthing fees and vessel-related charges at the Batangas Port, activities are very low almost a decade after it commenced operation. No doubt, government support and legislation are required to make new satellite ports work but it is important also to have the ability to move freight forwarders, truck operators and other stakeholders. From this perspective – Badagry Port also has an advantage over Lekki because the promoters – APM Terminals and its consortium partners have control over cargo volume in Apapa unlike the promoters of Lekki who have no control of any port operation in the country – or in any part of West Africa.
A “build it and they will come” mentality won’t work with a new port project. A new port must also have a significant basis of gateway cargo in order for a solid business case to be built for transshipment cargo. Building a port, like Lekki and Badagry, on the assumption that it will be sustained on transshipment cargo is a fallacy. Transshipment cargo can come and disappear overnight especially without strong domestic cargo. The cost of building a new port cannot be underestimated with about USD1.5 billion required for investment in quay wall, quay apron, terminals, cargo handling equipment, information technology etc. Potential investors and financiers will certainly be interested in good return on investment. Spending USD1.5 billion in Lekki and another USD1.5 billion in Badagry means someone is going to get their fingers burnt. There will be growth in volume over the years no doubt but not such as can take two new deep seaports in addition to the existing ports. Again, there isn’t likely to be people interested in investing in these two ports considering the huge capital requirement. The volume of cargo increase just can’t justify any such investment in the medium term and who is willing to invest and not get return in 8 to 10 years?
As stated earlier, five new deep seaports in Nigeria in addition to Rivers Port, Calabar Port, Onne Port, Warri Port, Lagos Port Complex Apapa and Tin Can Island Port is an overkill. There is simply no market for it and there won’t be in another half a century.