Port concession scandal unfolds

MV Seago Peraus

Cargo ship ‘MV Seago Peraus’ docks at Lamu Port with 100 units destined for Zanzibar on in August last year. Kenya will allow DP World to develop a special economic zone on 500 acres. 

Photo credit: File | Nation Media Group

In the post-truth politics environment that we are in, the most important calling for us in the business and economic media is to fact-check utterances by politicians in order to move discussions on the big economic issues of the day beyond tit-for-tat accusations.

When politicians state categorically that the government has signed a contract to sell three ports to Dubai Ports, they are telling a lie. No such agreement has been signed. What has happened is that the National Treasury has invited Dubai Ports to table a commercial proposal to finance, build and manage five large projects.

Admittedly, these offers should have been made more transparently through an international competitive process.

It is also not entirely accurate to state categorically that the Port of Mombasa is mortgaged to the Chinese. This issue is not settled.

Deborah Bräutigam, the author of the famous book on Chinese loans, The Dragon’s Gift, is a prominent American specialist on Chinese lending in Africa. Together with her team of researchers from Johns Hopkins University, they recently published the results of an empirical study on the documents and agreements that Kenya signed with China Exim Bank for the standard gauge railway (SGR) loan.

The results of this study are in the public domain. It found that the Mombasa port is not a collateral on any Chinese loan.

Dubai Ports saga

The big policy issue the Dubai Ports saga has brought to the fore is that we’re very poor at managing port concessions. We’re at sea on what to do with the assets that we’ve built using expensive loans. The fate of the Japanese-financed Mombasa second container terminal is stuck in court. We’re yet to make up our mind on how to approach the viability of the three completed berths in Lamu.

Meanwhile, the Kisumu port has been sitting idle for more than two years.

When we prepare concession bidding documents, we deliberately leave wide loopholes for corrupt elites to exploit. If you want to fact-check this statement, I invite you to look at the bidding documents on the competitive tender for concession of the Mombasa second container terminal in 2015.

The biggest mistake was when the government introduced a 15 per cent local shareholding threshold that forced international port operators to partner with local firms. The process could not move an inch because every pretender to power in Nairobi and Mombasa was lobbying to force the foreigners to give them shares.

The saga is well documented in filings in the cases, which were filed before the Public Procurement Review Board. They reveal how Jica, of Japan, wrote several letters of protest questioning the transparency of the process. Mark you, the Japanese are the ones who financed and built the Mombasa second container terminal. They also paid transaction advisers to manage the tender process.

Another good source of factual information on opacity and confusion bogging down port concessions in Kenya is filings in the court case where civil society groups have halted plans by the government to hand over management and operation of the Mombasa second terminal to the entity jointly owned by State-owned Kenya National Shipping Line (KNSL) and the Mediterranean Shipping Company.

Lopsided agreement

 In the filings, you will find a confidential MoU between the government and Mediterranean in August 2018. This is a lopsided agreement that doles out several privileges to the shipping line—including 43 per cent ownership of KNSL—a takeover of the functions of a whole National Treasury department known as the Government Coast Agency, and control and management of the second container terminal.

On paper, KNSL’s stake in the partnership, at 57 per cent, is dominant. But effectively, this is a marriage of non-equals that amounts to the handover of management and operations of a public asset to a foreign company without competitive bidding. KNSL does not own even a single ship. The Japanese wrote a letter of protest.

You may want to fact-check my assertion that there is still total confusion about what we should do with the port assets we have built. I recently came across a project information memorandum prepared for the government by the internationally renowned Dutch consultants Maritime & Transport Business Solutions BV (MTBS) for four projects: Lamu Port (Berth 1- 3), Lamu Special Economic Zone and Mombasa’s second container terminal. It reveals that, even as the right hand of the government was busy signing MoUs with Mediterranean Shipping Company, the left side was appointing transaction advisers and preparing to launch a competitive process for the very same projects.

Wonder of wonders: These are the same projects that Treasury Cabinet Secretary Ukur Yatani has offered to Dubai Ports. Watch this space for more on the MTBS saga, what it reveals about an ongoing subterranean battle for these same projects by international port operators.

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