Freight forwarders fight MPS over 10.9% Tema Port tariff hike

Freight forwarders at Ghana’s Tema Port are raising opposition to a proposed 10.9 per cent increase in port tariffs by the Meridian Port Services (MPS).

The Vice-President of the Ghana Institute of Freight Forwarders, Mr Johnny Mantey, said: “I am in shock and I want to believe it is not true. I don’t even know what kind of tariff lines has been increased by 11 per cent. I think the timing is very bad”.

Also, the Chairman of the Concerned Freight Forwarders and Traders Association, Oheneba Akwasi Afrawua, told the media: “We expect MPS to maintain the existing rate. Why are they rushing. They have 35 years to run the port. They can make their profit in 10 years”.

MPS, the Concessionaire handling the Tema Port Expansion Project, wants the tariff hike to coincide with the opening of the port’s Terminal 3 facility, ClassFMonline.com gathered from insider sources within the company.

After the project, the Tema Port will be the largest cargo port in West Africa with a capacity of 3.5 million 20-foot equivalent unit (TEU) per annum.

The management of MPS said in one of its many correspondence to the top hierarchy of the Ghana Ports and Harbours Authority (GPHA) – copies of which have been sighted by ClassFMonline.com – that the planned tariff hike was “duly negotiated, agreed and included in the Concession Agreement, which formed the basis for its investment” in the port project in the first place.

MPS, which owns 70% of the project while GPHA owns the remaining 30% per cent, insists that “delaying the implementation” of the new tariff would have a “catastrophic impact on the company’s cashflow and its contractual commitments to third parties”.

“The tariff of the Concession Agreement must not be breached”, one of the correspondence from the management of MPS to the management of GPHA said, adding: “The appropriate adjustment must be implemented on the date of first operation [of Terminal 3] as set out in Schedule F of the Deed Agreement”.

According to ClassFMonline.com’s sources, however, the management of GPHA, though in favour of the Agreement and its implementation, is concerned about the immediate financial and social impact it will have on the Authority and port jobs, since it believes the cost of the contract in those regards, is too high to cope with while waiting for future benefits to accrue.

The management of GPHA, according to sources, remains convinced that its appeal for a review of some relevant portions of the contract is justified.

The MPS management further stated in its correspondence to the GPHA – through which it demanded a meeting on the matter on Tuesday, 4 June 2019 at 15:00 GMT “at your [GPHA] office” – that: “It is noteworthy that the tariff restoration is only a 10.9 per cent top up to the main stevedoring rates and restoration of the Ghana Cedi value, which was clearly understood by all the stakeholders who raised the question yesterday at the GSA-organised stakeholders’ Open Day at MPS T3 Authorities’ building”.

MPS said that “bearing in mind the intended opening of Terminal 3 on 28th June 2019, as well as the consideration to give the customers a 30-day advance notice, we would like to meet with you [GPHA management] at the earliest convenience to review the status of publishing the updated MPS tariff as per the agreed terms and levels in the Concession Agreement.

Moreover, we would like to take the opportunity to also review the future transshipment tariff, which the shipping lines are expecting at the earliest”.

In a 24 May 2019 letter addressed to the Director-General of the GPHA, Mr Michael Luguje, and signed by the Chief Financial Officer of MPS, Mr Sunil Bansal, MPS said: “Kindly find attached herewith, the tariff for the new Terminal 3. The tariff has been drawn in line with the provisions of the Deed of Amendment No.1 dated 12th June 2015.

“The tariffs reflected in the attached sheet are adjusted by 20 per cent as per the provisions of the Agreement. We are also sending soft copies of the attached tariff and the calculation behind for easy reference and understanding.

“We would also like to bring to your attention that the actual payment by the customer would be done as per Clause 1.2 of Schedule 5 of the original Concession Agreement, as reproduced hereunder: ‘Every ship or vessel which berths in the Concessionaire’s area shall pay in US dollars or equivalent convertible currency to the Concessionaire, the appropriate dues, rates and charge as specified in [the] said schedules. Every shipper or Consignee which uses the Concessionaire’s services shall pay in US dollars or equivalent convertible currency to the Concessionaire, the appropriate dues, rates and charge as specified in [the] said schedules. Every ship or vessel or shipper or consignee, which does not earn foreign exchange, which berths or uses [the Concessionaire’s services], shall pay to the Concessionaire, the cedi equivalent of the appropriate dues, rates and charge, as specified in [the] said schedules’”.

Section 3.14(c) of the Agreement “grants MPS the freedom to adjust tariffs to reflect inflationary trends without approval from the GPHA”.

GPHA warns of dire consequences if agreement is implemented

Enumerating how the implementation of the Deed Agreement could adversely affect the revenue drive and operations of the port in a document titled: ‘An analysis of the impact of the Deed of Amendment to the MPS Concession Agreement for the management of Terminal 3 effective July 2019’, the GPHA said using 2017 cargo/vessel traffic data for comparison purposes, the “volume of containers handled by GPHA and other licensed container-handling companies will decline by, at least, 60%”.

“What do we do with the idle labour and cargo-handling equipment?”, GPHA wondered in the document.

It also warned that should the Agreement be implemented as it is, the revenue being earned by the GPHA currently will fall as follows: container stevedoring revenue will decline from $10.688 million to us4.21 (-60.54%), container shore-handling revenue will decline from $38.75 million to $17 million (-56% decline), royalties revenue on MPS operations will decline from $24.12 million to $6.57 million (-73.67% decline), terminal area rent revenue from the MPS terminal will decline from $826,000 to nil (-100%/zero), berth occupancy revenue from the MPS terminal will decline from $1.915 million to nil (-100% /zero), port dues revenue on MPS container operations will decline from $29 million to 2.9 million (-90% decline), and entry ticket/goodwill – one-off entry ticket which should be, at least, 5% of the project cost – will be lost, even though in the MPS 2 Concession Agreement, $5 million was paid as goodwill”.

The GPHA further warned that: “If this Agreement is implemented unchanged, GPHA will be in a financial crisis in 2020”, as well as “have idle labour, space and equipment” and “will not generate enough revenue to pay salaries, service existing loans, and develop basic statutory port infrastructure”, adding that: “We must avoid labour redundancy, whether in 2020 or in the years after”.

Contract between GPHA and MPS

The GPHA, which is the Grantor, was established pursuant to the Ghana Ports and Harbours Authority Law 1986 (PNDCL 160) by the government of Ghana to plan, build, develop, manage, maintain, operate and control ports in Ghana subject to, and in accordance with the laws of Ghana.

The Concessionaire, MPS, is a private company limited by shares and incorporated and registered in Ghana under the Companies Code 1963 (Act 179) with Company number CA- 4171.

On 17 August 2004, the parties entered into a Concession Agreement (The “Agreement”) in terms whereof, inter alia, the Concessionaire undertook to design, redesign, engineer, and construct, as applicable, then equip, operate, maintain, manage and repair the Container Terminal at the Port of Tema and provide the facilities and services within the area of the Tema Port.

As a result of the national economic growth and the increasing volumes of containerised cargo handled at the Port of Tema, the Grantor decided to expand the Port of Tema in order to accommodate larger container vessels and increase its container-handling capacity in line with the GPHA masterplan.

As a consequence, thereof, the Grantor decided to develop additional facilities, relocate and expand the areas to be operated by the Concessionaire under the agreement, in accordance with the GPHA masterplan so that the Concessionaire can continue to satisfy its obligations under the Agreement.

In the light of this planned expansion, the Grantor and the Concessionaire acknowledged that the areas operated by the Concessionaire under the Concession Agreement must be relocated and expanded within the GPHA masterplan and the Concessionaire shall, thereafter, operate in the new expanded area.

The parties acknowledged that: “The expansion project (as defined hereafter) will require the improvement of the road network, including the upgrade of the road access between Tema Port and the Accra – Tema motorway, and the upgrade of the Accra – Tema motorway to six lanes with slip roads (the “Road Project”, the scope of which is more particularly described in the Road Agreement)”.

The Concessionaire confirmed to the Grantor that its majority shareholder, Meridian Port Holdings Limited, had agreed to enter into binding agreements to finance, design, build, operate and maintain the Road Project within a time schedule consistent with the expansion project.

The Grantor offered, and the Concessionaire accepted to engineer, finance, build, and operate Terminal 3 subject to the terms and the conditions contained in the Deed of Amendment and the Agreement.

Benchmark value cut in half

In April this year, Vice-President Dr Mahamudu Bawumia announced that the benchmark value of imports had been reduced by 50 per cent while import duties on cars were cut by 30 per cent.

Dr Bawumia, on Wednesday, 3 April 2019, said the reforms were part of measures to deal with smuggling at the various entry points into the country as well as assist businesses in Ghana.

“To reduce the incidence of smuggling and enhance revenue, the benchmark delivery value of imports will be reduced by 50 per cent,” Dr Bawumia announced at a town hall meeting in Accra.

A week before Dr Bawumia’s announcement, President Nana Addo Dankwa Akufo-Addo had indicated that reforms to Ghana’s import duty regime, which were meant to bring down high duties at the country’s ports, were in the offing.

“We have realised from the studies we have done that our ports are not competitive, and the import regime in our country is far too high. We are dealing with it, and, very soon, the measures that the government will roll out will become known to all of you. I am not talking next year, or in 6 months’ time, I am talking very, very soon,” the president promised on Saturday, 30 March 2019, when he addressed a town hall meeting of Ghanaians resident in Worcester, Massachusetts, in the United States of America, as part of his visit to that country.

Paperless system reduces Port charges

Already, the introduction of the paperless port system has, according to the Minister of Finance, Mr Ken Ofori-Atta, reduced the cost of doing business at the ports.

Appearing before parliament to answer a question posed by the MP for the Adaklu Constituency, Mr Kwame Agbodza, a few months ago on whether or not the introduction of the paperless system had increased the cost of doing business at the ports, the minister indicated that the initiative has rather decreased the cost of doing business.

“The results [of the Paperless Port system] showed that the cost components of doing business at the country’s ports have reduced from 7 to 3 cost components. This has, subsequently, reduced the total costs from GHS1,280 to GHS320,” Mr Ofori-Atta said.

He continued, “This means that the paperless system reduced the cost of doing business at the ports by GHS960 representing 75 per cent savings. Hence, he noted: “Importers are now making savings of 75 per cent as a result of the implementation of the paperless system.”