Understanding NPA’s Termination of Intels’ Contract
Following the dust raised by last week’s decision of the Federal Government to terminate the boats pilotage monitoring and supervision agreement that the Nigerian Ports Authority had with Intels Nigeria Limited, Eromosele Abiodun looks at the issues that
Shortly after the current Managing Director of the Nigerian Ports Authority (NPA), Ms. Hadiza BalaUsman, was appointed by President Muhammadu Buhari, petitions began to flood her desk against Intels Nigeria Limited. Some of them were written by Intels competitors who claimed Intels collaborated with officials of the NPA and Federal Ministry of Transportation to run them out of business. They accused Intels of being a monopoly and demanded that Bala-Usman review existing contracts so as to give all operators a level playing field. While the NPA under Bala-Usman was yet to meet the demand of Intels’ competitors, another challenge - finance - drove the Bala-Usman led management to begin to search for leakages to plug. Given the barrage of complaints against Intels, the NPA decided to investigate contracts with the company and at the end concluded that there were infractions. As a result, the NPA in early February this year wrote a letter to Intels, threatening to sanction the company for failing to fully comply with the Treasury Single Account (TSA) while keeping $68,499, 838 (N20.892 billion) NPA money in its custody. In a bid to fight back, Intels wrote a letter to the Chairman Senate Committee on Marine Transport, claiming that the NPA owes it a whooping sum of $840 million out of the $1.29 billion (N395.20 billion) revenue it collected for the agency from January 2010 to September 30, 2016.
For those who don’t know, Intels is a terminal operator and concessionaire of Onne Port, Rivers State. To ensure safe passage of ships within Nigeria’s seaports, the NPA, through Intels as its agent, provides pilotage services to guide ships into and out of the ports. The rule of thumb in the maritime industry is that pilotage must be compulsory for all ships of 35 metres overall length or greater unless a valid Pilotage Exemption Certificate is held by the ship master.
In return for the service, ship owners/companies are required to pay a pilotage fee, which Intels collects on NPA’s behalf.
More Allegations
In its reply to Intels letter to the House Committee, the NPA claimed that the jointly reconciled service boat revenue collected by Intels for the period from January 2010 to September 30, 2016 was $1.25 billion. In addition, it said the sum of $41.039 million being revenue for the period October to December 2016 had yet to be reconciled, bringing the total revenue for the period of January 2010 to December 2016 to $1.295 billion.
During the same period, it said Intels remitted a total sum of $343.35 million from service boats revenue collection to the NPA, representing 27 per cent of total service boats revenue collected by Intels on behalf of the NPA.
The NPA added that the total agency commission to Intels computed in line with executed agreements was $353.066 million (N107.685 billion). This amount, it added, was deemed to have been deducted electronically from service boats revenue by Intels in accordance with subsisting agreement, still credit notes were issued to regularise the deductions.
The NPA claimed Intels was indebted to it in Onne and Warri Ports in respect to rents, lease and throughput fees.
The debt, the NPA revealed, was computed to the sum of $1.03 million (N316.60 million) for lease and throughput fees while debt owed by Intels in respect to rent at Onne was put at N3.343 billion.
NPA added that its only exposure to Intels was limited to the portion of projects costs not yet amortised which is the sum of $682.4 million.
“This exposure, upon payment does not involve any cash outflow from the Nigerian Ports Authority,“it stated.
Competent sources told THISDAY that the executed agreement between NPA and Intels provides that the contractor executing various projects shall source funds for the purpose of implementing the projects.
“It was on this recognition that the agreement provides for a finance cost computed at 180 days plus 6 per cent LIBOR and 180 days plus 6.5 per cent LIBOR for some of the projects, “a source told THISDAY.
THISDAY learnt that the NPA was not involved in the negotiation for loans/loan amounts by Intels with financial institutions to appreciate the portions liable to finance cost.
“The NPA pays interest to Intels on interim certificates submitted but not amortised, whereas Intels does not pay any interest on revenue collected which has not been applied for amortisation due to budget ceiling. These unutilised sums are held tenaciously by Intels which is believed to be utilised for construction of some projects for which the NPA suffers financial cost.
“Reconciliations between the NPA and Intels showed no clear distinction between the NPA’s revenue being held back by Intels and the purported loan being sourced privately towards project execution. The NPA suffer from two-edged financial sword of losing huge revenue that negatively affects its liquidity and paying for finance cost that ultimately increases the original contract price, “a source stated.
Over a year ago, the NPA, in a letter jointly signed by its former Executive Director, Finance and Administration, Mr Olumide Oduntan and General Manager, Finance, Mr Simon Anobi, and dated June 28, 2016, had expressed reservations about the non-remittance of revenues collected on its behalf by Intels into the TSA account.
The letter with the title: “Transfer of service boats pilotage revenue accruing to Nigerian Ports Authority to its Treasury Single Account domiciled in Central Bank,” said: “it has been observed that revenue accruing to the Nigerian Ports Authority from service boats pilotage operations is not being remitted into the Authority’s Treasury Single Account domiciled with the Central Bank of Nigeria (CBN). Consequently, we hereby direct that all revenues accruing from Service Boats movement be paid directly to the Authority’s Treasury Single Account sub-account at the Central Bank of Nigeria”
There were series of correspondence between Intels and NPA after this 2016 letter from which culminated in a letter from Intels dated May 5, 2017 at which point the NPA sought the legal advice of the Attorney General of the Federation (AGF) and Minister of Justice, Mallam Abubakar Malami (SAN).
The request to the AGF, which was through a May 31, 2017 letter signed by Bala Usman with the title: “Request for clarification of conflict between executed contract agreement and federal government Treasury Single Account (TSA) policy,” explained the situation that had transpired between the two organisations since 2010 and efforts made to ensure compliance with the TSA. It concluded by praying as follows: “arising from the observable conflict between the executed Managing Agent Contract Agreement on service boats pilotage operations and TSA policy implementation, the Authority is constrained to humbly seek the professional legal advice of the Attorney General and Minister of Justice on the refusal of Intels to comply with the Federal Government TSA policy”
Before this period, the parties had agreed that the NPA should draft a supplemental agreement. This agreement, presented to Intels through a letter on March 15, 2017, incorporated the TSA requirement and designed a standard operating procedure to guide the relationship between Intels and NPA thenceforth.
The agreement stated that revenue generated on behalf of the NPA in each of its pilotage districts must be paid directly into a TSA account. It explained that these accounts will be available to the NPA and Intels for online viewing only without withdrawals and that there would be monthly reconciliation meetings to determine the level of monthly revenue. The document also committed the NPA to paying interests on any payment made to Intels outside of an agreed seven-day window in answer to concerns the company had raised about delays that may result from operating a TSA account.
Intels however responded in a letter dated March 27, 2017. Addressed to Bala Usman and signed by Andrews Dawes, Intels Chief Executive Officer. In that letter, the company thanked the NPA for its “ongoing engagement and support in reaching a resolution regarding this matter”stating however that it would only accept that payment of 28% as agency commission on service boat revenues and the 30:70 per cent ratio split of the remaining 72 per cent of the collections as indicated in the SOP…subject to the resolution of four issues.
These issues include payments into the TSA account which Intels said would be difficult for it to comply with due to its loan commitments to some banks, the issue of interest rates on loans