Government may be considering measures to review portions of the Meridian Port Services Agreement with the Ghana Ports and Harbours Authority (GPHA) after several agitations and concerns raised by the Trades Union Congress and the Maritime and Dock Workers Union, The Finder has gathered.
President Nana Addo Dankwa Akufo-Addo yesterday met with the leadership of the Maritime and Dock Workers’ Union and executives of Senior and Junior Local Unions of the Ghana Ports and Harbours Authority (GPHA) at the Jubilee House to find workable resolution to the issues which seemed to be escalating in the public domain.
The unions had been agitating over portions of the agreement which, they say, could lead to job losses if not reviewed.
According to the workers, if the agreement is implemented unchanged, and cost levels remain unchanged, GPHA will be in financial crisis from 2020 to 2025.
GPHA will have idle labour, space and equipment, will not generate enough revenue to pay salaries, service existing loans and develop basic statutory port infrastructure.
To help GPHA cope with this loss of business and revenue, at least 1,400 employees will have to be laid off in 2020.
At the meeting, of which most of the issues were discussed behind closed doors, the President was worried that in spite of the several engagements the Ministry of Transport had had with the unions on the matter, there doesn’t seem to be a definite resolution to the issue.
The President was of the view that dialogue and great circumspection was needed in addressing the issues, especially as it involved an important foreign investor in the country.
“The Minister of Transport has engaged with you on several occasions on my behest, but then the way the matter is being escalated in the public space, especially by yourselves, I felt that it is only right that in the system of government that we have, you engage with me directly. That is why I extended this invitation for us to come and sit down and talk brass tacks. We are dealing with an important foreign investor in our country, and all of us have to use a lot of this to get what we want,” the President noted in his initial remarks.
The rest of the engagements were done behind closed doors.
Meanwhile, a statute net issued by the Maritime and Dock Workers’ Union said it expects the management of the Meridian Port Services to make full disclosure of the content of the Concession Agreement on Terminal 3 to workers to ensure a “dispassionate discussion of the agreement”.
The general secretary of the union, Mr Daniel Owusu Koranteng, in the statement, insisted that the union has the responsibility to understand fully the implications of the agreement for its workers.
“We have the responsibility to let the people of Ghana, who are the owners of the resources, to understand the implication of the concession agreement on revenue losses to the state, huge job losses relating to direct and indirect jobs, collapse of maritime businesses, among others.”
The union indicated some of its concerns with the MPS Terminal 3 concession agreement as follows:
Exclusivity of services
Clause 3.7 of the Deed of Amendment (DoA) states that, “During the term, the concessionaire shall have the exclusive right to provide services to any Eligible Vessel entering the operational area”, where Eligible Vessel in the DoA is defined as “any vessel which is (i) a full container vessel or (ii) a vessel which is carrying two hundred (200) TEUs or more”.
The Exclusivity Clause, thus, prevents other operators from undertaking container business, and so MPS operates as a monopoly in the container business. Marc H. Juhel, in his book titled ‘Container Terminal Concession Guidelines’, explains that, “Although competition restriction provisions are generally not advisable, there are situations where some kind of limited exclusivity may be considered when existing container traffic at the time of concessioning is only marginally sufficient to make a balanced operation possible for a private operator. Typically, if fully privately financed, even a small-scale terminal, two berths, for instance, three/four gantry cranes and corresponding yard equipment will need around 100,000 TEUs per year to break even under average container handling tariff.”
It is worthy to note that the container traffic is about 1,077,066 TEUs in 2018 for Tema Port, indicating that the Exclusivity clause, in addition to tax waiver of $832 million, is totally needless and unwarranted.
The Exclusivity clause does not promote competition and efficiency among operating terminals.
It is for this reason that most countries in the sub-region such as Togo, Nigeria and Ivory Coast have two or more terminals operating and competing independently under different companies.
The Exclusivity clause, which requires that all ships carrying 200 or more containers that berth at Tema Port should be worked on by MPS, would deprive GPHA of 60% of its container business and GPHA would be confronted with total revenue loss of about $70 million per annum.
GPHA spent about $60 million to construct the Terminal 2, and GPHA must be allowed to operate the container business in Terminal 2 without any restrictions to stem the tide of huge revenue losses for GPHA and other operators, which would then compel GPHA to shed off labour in order to survive.
The solution to the problem of job losses of GPHA and other operators is for government to renegotiate the Exclusivity clause out of the Deed of Amendment of the MPS concession agreement.
Maintaining the Exclusivity clause in the concession agreement and seeking piecemeal and ad hoc solutions would not address the root cause of the problem, but would end up as a palliative that scratches the surface of the problem.
“Our union would reject any solution to the problem which does not address the foundation of revenue losses and job losses of GPHA and other operators,” it stated.
Revenue losses
The Exclusivity clause in the concession agreement and other generous provisions in the DoA that allow MPS to set its tariffs and exempt the company from paying port dues, in addition to the payment of lower royalties, will lead to loss of revenues for GPHA.
It is envisaged that when the project becomes operational in June 2019, GPHA will lose revenues including the following:
Container shore handling (receipt, storage and delivery) revenues earned by GPHA will decline by 50%.
Royalties currently earned by GPHA will reduce from 25% to 5%.
Port dues currently earned by GPHA will reduce from 100% to 10%.
Berth Occupancy revenue will be zero for GPHA.
Concession area fees (rent) revenue will be zero to GPHA in Terminal 3.
Under the instruction of the Economic Management Team (EMT), a ministerial committee reviewed the concession agreements between the GPHA and Meridian Port Services Limited.
Based on the findings of the committee’s report, dated March 2018, workers’ unions have made the following recommendations.
The call to review some terms in the MPS 3 Agreement – What needs to change?
Tax waiver amounting to $982 million was granted for the $1.5 billion.
The required exemptions use exemption from corporate income tax for 10 years after date of the first commercial use of the facility and a reduced corporate tax of 15% after 10 years for five years and an exemption from tax on dividend for 20 years to resident and non-resident shareholders.
It is expected that a total amount of $5.71 billion, consisting of tax and non-tax revenue, was estimated as the total inflow to be accrued to the state from the operations of the project.
Out of the amount, 33% will be a direct savings accrued to the government, 18% and 17% to be collected by the GRA and Social Security and National Insurance Trust (SSNIT) respectively and 42% to Ghana Ports and Harbour Authority (GPHA) in the form of royalties and dividend.
It is important to mention that the port authority, being the landlord, is entitled to port dues, but the concession agreement of MPS denies GPHA the right to collect port dues.
Payment of Goodwill/Initial down payment
It is a standard practice for all terminal operators to make initial payment before commencing business.
MPS made an initial payment of $4 million in 2004, but GPHA and the state would not benefit from the initial payment before commencing operations. The following examples of down payments in the West African sub-region would buttress our point: 2004, Tema – $5.0 million; 2005, Tin Can Island – $3.5 million; 2009, Cotonou -$25 million; and 2013, Abidjan – $120 million.
Flawed bidding process
International projects of such magnitude should go through international competitive bidding so that Ghana would achieve the best deal from the investment.
The bidding process which was truncated through political influence cannot pass the transparency and competitive bidding test.
The bad concession agreement, which is not in the interest of GPHA and Ghana, is a reflection of a flawed procurement and bidding process.
Conclusion
After taking over the whole container business at the Tema Port and becoming very comfortable with high tax waivers, exemptions from payment of port dues, rents, etc, MPS is peddling ideas on how to use Terminal 2 to generate revenues through rents and other businesses except agreeing to the renegotiation of the Exclusivity clause out of the Deed of Amendment, which would allow GPHA to operate Terminal 2 as a Container Terminal.
If MPS has to receive massive tax waivers to the tune of about 80% of the investment cost, operate as a monopoly without competition and enjoy exemption from the payment of rents and port dues before it can operate profitably, then MPS wants to operate the Terminal 3 on a ‘Zero Sum Game’ principle, where its survival should result in the demise of other businesses. Under the current agreement, the MPS Terminal 3 carries with it enormous social financial and economic problems, and the government has to renegotiate the agreement as a matter of urgency.
The initial $1.5 billion cost of the project has now been revised to $1.094 billion.
Therefore, all concessions made due to the volume of investment must be renegotiated in order to fairly redistribute the revenues; otherwise the accurate scope of the investment to be covered by the $1.5 billion must be clearly defined to the acceptance of all parties.
Does this cover all the four berths to be built under Terminal 3? And within what scope of time?
If three berths are to be built as phase 1, then fourth berth at a later date subject to traffic growth, why should the cost of such futurist conditional investment which will happen at a time the first three berths would have been in operation and earning income be included in the total cost and used to seek huge concessions in favour of MPS?
Reduce $982m tax waiver to $400m
Tax waiver amounting to $982 million should be reduced to $400 million.
35-year concession
The agreement offers a 35-year concession period, effective 2020, when berth three opens to business.
Review sets 25 years concession
However, the reviews said 35 years should be from 2004, date of commencement of the Terminal 2 Concession, which is what has been amended to produce the Terminal 3 Contract.
The duration must be 25 years, starting from the date of signing of the Deed of Amendment.
Contract
Exclusivity/investment protection period of either between 12 years and 18 years – during which no other container terminal will be built by Ghana within a given distance from Tema Port, or when total container traffic reaches 2.5 million TEU containers.
Review advocated
Section 3.3 of the Deed of Amendment be renegotiated and amended to limit the Investment Protection Period to the point in time when a throughput of two million TEUs is achieved or 10 years from the Date of First Operations, whichever comes first.
And the investment protection period should cover only vessels carrying more than 1,500 TEUs.
All other vessels carrying 1,500 TEUs or less should have the liberty to choose to berth at Terminal 2 or any other part of the port under GPHA operations.
This will fairly share the container traffic among MPS and GPHA and its other private operators and therefore keep many more people in employment under GPHA.
This will not only provide a choice for smaller vessels calling Tema Port, but, most importantly, it will enable GPHA to keep part of the container handling business and guarantee continuous direct and indirect employment for its large workforce.
Contract
The old Terminal 2 Concession contract, which took effect from August 2004, was amended to cover the new Terminal 3 Contract, which was to cumulatively make up the 35 years contract duration.
Review advocated
The 35 should be from 2004, date of commencement of the Terminal 2 Concession, which is what has been amended to produce the Terminal 3 Contract.
If the duration must be 25 years, starting from the date of signing of the Deed of Amendment, which was 2015.
Contract
The Old Terminal 2 will be handed back to GPHA in 2020 when the third berth is completed in Terminal 3.
However, to prevent competition with Terminal 3, the old Terminal 2 must not be used to handle containers until after the investment protection period stated in.
Review advocated
Old Terminal 2 should be handed over to GPHA not later than January 2020, without any fees to be paid.
GPHA should also have the liberty to use Terminal 2 to handle containers vessels. In this regard, the investment protection clause should only reserve vessels carrying only more than 1,500 TEUs to MPS 3.
This will not only provide a choice for smaller vessels calling Tema Port, but, most importantly, it will enable GPHA to keep part of the container handling business and guarantee continuous direct and indirect employment for its large workforce.
Contract
All vessels carrying 200 or more containers to Tema must call at only Terminal 3.
If MPS allows a container vessel to call at Terminal 2 due to congestion in Terminal 3, then MPS will take 20% of the stevedoring revenue that GPHA will earn for handling the containers.
GPHA cannot also store and deliver those containers. MPS will collect such containers to its Terminal 3 and take all the related shore handling revenue.
Review advocated
Those provisions (Concessionaire surviving rights, eligible vessels, investment protection, etc) should be waived completely to allow GPHA to continue handling container vessels (carrying not more that 1,500 TEUs) that choose to call at Terminal 2 or at any other part of the port.
This will not only provide a choice for smaller vessels calling Tema Port, but, most importantly, it will enable GPHA to keep part of the container handling business and guarantee continuous direct and indirect employment for its large workforce.
Contract
No upfront concession fee (goodwill) was paid. We note that, conservatively, GPHA is entitled to at least $50 million as upfront concession fee for the Terminal 3 project.
In 2004, GPHA earned $5 million in upfront (goodwill) fees which was sued to pay for our equity share.
It is argued that Terminal 3 is conceived a relocation of the business of the existing Terminal 3.
Therefore, there is no new business nor new entity, new contract, and therefore no need to talk about a new contract and goodwill payment.
Yet, the terms under the Terminal 3 agreement vary so much compared to those of Terminal 2.
Review advocated
GPHA is entitled to the upfront/lump sum concession fee (goodwill) for the concession of Terminal 3.
This is estimated at not less than $50 million.
If Terminal 3 is just a relocation ongoing business in Terminal 2, then the terms should not vary much.
And this argument by itself should justify the need to re-adjust the concessions (quantum of royalties, port dues, concession area fees, etc) to bring them close to a win-win scenario.
The quantum of adjustment is provided in subsequent sections of this document.
Contract
GPHA’s 30% shares were diluted to 15%. To restore these diluted shares, GPHA is required to pay $42 million as equity.
Review advocated
In the face of all the generous concessions made in favour of MPS 3, there was no justification to dilute GPHA’s share by 15%.
Therefore, the restoration of those shares shall not be against GPHA contributing $42 million.
This requirement should be waived. The 15% share should be restored at no extra cost to GPHA.
Contract
Royalties on container handling revenues will reduce from 25% to 5% for the first 10 years, then increase to 10% for next five years, then increase to 15% for the rest of the period
Review advocated
The Concession Fees (Royalties) and, indeed, other related payments should be renegotiated. We recommend the following revised rates for the Concession Fee:
- For the services provided until the Discharge Date, the Concession Fee shall be aggregate amount of:
- Fifteen per cent (15%) of the stevedoring charges for Imports, Exports, Transit containers (full and empty).
- Ten per cent (10%) of the stevedoring charges for Transshipment containers.
iii. Fifteen per cent (15%) of the shore handling tariffs for Import, Export, Transit and Transshipment containers.
- For the services provided during the First Period, the Concession Fee shall be aggregate amount of:
- Twenty per cent (20%) of the stevedoring charges for Imports, Exports, Transit containers (full and empty).
- Fifteen per cent (15%) of the stevedoring charges for Transshipment containers.
iii. Fifteen percent (15%) of the shore handling tariffs for Import, Export, Transit and
Transshipment containers.
- For the services provided during the Second Period, the Concession Fee shall be aggregate amount of:
- Twenty-five per cent (25%) of the stevedoring charges for Imports, Exports, Transit containers (full and empty).
- Twenty per cent (20%) of the stevedoring charges for Transshipment containers.
iii. Twenty per cent (20%) of the shore handling tariffs for Import, Export, Transit and Transshipment containers.
Containers shifted on board and via quay
We also recommend the payment of Concession Fee on containers shifted on board and via quay.
We propose the following rates: 15% until the Discharge Date, 20% for the First Period, and 25% for the Second Period.
Craneage and stevedore labour
Overtime
We further recommend the payment of Concession Fees on Craneage and Stevedore Labour Overtime revenues at the following rates: 15% until the Discharge Date, 20% for the First Period, and 25% for the Second Period.
(These mean we need to redefine the “periods” – 1st, 2nd, Discharge, concession period – so that they are clearer).
Contract
Port Dues revenues will reduce from 100% to 10% for the first 10 years, 20% for the next five years, and 50% for the rest of the period.
Review advocated
Port Dues royalty: Recommended to be:
(i) Until Discharge Date, 60 per cent to MPS and 40 per cent to GPHA.
(ii) During the First Period, 50 per cent to MPS and 50 per cent to GPHA.
(iii) During the Second Period, 40 per cent to MPS and 60 per cent to GPHA.
Contract
Concession area fees (land rent) on the new terminal shall be zero to GPHA.
Review advocated
A minimum of US$5 per metre square, per annum should be paid to GPHA as rent for the hard land and a minimum US$1 per metre square per annum for the reclaimed area.
Contract
Berth occupancy fees will be zero to GPHA.
Recommend a renegotiation and for Royalty to be paid as follows:
Berth Occupancy Charge Royalty:
(i) Until Discharge Date, 60 per cent to MPS and 40 per cent to GPHA.
(ii) During the First Period, 50 per cent to MPS and 50 per cent to GPHA.
(iii) During the Second Period, 40 per cent to MPS and 60 per cent to GPHA.
Contract
MPS is able to adjust tariffs to reflect upward changes in the Consumer Price Index in Ghana and the USA.
This will lead to regular increase in port tariffs, rendering imports expensive and exports uncompetitive.
This will also render the port uncompetitive, unattractive and thereby undermine the realisation of the corporate vision of transforming the ports into the trade and logistics hub of West Africa.
Review advocated
MPS should not be given the free reign to determine tariffs and then instruct GPHA to publish same.
We recommend Section 3.14 to be renegotiated and amended to allow GPHA to set the tariffs within the existing legal and policy framework.
First, MPS may be encouraged to make a case for tariff adjustment by presenting its cost of operations to GPHA for consideration and approval.
Contract
It is expected that the recovery of part of the investment made by MPS from prospective concessionaires will reduce their investment costs, project risks and loan interest repayment burden. Sadly, the Deed of Amendment made no provisions for adjustment in the concession fees, or GPHA as Grantor benefiting from such recovery of part of the investment costs from future port operators.
Review advocated
We recommend that Section 3.9 be renegotiated and amended to provide for a corresponding formula for adjustment in the concession fees anytime a contribution is made by third parties to MPS.
Alternatively, a portion of the amount recovered be paid to GPHA as Grantor.
Contract
The position of GPHA is that granting them the right to develop a fifth berth will only go to further entrench their monopoly position in the port to the detriment of the country and customers of the port.
There is the urgent need to open the port business for open and free competition to deliver better quality service to customers and also reduce the cost of shipping containers through the Port of Tema.
We, therefore, recommend this clause to be renegotiated and amended. MPS should not be given any option to develop a fifth berth.
There was never a fifth berth idea in the discussions. Just like the 35yrs Concession term, the fifth berth is another misleading idea
Volume of containers handled by GPHA and other licensed container handling companies will decline by at least 60% – what do we do with the idle labour and equipment?
- Revenue presently being earned by GPHA will decline as follows:
- container stevedoring revenue will decline from $10.688 million to US$4.21 million (-60.54%).
- Container shore handling revenue will decline from $38.75 million to $17 million (-56% decline).
iii. Royalties revenue on MPS operations will decline from $24.12 million to $6.57 million (-73.67% decline).
- Terminal area rent revenue from MPS terminal will decline from $826,000 to zero.
- Berth occupancy revenue from MPS terminal will decline from $1.915 million to zero.
- Port dues revenue on MPS container operations will decline from $29 million to 2.9 million (-90% decline).
- Entry ticket/goodwill – one-off entry ticket, which should be at least 5% of project cost, is lost whereas in the mps 2 concession agreement, $5 million was paid as goodwill.
Source: The Finder
