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How To Utilize FDI To Improve Transport Infrastructure - Ports: Lessons From Nigeria

Case study by UNCTAD, 2011

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The international trading system relies on the fast, low-cost movement of goods through global value chains. Maritime transportation systems are the most cost-effective way to ship freight over long-distances.Despite their importance, ports in many developing countries are characterized by underinvestment, low productivity, inefficient use of resources, high user prices, long delays, and ineffective services. In response to these problems, a rising number of developing countries have reformed governance models and introduced private investment and management in formerly State-dominated ports. Nigeria has been selected as a case study of a developing country that has exhibited best policy practices in attracting and benefiting from FDI in port terminals. This report reviews the reforms and concession process to identify lessons for other developing countries.

UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT


 
BEST PRACTICES IN
INVESTMENT FOR


DEVELOPMENT


CASE STUDIES IN FDI




How to utilize FDI to improve
transport infrastructure - ports:



Lessons from Nigeria






UNITED NATIONS


New York and Geneva, 2011




  How to Utilize FDI to Improve transport infrastructure - Ports


 


 
UNCTAD Investment Advisory Series B 


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NOTE
 


As the focal point in the United Nations system for
investment within its mandate on trade and development, and
building on three and a half decades of experience in this area,
UNCTAD, through the Division on Investment and Enterprise
(DIAE), promotes understanding of key issues related to foreign
direct investment (FDI) and enterprise development. DIAE also
assists developing countries in enhancing their productive capacities
and international competitiveness through the integrated treatment
of investment and enterprise development.



The term “country” as used in this publication also refers, as


appropriate, to territories or areas. The designations employed and
the presentation of the material do not imply the expression of any
opinion whatsoever on the part of the Secretariat of the United
Nations concerning the legal status of any country, territory, city or
area, or of its authorities, or concerning the delimitation of its
frontiers or boundaries. In addition, the designations of country
groups are intended solely for statistical or analytical convenience
and do not necessarily express a judgement about the stage of
development reached by a particular country or area in the
development process.



The following symbols have been used in the tables:

Two dots (..) indicate that data are not available or not
separately reported. Rows in tables have been omitted in
those cases where no data are available for any of the
elements in the row.


A dash (-) indicates that the item is equal to zero or its value
is negligible.


A blank in a table indicates that the item is not applicable.




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A slash (/) between dates representing years – for example,
2004/05, indicates a financial year.


Use of a dash (–) between dates representing years – for
example 2004–2005 signifies the full period involved,
including the beginning and end years.


Reference to the “dollars” ($) means United States dollars,
unless otherwise indicated.


Annual rates of growth or change, unless otherwise stated,
refer to annual compound rates.


Details and percentages in tables do not necessarily add to
totals because of rounding.

The material contained in this publication may be freely


quoted or reprinted with appropriate acknowledgement. A copy of
the publication containing the quotation or reprint should be sent by
post to the Chief, Investment Promotion Section, DIAE, UNCTAD,
Palais des Nations, Room E-10078, CH-1211 Geneva, Switzerland;
by fax to 41 22 917 0197; or by e-mail to ips@unctad.org.
Publications are available on the UNCTAD website at
http://www.unctad.org.






UNCTAD/DIAE/PCB/2011/8


UNITED NATIONS PUBLICATION
ISBN 978-92-1-112794-2



Copyright © United Nations, 2011


All rights reserved






PREFACE


The Investment Advisory Series provides practical advice
and case studies of best policy practice for attracting and benefiting
from foreign direct investment (FDI), in line with national
development strategies. The series draws on the experiences gained
in, and lessons learned through, UNCTAD’s capacity-building and
institution-building work in developing countries and countries with
economies in transition.


Series A deals with issues related to investment promotion
and facilitation and to the work of investment promotion agencies
(IPAs) and other institutions that promote FDI and provide
information and services to investors. The publications are intended
to be pragmatic, with a how-to focus, and they include toolkits and
handbooks. The prime target audience for series A is practitioners in
the field of investment promotion and facilitation, mainly in IPAs.


Series B focuses on case studies of best practices in policy
and strategic matters related to FDI and development arising from
existing and emerging challenges. The primary target audience for
series B is policymakers in the field of investment. Other target
audiences include civil society, the private sector and international
organizations. Series B was launched in response to a call at the
2007 Heiligendamm G-8 Summit for UNCTAD and other
international organizations to undertake case studies in making FDI
work for development. It analyses practices adopted in selected
countries in which investment has contributed to development, with
the aim of disseminating best practice experiences to developing
countries and countries with economies in transition. The analysis
forms the basis of a new technical assistance work programme
aimed at helping countries to adopt and adapt best practices in the
area of investment policies.





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For Series B, UNCTAD’s approach is to undertake case
studies of a pair of developed and developing or transitional
economies that exhibit elements of best practices in a selected issue.
Country selection follows a standard methodology, based primarily
on the significant presence of FDI and resulting positive outcomes.



The Investment Advisory Series is prepared by a group of


UNCTAD staff and consultants in the Investment Policies Branch,
under the guidance of James Zhan. This study of the Series B was
prepared by Thanos Pallis with inputs and assistance from Aimilia
Papachristou. Valuable guidance and local insights were provided
by Stanley Yitnoe. The report was finalized by Cam Vidler and
Silvia Constain. Contributions and comments were received from
Chantal Dupasquier, Jan Hoffmann, Vincent Valentine, and Joerg
Weber. The report has also benefited from views of current and
former Government officials, the domestic and foreign private
sector and academics. The programme receives financial support
from the Government of Germany.



Geneva, October 2011




CONTENTS
ABBREVIATIONS................................................................ x
I. INTRODUCTION............................................................. 1


A. Importance of Port Infrastructure .........................................1
1. Introducing FDI in port terminals: opportunities and


challenges.......................................................................2
B. Learning from the Case of Nigeria .....................................12


II. THE CASE OF NIGERIA ............................................. 15
A. Pre-reform Conditions ........................................................15
B. Initiation of Reforms ..........................................................16


1. The endorsed port model and mode of private entry ...20
C. Implementation of Reforms................................................23


1. Hiring of transaction advisors and preparation for the
bidding process ............................................................24


2. Initiation and management of the bidding process.......25
3. Terms of the concession agreements............................31
4. Handover of Terminals ................................................35


D. Successes and Challenges...................................................37
1. Positive outcomes ........................................................37
2. Challenges....................................................................44
3. Need for an independent regulator...............................46


III. BEST PRACTICE LESSONS FROM NIGERIA...... 49
A. How to move from public to private port terminals ...........49


1. Identify potential for private port investment ..............49
2. Establish legal and institutional framework for private


participation .................................................................50
3. Create a high-level body to catalyze and coordinate


reforms .........................................................................50
4. Carefully diagnose needs and formulate new port


model, drawing on external knowledge if necessary ...51
B. How to promote and negotiate FDI entry ...........................51


1. Establish a strong and stable foreign investment regime .
......................................................................................51




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2. Fiscal incentives are unnecessary, except in the case of
certain greenfield projects ............................................52


3. Appoint independent transaction advisor to help manage
the concession process .................................................53


4. Allow for the widest possible expression of investor
interests – select through phases ..................................53


5. Set and follow clear procedures and timelines for
bidding .........................................................................54


6. Ensure that contracts address key issues throughout
lifetime of project.........................................................55


C. How to facilitate project implementation and ensure positive
long-term outcomes ............................................................56
1. Proactive management of the labor force adjustments.56
2. Strengthen infrastructure and government services


within the port complex ...............................................56
3. Appoint an independent institution to monitor and


follow up on project implementation and operations...57
4. Build on and promote positive experiences .................58


REFERENCES .................................................................... 59
SELECTED UNCTAD PUBLICATIONS ON
INTERNATIONAL INVESTMENT AGREEMENTS,
TRANSNATIONAL CORPORATIONS AND FOREIGN
DIRECT INVESTMENT.................................................... 63
QUESTIONNAIRE ............................................................. 73




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Boxes


Box I.1: ITO landscape and drivers of FDI....................5
Box II.1: Privatization institutions.................................18
Box II.2: FDI trends in Nigeria .....................................26
Box II.3: Investor perspectives ......................................27




Figures


Figure I.1 Private seaport investment has taken off over
the past decade ..................................................4


Figure I.2 Schematic overview of port terminal awarding
procedures and relevant issues........................10


Figure II.1: Rising container productivity at Apapa terminal
expands throughput.........................................39


Figure II.2: Port reforms have led to sustained rises in total
throughput.......................................................41


Figure II.3 Nigeria is integrated in international shipping
networks..........................................................42






Tables


Table I.1: Public-Private Role in Port Management.........7
Table II.1. Timeline of Port Reforms in Nigeria .............15
Table II.2: Choosing Forms of Private entry: An NPA


perspective ......................................................22
Table II.3: Transactions in Nigerian Ports .......................29
Table II.4: Reduced turnaround times and extended


operating hours at Apapa Container Terminal40




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ABBREVIATIONS



BPE Bureau of Public Enterprises
FDI Foreign direct investment
ITOs International terminal operators
MOU Memorandum of Understanding
NCP National Council on Privatization
NIPC Nigerian Investment Promotion Commission
NMASA Nigerian Maritime Administration and Safety Agency
NPA Nigerian Port Authority
PA port authority
PPIAF World Bank Public-Private Investment Advisory


Facility
TEU Twenty-foot equivalent unit
RFP Request for Proposals
TNC Transnational corporations
TSRC Transport Sector Reform Committee
WBPRTK World Bank Port Reform Tool Kit




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Nigeria





KEY FACTS TABLE
  Nigeria 


  1981­
1990 


1991­
2000 


2001­
2010 


Population (million)*  8.7  11.2  154.1 
Annual GDP growth (%)* ‐1.7  2.3  8.4 


GDP per capita ($)*  685.1  305.8  87107 
GDP by sector (%)       


Services  20  22  20 
Industry  51  52  10 


Agriculture  29  26  70 
FDI inflows (annual 
average) ($ million)   608.1  1569.3  4657.6 
FDI outflows (annual 
average) ($ million)   120.9  292.5  542.9 
FDI inflows ( % of GDP)  0.01  0.05  0.04 
FDI inflows (% gross fixed 
capital formation)  0.05  0.48  0.44 
Exports of goods and 
services (% GDP)  0.19  0.41  0.38 
Imports of goods and 
services (% GDP)  0.19  0.33  0.29 


Source:  UNCTAD, FDI/TNC database and GlobStat database. 
Note:  Simple annual average.0 
*  Data are for 1990, 2000 and 2010 only






I. INTRODUCTION


A. Importance of port infrastructure


The international trading system relies on the fast, low-cost
movement of goods through global value chains. Maritime
transportation systems are the most cost-effective way to ship
freight over long-distances. Yet maritime transportation relies on
effective and efficient ports to load and unload cargo. Combined
with other transportation infrastructure, access to high-quality port
infrastructure helps determine a country’s integration with
international trade flows. Moreover, ports can host a range of value-
added services and thus provide significant direct economic benefits
to host countries. Despite their importance, ports in many
developing countries are characterized by underinvestment, low
productivity, inefficient use of resources, high user prices, long
delays, and ineffective services. In response to these problems, a
rising number of developing countries have reformed governance
models and introduced private investment and management in
formerly State-dominated ports.1


Foreign direct investment (FDI) in port infrastructure is an
attractive policy option for many developing countries, although it is
not without its challenges. The most prominent form of FDI in ports
has been to concession bulk cargo and container terminals to
transnational corporations (TNCs) otherwise known as international
terminal operators (ITOs), who take responsibility for investment
and operation over a defined period of time. Compared to public
entities and local investors, ITOs have significant economies of
scale, access cheaper financing, possess cutting-edge technology,
and employ advanced management and operational practices. Yet,
the policy challenges associated with introducing private
investment, including FDI, should not be underestimated. These
challenges include, among others, establishing the necessary legal
and institutional framework, restructuring port entities, managing
the bidding process, negotiating with ITOs, and providing fair and
effective regulation throughout the life of the project.




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Nigeria has been selected as a case study of a developing
country that has exhibited best policy practices in attracting and
benefiting from FDI in port terminals. The country’s broad-based
port reforms over the past decade resulted in 25 port terminal
concessions to private operators. The most significant of these
concessions, including the largest container terminal in the country,
were allocated to ITOs. Private and foreign participation in the
industry has been associated with significant improvements in port
performance. This report reviews the reforms and concession
process to identify lessons for other developing countries.


1. Introducing FDI in port terminals: opportunities and
challenges


Maritime ports are nodes within global shipping networks
that host a number of core services. Services to users include ship
reception; loading, unloading, and transhipment (from one ship to
another) of bulk and containerized cargo; as well as warehousing
and delivery of goods via inland transport modes. These services are
supported by upstream port infrastructure, including for example,
docks, port land, navigation aids, breakwaters, and dredging to
maintain waterways. In the case of most major ports, a public port
authority (PA) is responsible for overall port administration, while
specific activities and infrastructure may be divided between public
and private entities.


Over the past few decades, there has been a radical
transformation of the maritime shipping industry, with significant
implications for port services. In addition to the containerization of
cargo, which began in the mid-twentieth century, rising ship
specialisation and size and a number of technological breakthroughs
have made the port industry much more capital intensive.
Conventional services now involve modernized infrastructure and
equipment, and information technology plays a prominent role.
Ports around the world have made substantial investments and have
started to offer more specialized and value-added services
(Notteboom and Rodgrigue, 2005). These changes have improved




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the speed, efficiency and effectiveness of port services and have
supported the rapid growth of international trade. Associated with
this trend has been the rise of a number of horizontally and
vertically integrated ITOs with an interest in bulk and container
terminals operations around the world, as well as major shipping
lines.2


Despite these changes at the global industry level, many
ports in developing countries remain completely State-run, often
with implications for port performance. Financial constraints can
prevent government authorities from investing in modern equipment
and information technology, 3 while Government responsibility for
both port management and operations can limit responsiveness to
the ever-changing service demands of modern maritime shipping.
While many developing countries still follow public port models,
others have introduced reforms that promote private sector
involvement, particularly in the operation of port terminals. This has
been seen as a means to secure capital for port modernization, as
well as better organizational, management, and operational
outcomes. Figure I.1 further shows a significant rise of private
investment in port infrastructure, particularly since 2005. Empirical
evidence from India shows that private port terminals are
performing far and consistently better than State-run terminals, and
even setting new performance benchmarks that are almost at par
with neighbouring international ports (Deshmukh, 2006). Also, the
port tariff of private ports is more flexible, and generally lower than
State-run ports (UNESCAP, 2002).




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Internationally, and particularly in developing countries, the
majority of private sector involvement in port terminals has taken
the form of FDI from ITOs. In both Africa and South Asia, for
example, ITOs are responsible for over 90 per cent of privately
handled containers (Drewry, 2010). The potential benefits of FDI
when compared to domestic investment include better access to
capital, more sophisticated knowledge and expertise, more advanced
technology, and larger economies of scale. The opening of port
opportunities to foreign investors helps host countries select the
most cost-effective terminal investor with the highest capacity to
shoulder long-term financial risks. Box 1.1 presents a detailed look
at the ITO landscape, as well as drivers of their investment
behaviour.




Box I.1: ITO landscape and drivers of FDI


ITOs are a sub-group of infrastructure TNCs whose core activity
is to invest in port terminals. Typically they provide and operate terminal
superstructure, most notably the equipment for unloading or loading bulk
and container cargo from ships. ITOs may also be involved in related
activities in support of this core function. The five largest ITOs include
Hutchison Port Holdings (Hong Kong), APM Terminals (Denmark), PSA
International (Singapore), DP World (Dubai) and Cosco (Hong Kong),
together making up 54 per cent of world container port throughput in
2009.



For analytical purposes, ITOs can be divided into two groups


based on their motivation for investing in port terminals. The first group
of ITOs specializes in port terminals and follows horizontal strategies,
searching for profitable opportunities to expand geographically. The
second group are vertically integrated, and are motivated primarily by the
need to secure maritime trade routes and access to landside operations for
shipping lines. They tend to target locations of high strategic importance
of shipping lines and focus on providing them with low cost services.


/…




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Box I.1 (concluded)

Some ITOs of the second group are associated with major


shipping liner companies.

Beyond their internal advantages and strategies, FDI flows from


ITOs are determined by the features of host countries and regions. The
existence of economic opportunities, including local and regional market
size, and the likelihood of trade growth, is of foremost importance. The
most attractive opportunities are ports with significant potential to emerge
as gateway ports to inland trade routes, or as major transhipment points.
Economic opportunities, however, need to exist within an accommodating
policy environment. The port policy framework must be open and
conducive to private investment. Since ITO often work closely with
public port authorities, the level of policy stability and regulatory
transparency is very important, both at the time of entry and throughout
the life of a project. Similarly, ITOs also want assurances that public
authorities will support their investments by facilitating labour
restructuring, ensuring adequate levels of security at the port, and
maintaining and improving broader port infrastructure, as well as inland
transportation routes. Other aspects of the policy climate play a role as
well, including the presence of fiscal incentives, and broader
macroeconomic and political stability.



Source: Drewry (2005, 2010); Valentine (2007); UNCTAD (2003).



Moving from public to private port terminals requires a


change to the port governance model. A port governance model can
be understood as the allocation of key ownership, management and
operational responsibilities for activities within a given port
complex. Due to a lack of consensus on the best model and the
diversity of local contexts,4 there are several ways in which private
terminal operators can be introduced, each with different
implications for the split of public and private responsibilities. The
World Bank Port Reform Tool Kit (WBPRTK), for example,
outlines four stylized models of port governance based on the role of
the PA (Table I.1.).




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Whereas “public service” ports allocate all terminal-related
activities to the PA, in the “tool” port model, a private operator is
introduced to perform cargo handling and stevedoring activities.
Yet, underlying infrastructure, buildings, and equipment, remain
under the ownership and responsibility of the PA.


In the landlord model, a private operator takes on
responsibility for the majority of port terminal activities, including
provision of buildings and equipment. In all three of these models,
the PA remains responsible for port administration (including
regulatory functions), land ownership, and broader port
infrastructure. In contrast, “private service” ports allocate all these
responsibilities to a private entity. Since it maintains long-term
government control and ownership while providing a role for private
investment and operation, the landlord model is the most common
form of governance for large and medium-sized ports throughout the
world.


Based on the choice of model, the relevant legislative and
institutional adjustments must be made for private entry. Legislation
to facilitate the privatization of certain port assets may be necessary,
and the PA may need to be restructured. These are not easy tasks.
Restrictions and delays can develop due to constraining bureaucratic
cultures and practices that are resistant to change. Even if these
barriers are overcome, another common challenge is to engage in
labour reform in a way that reverses unproductive and inefficient
structures in State-run corporations, without undermining the social
sustainability that is as critical as the economic sustainability for the
ultimate outcome of a reform process.


With the governance model put in place, the next step is to
select a form of entry for private entities to deliver port services.
The form of entry is closely associated with the governance model
and it affects the sharing of financial and other risks. In the case of
tool ports, private firms are contracted to deliver narrow cargo
handling services with little or no investment in physical assets.
Financial risks rest with the PA. For true private service ports, the
private entity has full ownership over port assets. This can occur




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through a comprehensive privatization of the PA or through certain
greenfield port projects. In these cases, financial risks are fully
borne by the private investor. Outright sales of port assets are rare,
and have been observed in only a few countries (e.g. the United
Kingdom).


In between these two extremes are concessions, where a
private entity is granted the right to operate port terminals for a
number of years according to the terms of a contract. The terms of
the concession contract outline the sharing of investment
responsibilities and financial risks, payments (if any) to the
government for the use of land or pre-existing infrastructure, as well
as specific development plans. As such, the contents of the contract
depend on the specific parts of a port to be transferred and the stage
of site development. Concessions are the most common form of
private entry, particularly in ports that follow the landlord model.


The process of granting concessions for port terminals can
be divided into three phases, including pre-bidding, selection, and
post-bidding (figure I.2). In the pre-bidding phase, the awarding
authority decides on the specific awarding procedures and makes
this information available to interested candidates. In this phase, the
rules of the game are defined, such as whether a site is to be
awarded as a whole or split into two or more terminals, whether this
will be done in phases, whether the terminal will be multifunctional
or dedicated to only one type of cargo, and whether the terminal will
be dedicated to a single user or available to all. At this point, the
awarding entity will also have to decide on the division of risks and
investments.




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Figure I.2 Schematic overview of port terminal awarding
procedures and relevant issues





Source: Notteboom et al. (2010).



During the awarding phase, candidates are screened, bids


are evaluated, and the most appropriate candidate is selected. The
challenge here lies in making the right choice given the parameters
set in the pre-bidding phase. Prequalification of bidders is often a
first step and consists of an initial selection of companies out of the
pool of interested candidates. Common conditions for pre-
qualification include: minimum financial capacities of bidders,
experience over time in port operations, and level of global
operations. Final selection generally takes place on the basis of
direct negotiations and/or auction-like structures, where the terminal
is assigned to the bidder with the highest ‘score’ on a number of
criteria, such as the details of the business plan evaluation or the
price offered to the government for the use of existing assets. The
highest bidder may still be required to enter negotiations at this
point.




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Concession procedures have a significant effect on the
ability to attract domestic and foreign bidders. By ensuring
transparency, restricting discrimination and exclusivity, or limiting
concessions to clearly defined periods, Governments can increase
the number of bidders and the likelihood of securing high quality
bids (De Langen and Pallis, 2007). On the other hand, concession
procedures can introduce entry barriers in a number of ways,
including through lengthy administrative procedures, or the
requirement of existing capabilities and historical track records.


In the post-bidding phase, a legally binding contractual
agreement is signed with the selected candidate and monitoring and
enforcement practices during the contract term are set. Independent
monitoring can be established at the terminal, port, region, or
country level. Ensuring that both investor and Government are
respecting the terms of the contract is important because
concessions are of lengthy durations and renegotiations of particular
terms are not uncommon. Accordingly, there also needs to be an
independent body that can help resolve any disputes between the
two parties. National courts, independent commissions or
international arbitration can serve this function. If performance
outcomes are expected to rely on terminal operators competing with
one another, competition oversight may also be necessary. Failure to
address these follow-up matters can jeopardize the outcome of an
otherwise promising project.


The extent to which private investment in port terminals
leads to positive outcomes requires an assessment of several
variables. Priority variables include core financial performance of a
terminal, waiting times, cargo throughput, user prices, quality of
port services, and effects on public finances. Other effects of
concern to Governments may include the impact on employment,
supply chain integration, upstream and downstream businesses, and
transfers of knowledge and technology to the local economy.




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B. Learning from the case of Nigeria


By the late 1990s, the publicly operated port system in
Nigeria, one of the largest countries in Africa, was notoriously
inefficient and costly. Prompted by this poor performance and
acting in line with global developments, the country reformed its
port governance and adopted the landlord model. By 2006, Nigeria
had concessioned 25 port terminals across the country to private
investors and operators. The most significant of these concessions
went to foreign investors, namely the Apapa container terminal in
the Lagos port complex, which handles the majority of the country’s
international container trade. Through these concessions, the
Nigerian port system has received substantial investments and
injections of technology and management expertise. This has led to
dramatic productivity increases and expanded cargo throughput. As
a result, access to international shipping lines has improved and
overall clearance time for goods has dropped. This positive
experience has led the Nigerian Government to consider further port
developments, such as the new Lekki terminal, which was under
consideration in early 2011.


The reform process and subsequent entry of private terminal
operators in Nigeria provides an interesting case study in best policy
practices. Nigeria’s experience is particularly impressive when
compared with the challenges faced by other countries in Sub-
Saharan Africa, which have traditionally been slow to involve
private terminal operators (Leigland and Palsson, 2007). This trend
has reversed in recent years as Nigeria and others, including
Mozambique, Tanzania, Cameroon and Madagascar, have pursued
significant reforms. Yet, programmes such as these are not a priori
successful. In Kenya and Gabon, for example, container terminal
management contracts and concessions have been abruptly
cancelled.


By reviewing the reform process and outcomes in Nigeria,
this report examines key determinants of Nigeria’s success, not just
in terms of the policy framework itself, but with regard to ways to




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overcome challenges during the formulation and implementation of
this framework. In addition to highlighting best practices, the study
discusses why some policies have failed to be as effective as
anticipated, and how these problems may have been avoided.
Drawing from this analysis, the report distils lessons for other
developing countries seeking to introduce private and foreign
investment into their port systems. The lessons are presented as
practical policy recommendations that, when appropriately adapted,
can be applied in different contexts.




                                                        


Notes

1 For a series of UNCTAD monographs prepared in collaboration with the
International Association of Ports and Harbors (APH), see
http://www.unctad.org/Templates/Page.asp?intItemID=3410&lang=1
2 In 2009, for example, ITOs operated 53 per cent of the world’s container
port capacity, with the rest were operated by public sector or local
operators (Drewry, 2010).
3 In the early 2000s, capacity usage at West African ports reached 80
percent (Drewry, 2005), with serious problems forecasted due to the
growth of containerized trade. Gantry cranes to serve large-scale
containerships were found in very few ports, and capital-intensive dredging
was lacking (Ocean Shipping Consultants, 2009).  
4 See the examination of experiences of ports in 15 countries in 14 different
studies that culminated in the publication Brooks and Cullinae (2007). Also
see Brooks and Pallis (2011).






 


II. THE CASE OF NIGERIA


The reforms that have taken place in Nigeria’s ports over
the past decade (table II.1) entailed the adoption of a new port
governance model and the selection of a process to allow and enable
entry by domestic and foreign terminal operators. The whole
process was part of a strategy to overcome a number of deficiencies
observed in the pre-1999 period.



Table II.1. Timeline of port reforms in Nigeria


Privatization and Commercialization Act No 28/1999
creating National Council on Privatization (NCP) and
the Bureau of Public Enterprises (BPE)


1999


NPA Act No 38/1999 allowing private operators to
contract with Nigerian Port Authority (NPA)


2000 Creation of the Transport Sector Reform Committee
(TSRC) within the NCP


2001 BPE Commissions Ports Modernization Project Study
with funding from World Bank


2003 BPE contracts third-party transaction advisors to
perform due diligence, prepare bidding materials and
advise on negotiations


2004 First of four bidding and negotiation rounds initiated
2005 Effective date of first concession
2006 Last terminal transferred from NPA to concessionaire




A. Pre-reform conditions


Prior to the recent reforms, Nigeria's port system was
primarily under State ownership and operation. The country's two
largest port complexes (Lagos and Port Harcourt), together with two
smaller ones at Warri and Calabar, serviced the maritime needs of
the country as public service ports; owned, managed and operated
directly by the Nigerian Port Authority (NPA). Although several
lighter ports (e.g. Onne) were governed under the landlord model,
allowing some private involvement in terminals, they made up only
a small share of the country's maritime trade.




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Throughout the 1990s, the country's major ports were
suffering from poor performance and high congestion. Among the
widely reported problems were a) highly centralized decision-
making, b) overstaffing, c) corrupt practices, d) underinvestment, e)
limited integration with inland transportation, and f) insecurity of
cargo.1 As a result, Nigerian ports ranked low in efficiency and
demanded excessive charges compared to other West African
seaports. Moreover, ships were experiencing serious delays due to
congestion. Container traffic in particular was being constrained by
aging terminal infrastructure, slow clearance procedures, and limited
storage space. In 2001, for example, the Port of Lagos was only
clearing 100 containers per day, compared to the expected 500 to
600. Port users and the NPA were increasingly diverting cargo to
other ports in Nigeria, as well as those in neighbouring countries.
As a decongestion measure NPA converted Lagos-bound vessels to
smaller Nigeria ports in the Eastern part of the country.


These problems led to significant stakeholder pressure on
the Nigerian Government to implement changes to its port system.
The local business community, motivated by firms involved in
importing and exporting, complained that their competitiveness was
being undermined. International stakeholders, notably major
international shipping lines, also voiced their dissatisfaction with the
status quo, feeling that the Nigerian Government held the key to
improving maritime shipping throughout West Africa. Steady
agitation by these groups for positive change was a major factor
behind the Government's ultimate decision to drastically reform
Nigeria's port system.

B. Initiation of reforms


The early stages of Nigeria's port reforms were
characterized by clear objectives and strong political leadership.
Aiming to make a clear break from the past, the government’s
reform agenda for the sector sought to improve service delivery by
a) enhancing management capabilities, b) creating a conducive
institutional, legal and regulatory framework, and c) and developing
private sector participation in financing, management and operations




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of port facilities. These objectives were paired with a focus on
operating targets, such as decreased costs to port users, faster cargo
clearance and vessel turnaround, and reduced pressure on
government finances. By achieving these targets, Nigeria would
emerge as a hub for international shipping and trade in West and
Central Africa, not only boosting the country's economic
development prospects, but enhancing the country's geopolitical
position in the region as well.


The achievement of these objectives required significant
legal, institutional, and organizational reforms that could not be
achieved without strong political leadership to bring the necessary
government agencies on board. After the 1999 election, the new
President made these reforms a top policy priority (Mfon, 2006;
Abiodun, 2010). Public agents at lower levels committed to this
agenda and helped ensure its adequate implementation. There were
two key events at this early stage: the creation of a legal and
institutional framework for privatization and the passing of
legislation redefining the mandate of the NPA.


The new Government adopted and enacted Privatization
and Commercialization Act No. 28/1999, which had been
promulgated by the military government the year before. This
legislation provided for the privatisation and commercialisation of
State-owned enterprises in a number of explicitly mentioned sectors,
including the port industry. The Act also created the National
Council on Privatization (NCP) and its secretariat, the Bureau of
Public Enterprises (BPE) (box II.2). The high-level NCP was
responsible for approving privatization and commercialization
programmes, as well as details of their implementation. The BPE
acted as a secretariat, charged with providing technical advice and
following the NCP’s directives. In addition, the Decree required the
BPE to hire experienced third party advisors to conduct technical
assessments of targeted State enterprises, identify privatization
options, and work with the BPE to attract and negotiate with
potential investors. In the context of the port industry, this legal and
institutional framework made the transfer of NPA assets to private
investors possible, and provided a clear methodology towards this
end.




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Box II.1: Privatization institutions


National Council on Privatisation (NCP)
Established under: S.9 of the Privatisation and Commercialisation Act
28/1999


Consists of: Government’s Vice-President; Minister of Finance;
the Attorney-General and Minister of Justice; the Ministers of Industry and
National Planning; the Central Bank Governor, the Secretary to the
Government of the Federation, the Special Adviser to the Head of State,
Commander-in-Chief of the Armed Forces on economic affairs, and four
other members appointed by him, and the Director General of the Bureau
of Public Enterprises.



Powers: a) Approve policies on privatisation and


commercialisation, the entities to be privatised or commercialised, and the
time frames involved; b) approve guidelines and criteria for valuation of
public enterprises and the choice of strategic investors; c) approve the legal
and regulatory framework for the enterprises to be privatised; d) approve
the appointment of advisers and consultants as well as the budgets of the
council and bureau; e) and receive regular reports from the bureau on
programme implementation;

Bureau of Public Enterprises (BPE)
Established under: S.12 of the Privatisation and Commercialisation Act
28/1999


Functions: (1) Implement the NCP’s policy on privatisation; (2)
prepare public enterprises approved by the council for privatisation;
(3) advise the council on further public enterprises that may be privatised;
(4) advise the council on the capital restructuring needs of the public
enterprises to be privatised; (5) carry out all activities required for the
successful issue of shares and sale of assets of the public enterprises to be
privatised; (6) make recommendations to the council on the appointment of
consultants, advisers, investment bankers, issuing houses, stock brokers,
solicitors, trustees, accountants and other professionals required for the
purposes of privatisation; (7) advise the council on the allotment pattern for
the sale of the shares of the public enterprises set out for privatization; (8)
oversee the actual sale of shares of the public enterprises to be privatised



/…




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Box II.1 (concluded)

by the issuing houses, in accordance with the guidelines approved, from
time to time, by the council; (9) ensure the success of the privatisation
exercise taking into account the need for balance and meaningful
participation by Nigerians and foreigners in accordance with the relevant
laws of Nigeria; and (10) perform such functions with respect to
privatisation as the council may, from time to time, assign to it.

Privatisation advisers
Established under: Privatisation and Commercialisation Act 28/1999


Functions: The privatisation advisers are the financial and
technical advisers to be appointed under the Decree by the government to
undertake diagnostic studies of all enterprises slated for privatisation. The
terms of reference oblige them to: a) assess the value of the affected
enterprise; b) evaluate strategic privatisation options for each affected
enterprise; c) identify more serious strategic investors, if those who had
already expressed their interest to invest are considered inadequate for the
purpose, and d) assist BPE in evaluating bids and negotiating with the
identified strategic investors.




Initially, the NPA was to be fully privatized. However, this
objective was revised as outlined in the 1999 Ports Act. The Act,
which amended the 1954 NPA Act, kept the NPA as a public entity,
but allowed it to unbundle aspects of its activities and to enter into
agreements with private entities to provide port services, including
the operation of port terminals. Despite its new role, the NPA
remained under the jurisdiction of the Ministry of Transport. In
2000, a special Transport Sector Reform Committee (TSRC) under
the chairmanship of the Transport Minister was created within the
NCP. Membership of the TSRC was drawn from key stakeholder
agencies, including the NPA. In turn, the TSRC created a sub-
committee within the NPA. Together, the NCP and the Ministry of
Transportation would coordinate and detail the changes that would
accompany the introduction of private investment in the port
system.






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1. The endorsed port model and mode of private entry


Despite general agreement within the NCP and Ministry of
Transport on the need to introduce private involvement in the
country’s ports, they were still undecided on the specific model of
port governance and the corresponding mode of private entry. As a
result, the NCP decided to seek experienced advice. It requested
partial funding from the World Bank Public-Private Investment
Advisory Facility (PPIAF) to commission a study that would
develop a more detailed port reform strategy for the Ministry of
Transport. In 2001, Dutch consultancy Royal Haskoning was hired
to prepare a diagnostic Ports Modernization Project Study. The
consultants were tasked to (a) conduct a detailed technical and
financial due diligence on the NPA and all major ports; (b) identify
ways to increase the involvement of the private sector in the
financing and operation of port services and operations; and (c)
define a revised role for the NPA, particularly with respect to
shifting from operational to regulatory and administrative tasks. The
consultants reviewed previous studies, and followed it up with their
own research.


Reviewing the most commonly used alternatives to the
government’s port management model, the study recommended the
adoption of the “landlord” model, one of the alternatives that had
been provided by the World Bank Port Reform Tool Kit
(WBPRTK). Towards this end, the study proposed the development
of a comprehensive framework, covering key themes, such as the
restructuring of the NPA, a bid tender strategy, and a new legal and
regulatory framework for the entire port sector.


This model would split the duties of the NPA so that it
could concentrate on the landlord aspect of its mandate, including
ownership and administration of the land, port planning and
development of port infrastructure, leasing and concessioning of
port land, provision of nautical services, such as vessel traffic
management, and management of the channels and waterways,
including lighting and dredging activities. The study also
recommended splitting of NPA into three autonomous regional port
authorities with slim corporate headquarters.




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In this context, private companies would bid on concessions
(with the details of transactions to be formulated at a later stage) for
certain port operations and services. Most importantly, this included
terminal operation, cargo handling, stevedoring, warehousing, and
delivering. Companies would be responsible for investments in the
construction, purchase, and ownership of superstructure and
equipment related to these activities. To meet all of these
responsibilities, private companies would be expected to engage
permanent personnel and provide sufficient training for them to
reach minimally adequate skill levels. As a consequence, the NPA
workforce could be streamlined in consultation with labour unions.
The process of selection was to be via an international competitive
bid for the available concessions to operate as private port terminals,
paying royalties and levies to NPA and the Federal Government.


The study also suggested that the quality of port services be
reinforced through intra-port competition, with privately operated
port terminals competing against one another within the same port
complex. In the larger port complexes, there was room for several
terminals servicing similar cargoes, creating significant potential for
a competitive environment. This mechanism would give operators
incentives to make additional investments without mandating them
directly, as that was considered an unrealistic requirement at the
time. However, the decision on the precise split of the port
terminals, and the types of cargoes that they would serve, was left to
the NPA, given their knowledge of the situation in existing
facilities.


The Federal Government accepted the report’s main
recommendations. Several reasons supported the choice to
implement a landlord model with concessions for private port
terminal operators (Table II.2). Improving the ports under a public
service or tool port model would require funds that the Government
did not have readily available and that capital markets were unlikely
to provide, even if the NPA was fully corporatized as a State-owned
enterprise. At the other pole, full privatization was out of the
question due to public concerns over loss of control over strategic
infrastructure. The landlord model, by contrast, seemed to enjoy
broad stakeholder support, as expressed, for example, through




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consultations between the NPA and Nigeria’s Port Consultative
Council.



Table II.2: Choosing forms of private entry: An NPA


perspective
Option Constraint Verdict


Privatise ports by
outright sale


General public opinion
against this choice


Rejected


Invest funds into
ports


Finance not readily
available


Rejected


Corporatize ports
to enable them to
raise money
through the capital
market


Public sector management
discourages general
investment from capital
market


Rejected


Concession port
(terminals)


Transfer of operational
obligations to private
sector/retention of public
ownership


Accepted


Lease finance of
Greenfield Port
Requirement


Restrictive/selective
process; strategy difficult
to manage


Limited
acceptance
(services to
oil & gas)


Source: Etomi, S. (2009).
Note: The choice of Private Forms of Entry as indicated in the table pre-dated
Etomi’s presentation in 2009





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C. Implementation of reforms


Having set the institutions to orchestrate port reforms, the
port model to apply, and the form of private entry, governmental
institutions proceed in a process of implementing reforms. In
December 2003, with the diagnostic study completed and its
‘upstream’ recommendations endorsed by the national
administration, the NCP authorized the BPE to begin the concession
process in accordance with the Privatisation and Commercialisation
Act of 1999. Along with third party transaction advisors, they
detailed the technicalities of the process, set the criteria, and invited
bidders through international calls for tenders. Preferred bidders
negotiated with the Government and contracts were signed between
the investors and the NPA detailing the terms of investment and
operations. Within two years from the call for bids, nearly all private
operators had signed concession agreements and started operating
the respective terminals. To support their operations, the
Government had invested in port and surrounding infrastructure and
had streamlined a number of public port-related services, including
customs.


The successful attraction of a number of capable foreign and
domestic investors is due to a number of factors. Most important
were economic factors, notably the presence of underserved demand
for gateway and transhipment cargo handling services. Some of the
foreign ITOs that emerged as preferred bidders also had links to
shipping companies looking to expand service to West Africa. Yet
these economic opportunities could not be realized without an
appropriate policy framework, a transparent bidding and negotiation
process and a willing partner in the Government to help
development of a competitive Nigerian port sector. The existence of
a clear privatization framework with empowered institutions and the
use of third party technical expertise gave investors confidence in
the validity of the process and the information used to formulate
their bids. Moreover, calls for tenders were done in the open through
the public media and post-bidding negotiations involved a number
of key stakeholders, including from the NPA, the bidders, the
transaction advisors, and labour representatives. Finally, the
investment prospects were also improved by the Government’s




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commitment to improve a number of framework conditions,
including infrastructure and government services, and to actively
address labour restructuring.


1. Hiring of transaction advisors and preparation for the
bidding process


The first step taken by the BPE was to engage Canadian-
based transaction advisors CPCS Transcom to provide technical
support and assist with the implementation of the port reforms
(Borha 2010). As required by Nigeria’s privatization law, the firm
was hired to conduct financial due diligence of the terminals to be
concessioned, seek proposals from domestic and international
investors, and develop key documents, including the Request for
Proposals (RFP) and concession agreements. In addition, CPCS was
tasked with drafting a new legal and regulatory framework for the
port sector, including the creation of an independent regulator.


Within the first four months, the due diligence was
completed and detailed plans written up to guide the concession
process. Their work was in line with a pre-defined mandate based
on enhancing economic efficiency, stimulating intra-port
competition, promoting foreign and domestic investment, and
maximizing financial returns for the Federal Government of Nigeria.
Workshops were organized around the country by the BPE to
inform maritime stakeholders and the general public on the nature of
the reforms, while their website published details of the due
diligence work and bidding procedures.


In total, 25 terminals across eight ports were carved out for
concessions, the largest of these being the Apapa container
terminals in Lagos. For the major concessions, foreign and domestic
operators were free to bid for any or all of the terminals up for
concession.2 Provisions were made so that no operator could be
awarded all the terminals within a single port, so as to avoid anti-
competitive behaviour. Given that much of the underlying
infrastructure and even some super-structure were already in place,
the concessions were typically arranged under a rehabilitate, operate
and transfer (ROT) model, with a requirement to pay
commencement, lease and cargo throughput fees to the Government.




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The terminals would be operated on a common user basis (i.e. open
to all shippers, shipping lines and consignees of cargo), while the
company was responsible for maintenance and other improvements
necessary to enhance capacity and competitiveness. The concession
terms were to range from 10-25 years.


Potential bidders would be pre-qualified based on a
minimum ability to undertake operations, with preference given to
candidates with global experience in terminal operations. Next, the
bids would be evaluated based on two separate proposals. First, a
technical proposal with a development and investment plan for
assessment by the transaction advisors. Second, a financial proposal
to the BPE stipulating the value of the commencement, lease and
throughput fees offered to the Government. Once a financial bid was
selected, the interested party would enter into direct negotiations
with the BPE to finalize the concession contract.


2. Initiation and management of the bidding process


The bidding process was divided into four separate rounds.
The first round began in September 2004, with the issuing of an
RFP for terminals in the Lagos port complex. This included the
Apapa container terminal, which was expected to attract the most
interest due to the magnitude of the operations and potential for
future growth. This was followed by the second round, which
comprised terminals in the Port Harcourt port complex. Round 3 and
4 included terminals in Tin Can Island, Onne, Calabar, Warri and
Koko port complexes. Policy-makers stuck to the original plan,
largely respecting the timetable for the completion of the
concessions. Due diligence on pre-qualified companies and the
submission of technical and financial bids were completed with
minimal delays.




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As noted, both domestic and foreign investors were invited
to place bids. Given the preference for investors with global
experience, especially in the case of the Apapa container terminal,
the BPE targeted major ITOs. This objective was consistent with
Nigeria’s broader development strategy, which emphasizes the role
of FDI in driving economic growth and improving basic
infrastructure (box II.2) 


Box II.2 FDI Trends in Nigeria



Prior to independence in 1960, Nigeria’s economy was


dominated by foreign-owned enterprises. Concerned with their political
and economic influence, the Nigerian government began implementing
restrictions and promoting indigenous and state-led enterprises. Many
foreign firms and investors divested over this period.



The Government began to engage in FDI promotion and


facilitation activities. In 1995, the regime was liberalized even further
with the Nigerian Investment Promotion Commission (NIPC) Act,
allowing 100 per cent foreign ownership of companies in all sectors aside
from petroleum, and creating the NIPC as a designated investment
promotion agency. That same year, a law on foreign exchange passed
guaranteeing the free transfer of funds in and out of the country, as well
as currency convertibility. Under Nigerian law, investors also have a
legal right to compensation in the case of expropriation and it must be
based on the national interest for for a public purpose.


Since the early 2000s, FDI attraction has been a cornerstone of
Nigeria’s development strategy. Wile the majority of inflows over the
past decade have gone to the petroleum sector, the Government
committed to facilitating FDI in other sectors, including basic
infrastructure. In addition to the country’s ports, there is a significant FDI
presence in telecommunications and, most recently, in the power sector.
Infrastructure investors, come under sector-specific legal and regulatory
frameworks and, in the case of privatizations, engage directly with the
BPE to negotiate their conditions of entry and treatment.



Source: UNCTAD (2009)





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Initially, the BPE received 110 expressions of interest,
including investors from Europe, Asia and North America. Over the
entire process, 13 terminals up for competitive bidding received a
total of 59 bids, while the other 12 were allocated through direct
negotiations with former leaseholders. The bidding and negotiations
yielded commitments of $1.7 billion in fees to the Government and
an additional $700 million in physical investment (table II.3).
Nearly all preferred bidders had some form of foreign participation
in leading or supporting roles.


The largest of the transactions was a 25-year rehabilitate-
operate-transfer (ROT) concession for the Apapa Container
Terminal in Lagos, which went to a consortium led by A.P. Moller
Terminals (APMT) of Denmark. The winning bid included
commitments worth $1 billion in fees to the Government and $240
million in new buildings and equipment.3 APMT is a leading ITO
and subsidiary of Maersk, the world’s largest shipping company.
APMT and other preferred bidders were primarily motivated by the
growth in West African trade, which was outstripping the capacity
of existing gateway and transhipment port services in the region
(box II.3).




Box II.3 Investor perspectives


Nigeria’s port terminals represented significant economic
opportunities for foreign investors, particularly in the case of the Apapa
container terminal in Lagos. Nigeria makes up around 40 per cent of West
Africa’s growing economic output, and the port in Lagos is well positioned
as a major transhipment and gateway port to the Nigerian market, as well
as land-locked Chad and Niger. The potential as a high volume gateway
port limited investment risks associated with facilities dedicated
exclusively to transhipment. As a result, there were a number of lucrative
opportunities for private investors to rehabilitate and upgrade aging and
out-dated terminal infrastructure.


In addition to serving rising demand for shipping services in West
Africa, certain terminal operators were also motivated by their corporate



/…




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Box 11.3 (concluded)

links to international shipping lines. For instance, APMT’s parent
company, Maersk, had developed major shipping operations covering West
African trade routes. Yet, at that time, port bottlenecks were making it
difficult to accommodate growing cargo traffic and the larger container
ships used by Maersk. Although it would remain a common user terminal,
APMT’s investment in the Apapa would help reduce capacity constraints
facing Maersk’s West African operations. A similar pattern can also be
observed in the consortium that secured the bid for container operations at
Tin Can Island Port B, which included shipping interests Bolloré and Zim
Integrated Shipping Services.



The widespread use of joint-ventures as a vehicle for investment


in Nigeria’s port terminals is notable. For local companies, collaborating
with foreign entities was a way to integrate into broader international
shipping networks. For their part, foreign companies wanted to take
advantage of knowledge on the operating conditions of local markets and
to integrate in local transportation and business networks. These mutual
interests drove a number of collaborations

Source: Interview with APMT and NPA


 




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  How to Utilize FDI to Improve transport infrastructure - Ports


 


 
UNCTAD Investment Advisory Series B 


 


30





CHAPTER II


 
UNCTAD Investment Advisory Series B 


 


31 




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  How to Utilize FDI to Improve transport infrastructure - Ports


 


 
UNCTAD Investment Advisory Series B 


 


32


3. Terms of the concession agreements


Draft concession agreements were negotiated between the
NPA and the private terminal operators.4 By the end of 2006, 20 had
been completed, with the others completed shortly after. Following
approval of each agreement and its terms by the President of Nigeria
through the NCP, the BPE certified their compliance with the port
reform and modernization strategy by acting as a “confirming party”
to the contract. The concession agreements 5 cover a number of
issues over the project lifespan, including:


 the effective date and term of the concession;
 guidelines on the use of the concession property,


including details on maintenance, provision of
utilities and designation of common use areas;


 operating conditions, such as tariff setting, payment
of fees to the NPA, performance standards, and use
of labour;


 division of port service obligations between the
parties (e.g. responsibility of NPA to maintain
waterways and facilitate access to the site by
terminal operators)


 reporting requirements, including accounting
records, planning and investment reports, as well as
quarterly reports on cargo and vessel traffic


 contingencies in cases of default;
 processes for termination of the contract, including


with respect to compensation;
 governing laws and dispute resolution procedures,


including recourse to binding arbitration in an
international forum.




Specific details to inform these commitments were provided
in a number of appendices. These outlined, for instance, a
breakdown of fees to be paid to the Government, the operator’s




CHAPTER II


 
UNCTAD Investment Advisory Series B 


 


33 


investment and development plans, the value of the superstructure
assets purchased from the government and those to be brought in by
the operator; a staffing and succession plan; as well as an initial
schedule of tariff rates for cargo handling, storage and delivery. By
addressing these matters in very specific terms, terminal operators
and Government could better understand the division of risks
between them. Moreover, the agreements provided a basis and
mechanism for resolving potential disputes between the parties.


Several elements in the contracts are worth highlighting.
The first relates to operations pricing and performance. The
contracts outline an initial ceiling on tariff rates and a transparent,
non-discriminatory pricing policy that includes publication of rates,
announcement of any preferential rates, and transparent handling of
complaints. Reference is also made to pre-defined free storage time
for cargo in transit to neighbouring countries (i.e., transhipment).
The ceiling on tariff rates was to be phased out over time as
competition was endorsed as the main tool for ensuring reasonable
rates.6 This arrangement gives terminal operators pricing flexibility,
while protecting port users from dramatic price increases. As a
landlord port, the NPA remains responsible for determining the
tariffs of marine services and the use of the harbour. The contracts
also included performance standards, with maximum mandated
waiting times for cargo handling and review by the NPA every two
years.


Lease fees were a second important aspect of the contracts.
These were based on the terminal operator’s financial bid. To enter
the market, terminal operators had to agree to an initial payment
(commencement fee), a fixed annual payment of a sum in equal
instalments in each operating year (lease fee) and a throughput fee,
which would depend on cargo traffic. Terminal operators had to
provide a guaranteed minimum tonnage to be handled per year,
while they would receive excess discounts on the case of any
excessive cargoes. Terminal operators were required to submit a
performance bond to guarantee the full and timely performance of
their financial obligations.


Third, the terminal operators committed to detailed 5 year
development plans based on their technical bids. The plans outlined




  How to Utilize FDI to Improve transport infrastructure - Ports


 


 
UNCTAD Investment Advisory Series B 


 


34


the scheduling of investments in infrastructure, equipment, tug boats
and barges, plans for land use allocation and provision of any
dedicated areas such as warehouses. Changes or expansions of these
plans would require consultation with the NPA.


A fourth part of the agreements that would prove to be
significant concerns labour issues. The contract gave terminal
operators significant hiring freedom and most did not inherit the
labour contracts of the NPA. The Nigerian Government initially
planned to terminate all stevedoring contracts, setting a date at
which point they had to vacate the premises. Intense opposition
from the Maritime workers union of Nigeria led the Government to
revise its decision and seek a negotiated settlement. Some of these
workers would have the opportunity to work for the new terminal
operators, but overall, previous employment practices had resulted
in significant overstaffing, which would initially require an
estimated 75 per cent reduction in port workers. The International
Labour Organization (ILO) activities also contributed to the final
agreement.7 The dock labour force of about 13,000 was disengaged
and paid severance of around 2.6 billion Nigeria Naria
(approximately $2 million), and the Nigerian Ports Authority
downsized its workforce in stages from 13,000 to around 4,000.8
Although the Government was required to reverse its initial
approach, it followed through on its commitment to facilitate
workforce restructuring with minimal delay.


While the agreements allowed terminal operators to
significantly reduce the workforce, they had to commit to detailed
employment policies (e.g. organogram and expected personnel to be
used for managing the port terminal), training schemes and
employment opportunities for Nigerian nationals. Foreign managers
could be hired on a condition that reasonable efforts are also made
to hire locally.


Finally, the NPA committed itself in the contracts to act in
order to keep the ports open to access by sea and by land and for use
by the terminal operators. It retained responsibilities for the
maintenance of the berths, canals, breakwaters and navigation aids;
as well as the timely and efficient provision of maritime services
(i.e. pilotage, towage, and shifting of vessel services required by all




CHAPTER II


 
UNCTAD Investment Advisory Series B 


 


35 


vessels intending to call at the terminals), and dredging, which is
vital for the hosting of bigger vessels. The NPA would perform
these activities either directly or through the licensing of
competitive suppliers of such services, in a way that guaranteed a
positive effect upon the performance of the operations.


4. Handover of terminals


The majority of agreements took effect in 2006, and
concessionaires quickly took over operations. The handover process
included joint surveys of fixed assets, the sale/transfer of spare parts
consumables and moveable assets, and the removal of all other
moveable assets not to be handed to operators. It also included an
inventory of cargo being handed to operators along with terminals,
the addressing of insurance requirements, and moreover the
termination of existing contracts and agreements with clients.


To perform its role as port landlord, the Nigerian
Government made a number of improvements to the framework
conditions, including port and transportation infrastructure, as well
as government services. These were done both before and during the
entry of new terminal operators to facilitate and support the
modernization process. The NPA embarked on a rehabilitation of
infrastructure and general improvement of port conditions. At the
APMT operations in Apapa, for instance, this included reducing
congestion by clearing 7,000 abandoned containers that had been
stored there. The Ministry of Transport was further involved in
projects to improve maritime port infrastructure, covering areas such
as road construction, berthing facilities, dredging of channels, and
storage facilities.


By limiting bottlenecks for gateway cargo, recent
improvements to the country’s broader transportation infrastructure
have also facilitated port terminal operations. The costs of land
transportation in West Africa are among the highest in the world,
although road infrastructure is expanding, including through an
African Development Bank supported Multinational Highway
project that would, among other things, better link Nigeria and
Cameroon. Within Nigeria, a 150km municipal highway is planned
for the Port Harcourt area. The Government has entered into




  How to Utilize FDI to Improve transport infrastructure - Ports


 


 
UNCTAD Investment Advisory Series B 


 


36


concessions with foreign and local investors to construct and operate
in-land storage depots, included bonded facilities that could hold
containers in case of delays in customs clearance. One of these
depot projects has secured approval to build a rail link to Apapa
container terminal in Lagos.


The terminal handovers were also associated with efforts to
improve Government service delivery at the port. The security
situation, for instance, was assured prior the entry of the
concessionaires by the Nigerian Maritime Administration and Safety
Agency (NMASA) (Mfon, 2010). To simplify the operating
environment, a Government taskforce review recommended
reducing the number of public agencies present in the port to only
five, in line with international best practice.


Before the reforms, 29 government agencies had been
involved in inspection and clearance, and 19 signatures were
required to clear a container at the Apapa terminal, resulting in a
slow, bureaucratic and often corrupt process for cargo clearance and
a major bottleneck for the entire port system (UNCTAD field
interviews). The government also signed concessions with foreign
and local private inspection companies to implement comprehensive
destination inspection schemes, supported by agreed investments in
fixed, mobile and tunnel x-ray scanners, and computerised risk
analysis.


The Government made efforts to streamline customs
services according to international best practice. In 2004, the
President set up a task force on customs reform. The work of this
task force led to a major reorganisation and the appointment of a
new management team charged with ‘changing the way customs
works’ and reducing problems such as corruption. Subsequently, a
special unit was created to monitor practices within the agency,
leading to the dismissal of several customs officers. The new
management team has also revised the Customs’ clearance
procedures to speed up the process, signing a Memorandum of
Understanding (MOU) with the NPA to demonstrate their
commitment to improving customs at Nigeria’s ports. Yet major
challenges still remain in this area.




CHAPTER II


 
UNCTAD Investment Advisory Series B 


 


37 





D. Successes and challenges


The reform of Nigerian ports through concessions and the
establishment of the landlord model of port governance has yielded
very positive results, even in the early days of the implementation.
Despite strong contributions in terms of port performance,
government finances and knowledge transfer, a concessioning
programme on the scale of Nigeria’s is likely to face some
challenges during implementation. These issues continue to prevent
Nigeria’s port operations from reaching their full potential. In
particular, they point to the need for a clear regulatory framework
and independent body to monitor, regulate and resolve disputes
between private and public port actors about their respective rights
and obligations. Longstanding plans for an independent
transportation authority to perform these functions for the port
sector have been mired in parliamentary delays for several years.
Yet despite room for improvement, the benefits of the reforms have
overwhelmed the shortcomings.


1. Positive outcomes


Positive outcomes associated with Nigeria’s port reforms
and the entry of private operators include:


 Substantial investments in physical capital, in line
with the development plans;


 Injection of management and expertise, leading,
along with investments, to productivity
improvements


 Throughput expansion
 Reduction in cargo clearance delays
 Improved connectivity to international shipping


networks, facilitating international trade and
opportunities to develop a logistics hub




  How to Utilize FDI to Improve transport infrastructure - Ports


 


 
UNCTAD Investment Advisory Series B 


 


38


 Contribution to public finance from initial sale and
subsequent lease and cargo fees


 Knowledge transfer to local operators and
employees


 Setting a positive example to promote further
developments in the sector, such as the new
greenfield Lekki port project



In total, the concession programme yielded over $900


million in physical capital commitments by private terminal
operators. These investments have largely been realized and have
resulted in new or upgraded buildings and equipment, operational
improvements, as well as new health, safety and training
programmes for staff. In the case of the largest project, the Apapa
container terminal, APMT has so far invested $180 million to
upgrade facilities and buy new cargo handling equipment, resulting
in the doubling of terminal capacity. The latest investment
programme is on stream for completion in 2011, and includes yard
resurfacing and further equipment purchasing to triple the terminal’s
original handling capacity to 600,000 TEUs (Twenty-foot
equivalent unit) annually.


Investments in facilities and handling equipment have
significantly improved the productivity of Nigeria’s ports. For
instance, average waiting time for vessels at Nigerian ports dropped
from 2.17 days in 2003 to 1.6 in 2010. Vessel turn-around time
dropped from 7.9 hours in 2003 to 4.7 hours in 2007, before rising
again to 5.4 in 2010. Productivity increases are particularly notable
in the case of the Apapa container terminal. New equipment and
other improvements more than doubled the number of container
moves per hour within the first six months, leading to a proportional
rise in container throughput (figure II.1).9 Vessel wait times dropped
dramatically and the terminal’s operating hours were extended (table
II.4). Since the reforms, there has been a 30 per cent increase in the
number of vessels calling at the port.




CHAPTER II


 
UNCTAD Investment Advisory Series B 


 


39 






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  How to Utilize FDI to Improve transport infrastructure - Ports


 


 
UNCTAD Investment Advisory Series B 


 


40


Table II.4: Reduced turnaround times and extended operating
hours at Apapa Container Terminal




Pre-concession Post-concession
(2008)


Average vessel wait time 14-28 days 0-24 hours


Working hours per day 12 hours 24 hours


Working days per week 5 ½ days 7 days


Source: NPA Handbook; APM Terminals Bulletin




Improvements in port performance have also been
associated with reforms to the cargo clearance process, including the
customs services. Computerization,10 the use of scanning machines
and improved personnel training have reduced the clearance time of
goods down to one to 10 days, down from up to six months in 2004.
This has had positive effects on congestion levels, particularly at the
Apapa terminal, which handles the majority of the country’s
international trade. With fewer delays and faster turnaround time,
shipping companies have developed confidence in Nigeria’s port
operations and schedule reliability, enabling them to avoid
congestion surcharges.


Since the handover of terminals to private operators in 2006,
cargo throughput of all types has grown at a faster rate than prior to
the reforms. Largely due to the Apapa terminal, total container
throughput in Nigeria rose from 656,000 TEUs in 2006 to 999,000
TEUs in 2009 and from around 50 million MTs to more than 70
million MTs (Figure 11.2).




CHAPTER II


 
UNCTAD Investment Advisory Series B 


 


41 


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  How to Utilize FDI to Improve transport infrastructure - Ports


 


 
UNCTAD Investment Advisory Series B 


 


42



More broadly, the reforms have integrated Nigerian ports


into international shipping networks, providing more access to
international trade opportunities. From 2007 to 2009, Nigeria’s
score in UNCTAD’s Liner Shipping Connectivity Index11, rose at a
significantly higher rate that the Sub-Saharan region as a whole
(figure II.3). Rising connectivity has made it faster and less costly
for exporters and importers to move products in and out of the
country, and has facilitated the development of associated logistics
activities.







CHAPTER II


 
UNCTAD Investment Advisory Series B 


 


43 


The concession programme has had a positive impact on
public finances. As noted, the agreements saw private terminal
operators commit to $1.7 billion in commencement, lease and
throughput fees to the NPA over the lifetime of the project. By the
end of 2009, the Government had collected $401 million, including
97 per cent of commencement fees owed by terminal operators, 81
per cent of lease fees and 87 per cent of throughput fees. In two
cases, terminal operators faced a financial penalty for not meeting
their guaranteed throughput. The unpaid balances reflect
disagreements regarding the performance of the government’s
obligations according to the concession agreements (discussed
below).


The entry of foreign terminal operators is associated with
the application of more advanced technologies. As a result, local
partners and Nigerian workers have accumulated new skills and
knowledge. For instance, the introduction of sophisticated cranes
and new information management systems have required intensive
training of local employees. At the Apapa terminal, APMT uses a
state-of-the-art crane simulator for training purposes, the first of its
kind in West and Central Africa. Aside from a handful of
managerial positions being allocated to expatriots, the majority of
the labour force is locally sourced. In addition to more technical
training programmes, they benefit more generally from exposure to
international best practices used by leading ITOs. Through labour
turnover, these newly acquired skills and knowledge are
disseminated to the local economy.


The success of the concession programme, as well as the
continued growth of regional trade, has encouraged the Nigerian
Government to seek further opportunities for private port terminal
development. The most significant of these is the construction of the
1 million TEU capacity Lekki container port, a greenfield project
worth $850 million. The project, involving a Singapore-based
investor, is expected to commence in 2012 and will have a deeper
draught than Apapa, allowing it to handle the world’s largest
container ships. Given the higher capital investments associated
with a greenfield project, the project will be eligible for incentives
under the free zone regime. Positive outcomes from the first round




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of port concessions gave existing and potential investors the
confidence to pursue more substantial projects.


2. Challenges


Despite successful overall outcomes, a number of isolated
problems have emerged that suggest room for improvement. These
have tended to relate to alleged failures on the part of certain
terminal operators or the Government to adequately perform their
roles. The intention here is not to pass judgment on these
contentious and complicated issues, but to highlight the challenges
that may be encountered by such ambitious reform efforts. In
Nigeria, problems include:


 Failure of certain operators to fully implement
investment and development plans or fulfil financial
obligations to the Government


 Problems with the state of assets and property
handed over by the NPA


 Shipping tariffs higher than pre-concession levels
 Slow response by NPA to port infrastructure and


maintenance needs
 Concerns about anti-competitive behaviour
 Industrial action over implementation of a new


labour regime
 Continued delays and problems with customs and


cargo inspection


There have been some alleged cases of terminal operators of
the NPA failing to perform their obligations under the concession
agreement, although there has been no legal action to date
(UNCTAD field interviews). In a minority of cases, terminal
operators have not followed through on their investment and
development plans. In one instance, refurbishments and expansion
projects required to increase terminal capacity were significantly
delayed, certain safety and security systems and technical training




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programmes were not implemented (UNCTAD field interviews).
Also, there have been a few cases where terminal operators have not
fully performed their financial obligations to the Government. This
is related to alleged problems and delays with the transfer of
moveable assets, utilities and terminal property from the NPA.
Several operators have also expressed their concern that ceilings on
shipping tariffs remain fixed at pre-concession levels, despite
clauses in the concession agreements to review pricing every two
years.


Growth in the use of Nigeria’s ports since the reforms has
put pressure on the Government to make investments to expand
broader port infrastructure. Given the trend towards larger vessels in
West African shipping routes, significant sums need to be invested
in dredging to increase the depth of the ports. The NPA has been
slow to respond to this need as there have been delays in the
allocation of funds. This despite one of the advantages of landlord
port models being a constant revenue stream for port authorities to
secure soft loans for major capital investments. Moreover,
maintenance at ports could be improved. Problems with fenders and
quay walls, for example, limit berthing space and prevent
concession areas from being fully operational. Requesting even
minor work is often hindered by bureaucratic procedures. There is
also a need to construct new main roads.


Operationally, there have been some concerns expressed
regarding competition issues. Initially, there was fear that the entry
of APMT would allow its parent company, the Maersk Group, to
gain an effective monopoly on quay and landside operations, as well
as the ocean freight market, bearing in mind that Maersk-related
companies are major players in West Africa. Some shippers have
petitioned the Government to complain about charges related to the
transfer of containers from the port to bonded inland terminals. It is
not clear if these claims have merit, but this demonstrates the
importance of proper monitoring by Government authorities.


Although negotiated severance packages helped facilitate
the initial restructuring, not all labour issues have been resolved.
Dockworkers belonging to the Maritime Workers Union of Nigeria
have engaged in industrial action, citing a negative working




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environment and allegedly anti-labour practices implemented by
private-sector terminal operators. Beyond the conditions of service,
they point to delays in the implementation of the Dockworkers
Minimum Standard agreement and new service contracts. These
issues could lead to on-going disputes and undermine port
operations.


Although there have been some improvements, customs and
cargo clearance at Nigeria’s ports are still a major bottleneck. There
is a need for agents to embrace international standards, such as the
use of sample inspections, and to enhance cooperation with terminal
operators to streamline cargo tracking. Cutting the number of
required procedures and the number of involved agencies would
also reduce the potential for corrupt practices. The creation of a
Presidential Committee to improve cargo clearance is a promising
step forward.


3. Need for an independent regulator


These problems point to the need for continued cooperation
and communication between operators and the NP. Ultimately,
however, there is a need to create an independent regulator that can
monitor and resolve these issues.


Already, terminal operators and public authorities have
developed a healthy culture of cooperation and coexistence. The
BPE, for instance, established a port-privatization monitoring team
that is in regular discussions with terminal operators to identify
areas for improvement. For its part, the NPA is in constant contact
with terminal operators. By communicating early and often, they try
to identify problems before they emerge or escalate. Yet certain
issues have still required political intervention, as demonstrated by
the recent dispute over a potential port development levy that
reached the Senate. An independent regulator should be in place to
resolve disputes and regulate pricing and competition, allowing the
NPA to focus on its core obligations as a landlord.


When Nigeria decided to implement a landlord port model,
there were also plans to create a National Transport Committee
(NTC) that would fulfill monitoring and regulatory functions across




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all transport sectors, including ports. Indeed, the transaction
consultants helped draft legislation to create the new institution.
However, the Bill ran into major obstacles in parliament, preventing
the regulator from being in place before the handover of the
terminals to concessionaires. Since then, the Government has sought
to create a regulator specific to the port industry. In 2009, an 11-
member technical committee was put together to propose details of
a National Independent Port Commission, which will be
incorporated into a forthcoming Port Industry Bill.


The Government also recently commissioned a review of
Nigeria’s port reforms and the performance of terminal operators. It
is expected that this process will shed additional light on on-going
challenges and provide valuable input into the development of a
solid legal and regulatory framework to sustain what has largely
been a successful port reform programme.




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Notes



1 Various news sources; Mohiuddin and Jones (2006); Suleiman (2010).
2 10 of the smaller port terminals would be allocated through direct
negotiations with private operators already under lease with the NPA.
Many of these did not possess the necessary minimum scale to generate
competitive interest or could not expand due to physical constraints.
3 APM Terminal’s bid was more than five times the next highest offer
($202 million, from International Container Terminal Services Inc).
Winning bids of this magnitude are not unusual in port concessions around
the world, particularly in recent years. See Rodriguez et al. (2011).
4 The agreements took the form of “leases” between the NPA and the
private terminal operator.
5 See UNCTAD (1998) “Guidelines for Port Authorities and Governments
on the privatization of port facilities”.
6 As of early 2011, the tariff ceiling remained in place.
7 The ILO was involved in a number of African countries in enhancing
financial governance of social security schemes, including Nigeria.
8 See UNCTAD (1998) “Guidelines for Port Authorities and Governments
on the privatization of port facilities”.
9 In 2009 a new record was set, when the operator moved 2,249 containers
in 47.3 hours when working the 2,890 TEU capacity ship, Maersk
Pembroke - a year before a vessel of this size would have taken 144 hours
to complete.
10 The UNCTAD developed computerised customs management system
ASYCUDA was used. It provides for Electronic Data Interchange (EDI)
between traders and Customs in handing manifests and customs
declarations, accounting procedures, transit and suspense procedures,
taking into account the international codes and standards and is configured
along national characteristics of customs regimes, tariffs and legislation.
11 Based on measures of number of ships, container carrying capacity,
largest container ship, number of services, and number of shipping
companies that provide regular container shipping services from and to a
country’s ports. The index is published under
http://unctadstat.unctad.org/TableViewer/tableView.aspx?ReportId=92
where more details about its calculation can be found.




 


III. BEST PRACTICE LESSONS FROM NIGERIA


The experience that Nigeria has had in the development of
its port infrastructure and management provides examples for
policymakers on actions that other countries may follow when
designing and implementing similar reforms.




A. How to move from public to private port terminals


The decision to seek private investment in port
infrastructure generally brings with it a series of steps, issues and
elements that combined, determine the success of the process. The
steps and sequencing adopted by Nigeria provide a useful roadmap
in moving from public to private port terminals.


1. Identify potential for private port investment


For private investment to take place there must be market
opportunities. ITOs are looking to invest in ports with significant
potential as a gateway or transshipment points. This depends on the
region’s integration with global shipping networks and the growth in
international trade flows. In any case, Governments should perform
due diligence on their port assets in order to estimate the
commercial opportunities offered.


Nigeria’s ports, particularly its container terminals in Lagos,
represented clear economic opportunities for ITOs. International
trade was projected to grow significantly in Nigeria and the West
Africa region for economic and demographic reasons, providing a
lucrative market in gateway and transshipment services.
International shipping lines had a direct interest in removing
bottlenecks at Nigerian ports through investments by their terminal
operating subsidiaries. The BPE and its third-party advisors
completed commercial and financial due diligence on terminal
assets to identify specific concession opportunities and assess the
potential for competitive bidding. This information was also used to
help bidders produce their technical and financial bids.




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2. Establish legal and institutional framework for private
participation


Privatizations and subsequent contracts between
government agencies and private investors must be underpinned by
a strong framework to ensure transparency and sustainability. Often,
existing port legislation precludes the port authority from selling
assets or contracting with private terminal operators. Legislative
changes and new institutions may be a prerequisite.


In part to prepare the ground for the port reforms, in 1999
the Nigerian Government passed a law on privatization, creating the
cabinet-level NCP and its secretariat, the BPE. It provided the legal
basis for the State to sell assets to private investors and to engage in
concession agreements. Rules were outlined for the BPE to follow
when administering a tendering process. That same year, a new
Ports Act was passed, providing a legal basis for the NPA to
contract with private terminal operators to provide cargo handling
services. The previous legislation had stipulated, with some
exceptions, that the NPA be the sole provider of port services.


3. Create a high-level body to catalyze and coordinate reforms


Reforming public ports to introduce private terminal
operators is a complicated process involving major changes across a
number of public agencies and policy areas, such as finance,
infrastructure, transportation and labour. Political leadership is vital.
The creation of an executive-level group with clear goals and access
to top decision-makers can provide vital political will and effective
coordination.


Nigeria’s port reforms were catalyzed by the NCP which,
among others, consists of the Vice President and the Minister of
Finance. The NCP created a Transport Sector Reform Committee
under the chairmanship of the Minister of Transport, which would
help coordinate the reform process with the NPA. The BPE also
organized and coordinated stakeholder meetings to ensure buy-in by
government agencies including the NPA.




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4. Carefully diagnose needs and formulate new port model,
drawing on external knowledge if necessary


The introduction of private port investment usually requires
significant changes to the structure of port governance. The
Government must decide on the division of activities between
private terminal operators and the port authority, the mode of private
entry, the tendering process, and the subsequent regulatory
framework. This poses challenges for many developing countries
where bureaucratic capacity can be limited. International technical
support is an effective way to ensure that best practices are
implemented. It is also important to select a model that is acceptable
to a range of stakeholders, while recognizing that not everyone will
be satisfied with the outcome.


The Government of Nigeria worked closely with
international institutions and independent advisors to devise their
new port governance model and to outline the concessioning
process. After announcing its intention to privatize port terminals,
the BPE received funding from the PPIAF, an arm of the World
Bank, for a study by international port consultants. The study made
several recommendations, including adopting a landlord model of
port governance, reserving cargo handling for private terminal
operators. Another recommendation was to concession terminals to
separate operators so as to ensure competition, even within the same
port. After consultations with stakeholders and consideration of
various options, the Government adopted the majority of the
recommendations, providing clear objectives and a strategy to
implement the reforms.




B. How to promote and negotiate FDI entry


1. Establish a strong and stable foreign investment regime


With significant investments in immovable port facilities,
foreign terminals operators want to be assured that their investments
are protected. Concerns about the local legal system can be




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attenuated by including recourse to international arbitration in
contracts between the State and investors.


Nigeria began to liberalize its foreign investment regime in
the late 1980s. Companies with full foreign ownership are allowed
in virtually all sectors, with the exception of petroleum activities.
There is free transfer of funds to and from the country, as well as
currency convertibility. Investors are given a legal right to
compensation in cases of expropriation, which must first pass a
public interest test. Over the past decade, the Government has
targeted FDI for the infrastructure sector, with major successes in
the power, telecommunications and now ports. The BPE and its
technical advisors act as a single contact point for foreign investors,
which helps to limit the number of agencies involved and to
maintain Government credibility.


2. Fiscal incentives are unnecessary, except in the case of
certain greenfield projects


Since in most cases private entry involves bidding on State
assets or concession rights, there is no need to provide fiscal
incentives above and beyond the general tax regime. Ultimately, the
investors willingness to take on the project will be reflected in the
financial bid. In cases of greenfield port development, however,
there may be justification for special tax treatment, depending on the
public good characteristics of the port infrastructure.


In Nigeria, terminal operators fall under the general tax
regime. In their financial bids, the companies committed to pay the
Government certain levels of commencement, lease and cargo
throughput fees. These bids were adjusted to account for future
income tax obligations to the Government. On the other hand, the
more recent proposal for a major container port at Lekki in Lagos
State, as a greenfield project, will be eligible for free zone tax
incentives. These incentives reflect the fact that the investor will be
shouldering the majority of the financial risk.





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3. Appoint independent transaction advisor to help manage the
concession process


To access technical expertise, public agencies responsible
for the bidding process may hire an uninterested third-party that can
perform due diligence, develop market opportunities, communicate
with investors and facilitate bids. This promotes transparency,
accuracy and enhances the Government’s credibility and bargaining
power with investors.


The BPE hired a third-party infrastructure advisory firm to
undertake diagnostic studies of the NPA’s terminal assets, assess
their value, evaluate concession options, identify investors, and
advise the BPE on the selection and negotiation of bids and
agreements. The transaction advisors also developed legislative
proposals for the creation of an independent transportation regulator.
Access to this international expertise and experience helped the
Government engage leading ITOs in the bidding process.


4. Allow for the widest possible expression of investor interests
– select through phases


When the scale of a port terminal is large enough to gather
broad interest, a competitive bidding or auction process should be
used to determine which investor can offer the best deal in terms of
investment commitments, delivery of port services, price levels or
contribution to public revenues. It is therefore important that the
process be relatively free of barriers that could limit the number of
bidders, such as costly administrative procedures or restrictions on
types of bidders. At the same time, however, investors need to
demonstrate certain minimum capabilities to be eligible to bid. The
challenge is to balance this with the need to maximize competitive
bidding.


To find this balance, Nigeria organized the bidding process
into four stages. First, potential investors were invited to express
their interest. Of these, due diligence was performed to pre-qualify
bidders. To ensure minimum capabilities, bidders were required to
have previous experience with terminal operations. Second, a




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technical proposal was submitted by the bidder outlining an
investment and development plan for the port terminal. Assuming
that the technical bid was accepted, the third stage was the
submission of a financial proposal with the amount to be paid to the
Government in commencement, lease and throughput fees. Finally,
preferred bidders were selected and they negotiated with the NPA to
finalize the details of the concession agreement. This multi-step
approach allowed the investors to enter the initial bidding stages
with minimal administrative hurdles.


Although competitive bidding is usually the preferred
choice, there are cases where direct negotiation may be more
appropriate. In Nigeria, some of the smaller terminals to be
concessioned were already being operated by private firms under
previous arrangements. Rather than terminate these arrangements,
which could interrupt service delivery, the NPA simply negotiated
new conditions including, for example, the scale and duration of
operating rights and fee structures. Had these negotiations failed,
other interested parties would have been sought.


5. Set and follow clear procedures and timelines for bidding


Transparency throughout the bidding process is very
important. When the public has access to credible information, it is
easier to keep policymakers accountable and the process enjoys
more legitimacy as a result. Transparency is equally valuable for
investors, as a more legitimate process is more likely to result in
outcomes that are politically sustainable in the long-run. Moreover,
transparency limits opportunities for corrupt practices. To ensure
transparency, Governments should publicly outline tendering
procedures and timelines, as well as the respective roles of key
government agencies.


The bidding process for Nigeria’s port concessions met high
standards of transparency. The BPE communicated details on the
due diligence and bidding process to stakeholders and the public by
holding workshops and posting information on their website. With
very few exceptions, the timelines for pre-qualification, bid
evaluation and negotiations were followed closely.




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6. Ensure that contracts address key issues throughout lifetime
of project


Significant effort should go into the preparation and
finalization of concession or lease contracts between public entities
and investors. These contracts outline the rights and obligations of
each party and the distribution of risks between them. It is important
to address a wide array of issues and contingencies in these
contracts, as this limits the potential for disputes during the life of
the project, which in some cases can be up to 30 years. Disputes can
result in costly legal proceedings or re-negotiation, service
disruption or divestment. The specific elements covered in an
agreement will depend on the model of private participation, as well
as the envisioned regulatory regime. For instance, a model relying
on competition may preclude the need for set user prices to be part
in the contract.


The contracts used between the NPA and private terminal
operators covered a number of areas over the lifespan of the project,
including: the date and term of the concession; guidelines on the use
of the concession property; operating conditions, including tariffs,
payments to the NPA and performance standards; service
obligations of the NPA, such as maintaining waterways; reporting
requirements; contingencies in cases of faults or to terminate the
contract; and dispute resolution procedures, including access to
international arbitration. Specific details were included in a number
of appendices. Initially, terminal operators had to commit to a tariff
ceiling and to their initial investment plan. But with Nigeria’s new
port model relying primarily on intra-terminal competition to
encourage investment and keep prices in check, the tariff ceilings
are to be removed over time and future investment plans fall largely
within the discretion of the operator.




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C. How to facilitate project implementation and ensure
positive long-term outcomes


1. Proactive management of the labor force adjustments


Shifting from public to private terminal operation is likely
to involve changes in the skills and knowledge base of the
workforce as private terminal operators apply international and
modern standards. Governments have a major role to play in this
process and should be involved in the earliest stages where short-
term displacement may occur, while new posts are created by new
investments and increased throughput in the medium and long term.


While in Nigeria the terminal operators did not inherit the
labour contracts of the NPA, the Government did appoint a multi-
agency executive-level task force to negotiate settlements with the
trade unions. The International Labour Organization provided
technical assistance, and the workers that stayed on are mostly local
and have benefited from exposure to international best practices.
Additionally, greater exposure to international labour standards has
led to action on the side of workers seeking to improve their labor
standards, and the dramatic increase in throughput creates more
qualified and formal sector jobs.


2. Strengthen infrastructure and government services within
the port complex


Governments have a strong presence in ports through their
regulation of international trade and involvement in providing hard
and soft infrastructure, such as maintaining waterways, providing
security and customs clearance. The performance of terminal
operators and success of the reforms will depend in part on how
well these services are provided. Often, the Government may even
be bound by agreements with the operator to provide certain
services. Adequate resources and communication between operators,
the Port Authority and other Government agencies are essential to
positive long-term outcomes.




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To support the port programme, the Nigerian Government
improved service delivery in the port and upgraded framework
conditions. It created a task force on customs reform, leading to a
new management team and a special unit to monitor practices within
the agency. The customs agency signed an MOU with the NPA to
demonstrate their commitment to improving the situation at the
country’s ports. The number of public agencies in the port was
reduced from 29 to five to reduce overlap and red tape, while
investments were made in new technology to speed up cargo
clearance. Significant investments have been made in road
construction, berthing facilities, channel dredging and storage
facilities. Despite these efforts, there is still room for improvement.
Poor maintenance has been a problem, and the NPA has had
difficulty accessing certain funds for major capital investments.


3. Appoint an independent institution to monitor and follow up
on project implementation and operations


Private investments in port terminals are characterized by
complex terms and conditions between the operators and public
agency. Positive outcomes for the host country depend on
Government efforts to monitor a project’s development and
operations, and to take action if the agreement is breached. On the
other hand, investors want to be reassured that public agencies fulfill
their obligations and that any dispute is resolved impartially and in a
transparent manner. To address these issues governments may create
an independent institution that can monitor project developments
and regulate the behavior of private and public port actors according
to the agreements. In some arrangements, this institution will also be
responsible for reviewing and regulating prices and/or competition
the sector.


Creating a new institutional and regulatory framework
usually requires significant legislation, which can stretch the
capacities of weak political systems. It may take years before the
final law is passed. It is important to start this process as early as
possible in the reform process. However, it is unrealistic to expect
all details to be finalized prior to the implementation of a concession




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programme. In the meantime, the parties must monitor each other. A
regular schedule of consultation is valuable in this respect. It is also
advisable to the Government to perform ad hoc reviews of port
performance.


In Nigeria, there were initial plans for the creation of a
Transport Commission to monitor and regulate the port sector,
giving it jurisdiction over prices and competition in terminal
operations. But the bill was blocked in Parliament. More recently, a
bill for a port-specific agency was drafted and presented. The delay
in creating this institutional framework has meant that the NPA and
BPE have been responsible for monitoring the concession
agreements and setting tariff ceilings. This is insufficient and has led
to confusion among maritime stakeholders. In the short-term, the
Minister of Transportation initiated an official review of the port
reforms and their outcomes.


4. Build on and promote positive experiences


A successfully executed port privatization programme can
help persuade firms to make additional or new investments, with
higher levels of commitment and risk exposure. Positive outcomes
also facilitate public and Government support for future projects,
while one bad case may be enough to block them politically.
Governments should promote and disseminate positive experiences
to potential investors through organs such as investment promotion
agencies.


Nigeria’s successful port concession programme has led to
significant interest in a number of new projects, the most notable
being the Lekki Port in Lagos State. A greenfield project, it will be
able to handle 1 million TEU of container cargo per year, roughly
doubling the national capacity.




 


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62


transport costs”, in: Port Economics, Research in
Transportation Economics, Volume 16, edited by Kevin.



Cullinane, K and Talley W (2006) “Port Economics” San Diego:


Elsevier.

World Bank (2001). Port Reform Tool Kit (WBPRTK), first edition;


second edition: 2005; available at: www. web.worldbank.org.




 


SELECTED UNCTAD PUBLICATIONS ON
INTERNATIONAL INVESTMENT AGREEMENTS,


TRANSNATIONAL CORPORATIONS AND FOREIGN
DIRECT INVESTMENT


(For more information, please visit www.unctad.org/en/pub) 
 
 


World Investment Reports
(For more information visit www.unctad.org/wir)



World Investment Report 2011. Non-Equity Modes of International
Production and Development. Sales No. E.11.II.D.2. $95.
http://www.unctad.org/en/docs//wir2010_en.pdf.

World Investment Report 2010. Investing in a Low-Carbon Economy.
Sales No. E.10.II.D.1. $80.
http://www.unctad.org/en/docs//wir2010_en.pdf.

World Investment Report 2009. Transnational Corporations,
Agricultural Production and Development. Sales No. E.09.II.D.15. $80.
http://www.unctad.org/en/docs/wir2009_en.pdf.

World Investment Report 2008. Transnational Corporations and the
Infrastructure Challenge. Sales No. E.08.II.D.23. $80.
http://www.unctad.org/en/docs//wir2008_en.pdf.

World Investment Report 2007. Transnational Corporations, Extractive
Industries and Development. Sales No. E.07.II.D.9. $75. http://www.unctad.org/
en/docs//wir2007_en.pdf.

World Investment Report 2006. FDI from Developing and Transition
Economies: Implications for Development. Sales No. E.06.II.D.11. $75.
http://www.unctad.org/ en/docs//wir2006_en.pdf.

World Investment Report 2005. Transnational Corporations and the
Internationalization of R&D. Sales No. E.05.II.D.10. $75.
http://www.unctad.org/ en/docs//wir2005_en.pdf.




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64


World Investment Report 2004. The Shift Towards Services. Sales No.
E.04.II.D.36. $75. http://www.unctad.org/en/docs//wir2004_en.pdf.

World Investment Report 2003. FDI Policies for Development: National and
International Perspectives. Sales No. E.03.II.D.8. $49. http://www.unctad.org/
en/docs//wir2003_en.pdf.

World Investment Report 2002: Transnational Corporations and Export
Competitiveness. 352 p. Sales No. E.02.II.D.4. $49. http://www.unctad.org/
en/docs//wir2002_en.pdf.

World Investment Report 2001: Promoting Linkages. 356 p. Sales No.
E.01.II.D.12 $49. http://www.unctad.org/wir/contents/wir01content.en.htm.

World Investment Report 2000: Cross-border Mergers and Acquisitions and
Development. 368 p. Sales No. E.99.II.D.20. $49. http://www.unctad.org/wir/
contents/wir00content.en.htm.

Ten Years of World Investment Reports: The Challenges Ahead. Proceedings
of an UNCTAD special event on future challenges in the area of FDI.
UNCTAD/ITE/Misc.45. http://www.unctad.org/wir.



Best Practices in Investment for Development


How to Attract and Benefit from FDI in Mining: Lessons from Canada
and Chile 136p. Sales No. E.10.II.

How to Integrate FDI and Skill Development: Lessons from Canada and
Singapore 70 p. Sales No. E.10.II.D.16

How to Create and Benefit from FDI-SME Linkages: Lessons from
Malaysia and Singapore 92 p. Sales No. E.10.II.D.12

How to Attract and Benefit from FDI in Small Countries: Lessons from
Estonia and Jamaica, 100 p. Sales No. E. 10.II.D.




SELECTED UNCTAD PUBLICATIONS ON IIAs, TNCs and FDI  65 

 


 
UNCTAD Investment Advisory Series B 


 


How Post-Conflict Countries can Attract and Benefit from FDI: Lessons
from Croatia and Mozambique, 125 p. Sales No. E.10.II.D.18

How to utilize FDI to improve transport infrastructure – roads Lessons
from Australia and Peru, 113 p. Sales No. E.09.II.D.14

How to utilize FDI to improve infrastructure – electricity Lessons from
Chile and New Zealand, 95 p. Sales No. E.09.II.D.13



International Investment Policies for Development
(For more information visit http://www.unctad.org/iia)



Investor-State Disputes: Prevention and Alternatives to Arbitration, 129
p. Sales No. E.10.II.D.11. $20.

The Role of International Investment Agreements in Attracting Foreign
Direct Investment to Developing Countries. 161 p. Sales No. E.09.II.D.20.
$22.

The Protection of National Security in IIAs. 170 p. Sales No.
E.09.II.D.12. $15.

Identifying Core Elements in Investment Agreements in the APEC Regions.
134 p. Sales No. E.08.II.D.27. $15.

International Investment Rule-Making: Stocktaking, Challenges and the Way
Forward. 124 p. Sales No. E.08.II.D.1. $15.

Investment Promotion Provisions in International Investment Agreements.
103 p. Sales No. E.08.II.D.5. $15.

Investor-State Dispute Settlement and Impact on Investment
Rulemaking. 110 p. Sales No. E.07.II.D.10. $30.

Bilateral Investment Treaties 1995—2006: Trends in Investment Rulemaking.
172 p. Sales No. E.06.II.D.16. $30.




  How to Utilize FDI to Improve transport infrastructure - Ports


 


 
UNCTAD Investment Advisory Series B 


 


66



Investment Provisions in Economic Integration Agreements. 174 p.
UNCTAD/ITE/IIT/2005/10.

Preserving Flexibility in IIAs: The Use of Reservations. 104 p. Sales No.
E.06.II.D.14. $15.

International Investment Arrangements: Trends and Emerging Issues. 110 p.
Sales No. E.06.II.D.03. $15.

Investor-State Disputes Arising from Investment Treaties: A Review. 106 p.
Sales No. E.06.II.D.1 $15

South-South Cooperation in Investment Arrangements. 108 p. Sales No.
E.05.II.D.26 $15.

International Investment Agreements in Services. 119 p. Sales No.
E.05.II.D.15. $15.

The REIO Exception in MFN Treatment Clauses. 92 p. Sales No. E.05.II.D.1.
$15.



Issues in International Investment Agreements
(For more information visit http://www.unctad.org/iia)



Scope and Definition: A Sequel 149 p Sales No. E.11.II.D.9. $25

Most-Favoured-Nation Treatment: A Sequel. 141 p. Sales No.
E.10.II.D.19. $25

International Investment Agreements: Key Issues, Volumes I, II and III. Sales
no.: E.05.II.D.6. $65.

State Contracts. 84 p. Sales No. E.05.II.D.5. $15.

Competition. 112 p. Sales No. E.04.II.D.44. $ 15.




SELECTED UNCTAD PUBLICATIONS ON IIAs, TNCs and FDI  67 

 


 
UNCTAD Investment Advisory Series B 


 


Key Terms and Concepts in IIAs: a Glossary. 232 p. Sales No. E.04.II.D.31.
$15.

Incentives. 108 p. Sales No. E.04.II.D.6. $15.

Transparency. 118 p. Sales No. E.04.II.D.7. $15.

Dispute Settlement: State-State. 101 p. Sales No. E.03.II.D.6. $15.

Dispute Settlement: Investor-State. 125 p. Sales No. E.03.II.D.5. $15.

Transfer of Technology. 138 p. Sales No. E.01.II.D.33. $18.

Illicit Payments. 108 p. Sales No. E.01.II.D.20. $13.

Home Country Measures. 96 p. Sales No.E.01.II.D.19. $12.

Host Country Operational Measures. 109 p. Sales No E.01.II.D.18. $15.

Social Responsibility. 91 p. Sales No. E.01.II.D.4. $15.

Environment. 105 p. Sales No. E.01.II.D.3. $15.

Transfer of Funds. 68 p. Sales No. E.00.II.D.27. $12.

Flexibility for Development. 185 p. Sales No. E.00.II.D.6. $15.

Employment. 69 p. Sales No. E.00.II.D.15. $12.

Taxation. 111 p. Sales No. E.00.II.D.5. $12.

Taking of Property. 83 p. Sales No. E.00.II.D.4. $12.

National Treatment.. 94 p. Sales No. E.99.II.D.16. $12.

Admission and Establishment.. 69 p. Sales No. E.99.II.D.10. $12.




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UNCTAD Investment Advisory Series B 


 


68


Trends in International Investment Agreements: An Overview. 133 p. Sales
No. E.99.II.D.23. $12.

Lessons from the MAI. 52 p. Sales No. E.99.II.D.26. $10.

Fair and Equitable Treatment.. 85 p. Sales No. E.99.II.D.15. $12.

Transfer Pricing.. 71 p. Sales No. E.99.II.D.8. $12.

Scope and Definition. 93 p. Sales No. E.99.II.D.9. $12.

Most-Favoured Nation Treatment.. 57 p. Sales No. E.99.II.D.11. $12.

Investment-Related Trade Measures. 57 p. Sales No. E.99.II.D.12. $12.

Foreign Direct Investment and Development.. 74 p. Sales No. E.98.II.D.15.
$12.





Investment Policy Monitors

Investment Policy Monitor. A Periodic Report by the UNCTAD Secretariat.
No. 6, 11 October 2011.
http://www.unctad.org/en/docs/webdiaeia2011d12_en.pdf

Investment Policy Monitor. A Periodic Report by the UNCTAD Secretariat.
No. 5, 5 May 2011.
http://www.unctad.org/en/docs/webdiaeia20115_en.pdf

Investment Policy Monitor. A Periodic Report by the UNCTAD Secretariat.
No. 4, 28 January 2011.
http://www.unctad.org/en/docs/webdiaeia20112_en.pdf

Investment Policy Monitor. A Periodic Report by the UNCTAD Secretariat.
No. 3, 7 October 2010.
http://www.unctad.org/en/docs/webdiaeia20105_en.pdf




SELECTED UNCTAD PUBLICATIONS ON IIAs, TNCs and FDI  69 

 


 
UNCTAD Investment Advisory Series B 


 


Investment Policy Monitor (2010). A Periodic Report by the UNCTAD
Secretariat. No. 2, 20 April.
http://www.unctad.org/en/docs/webdiaeia20102_en.pdf

Investment Policy Monitor (2009). A Periodic Report by the UNCTAD
Secretariat. No. 1, 4 December.
http://www.unctad.org/en/docs/webdiaeia200911_en.pdf


IIA Monitors and Issues Notes

IIA Issues Note No. 2 (2011): Sovereign Debt Restructuring and
International Investment Agreements.
http://www.unctad.org/en/docs/webdiaepcb2011d3_en.pdf

IIA Issues Note No. 1 (2010): Latest Developments in Investor–State
Dispute Settlement.
http://www.unctad.org/en/docs/webdiaeia20103_en.pdf

IIA Monitor No. 3 (2009): Recent developments in international
investment agreements (2008–June 2009).
http://www.unctad.org/en/docs/webdiaeia20098_en.pdf

IIA Monitor No. 2 (2009): Selected Recent Developments in IIA
Arbitration and Human Rights.
http://www.unctad.org/en/docs/webdiaeia20097_en.pdf

IIA Monitor No. 1 (2009): Latest Developments in Investor-State Dispute
Settlement.
http://www.unctad.org/en/docs/webdiaeia20096_en.pdf

IIA Monitor No. 2 (2008): Recent developments in international
investment agreements (2007–June 2008).
http://www.unctad.org/en/docs/webdiaeia20081_en.pdf

IIA Monitor No. 1 (2008): Latest Developments in Investor– State
Dispute Settlement.
http://www.unctad.org/en/docs/iteiia20083_en.pdf




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70



IIA Monitor No. 3 (2007): Recent developments in international
investment agreements (2006 – June 2007).
http://www.unctad.org/en/docs/webiteiia20076_en.pdf

IIA Monitor No. 2 (2007): Development implications of international
investment agreements.
http://www.unctad.org/en/docs/webiteiia20072_en.pdf

IIA Monitor No. 1 (2007): Intellectual Property Provisions in
International Investment Arrangements.
http://www.unctad.org/en/docs/webiteiia20071_en.pdf

IIA Monitor No. 4 (2006): Latest Developments in Investor-State Dispute
Settlement.
http://www.unctad.org/sections/dite_pcbb/docs/webiteiia200611_en.pdf

IIA Monitor No. 3 (2006): The Entry into Force of Bilateral Investment
Treaties (BITs).
http://www.unctad.org/en/docs/webiteiia20069_en.pdf

IIA Monitor No. 2 (2006): Developments in international investment
agreements in 2005.
http://www.unctad.org/en/docs/webiteiia20067_en.pdf

IIA Monitor No. 1 (2006): Systemic Issues in International Investment
Agreements (IIAs).
http://www.unctad.org/en/docs/webiteiia20062_en.pdf

IIA Monitor No. 4 (2005): Latest Developments in Investor-State Dispute
Settlement.
http://www.unctad.org/en/docs/webiteiit20052_en.pdf

IIA Monitor No. 2 (2005): Recent Developments in International
Investment Agreements.
http://www.unctad.org/en/docs/webiteiit20051_en.pdf




SELECTED UNCTAD PUBLICATIONS ON IIAs, TNCs and FDI  71 

 


 
UNCTAD Investment Advisory Series B 


 


IIA Monitor No. 1 (2005): South-South Investment Agreements
Proliferating.
http://www.unctad.org/en/docs/webiteiit20061_en.pdf
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72


United Nations Conference on Trade and Development
Division on Investment and Enterprise


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QUESTIONNAIRE


Best Practices in Investment for Development
Case Studies in FDI: How to Utilize FDI to Improve Transport


Infrastructure - Ports
Lessons from Nigeria
Sales No. E.10.II.D…..


 
  In order to improve the quality and relevance of the work of the
UNCTAD Division on Investment, Technology and Enterprise
Development, it would be useful to receive the views of readers on this
publication. It would therefore be greatly appreciated if you could complete
the following questionnaire and return it to:



Readership Survey


UNCTAD Division on Investment and Enterprise
United Nations Office at Geneva
Palais des Nations, Room E-9123
CH-1211 Geneva 10, Switzerland


Fax: 41-22-917-0194

1. Name and address of respondent (optional):






2. Which of the following best describes your area of work?


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institution 
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organization  Media 
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74


4. What is your assessment of the contents of this publication?


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If not, please check here if you would like to receive a sample copy
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SELECTED UNCTAD PUBLICATIONS ON IIAs, TNCs and FDI  75 

 


 
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