Dubai Port World record on port operation deals raises queries

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

Dubai Port World, the UAE-based firm seeking to develop, operate and manage four Kenyan ports, has a controversial record.

In February, 2006, an announcement by DP World that it was taking over management of six US ports in a $3.7 billion (Sh436 billion) deal kicked up controversy in Congress, mainly on security considerations. Under pressure and public scrutiny, Dubai Ports dropped the deal.

In 2012, Djibouti filed an arbitration case in London against DP World, claiming that the firm bribed an official to secure concession to run Dolareh – the largest container terminal in Africa.

Though Djibouti lost, the case revealed insights into dealings between corrupt elites and global concession operators.

Treasury CS Ukur Yatani has invited DP World to submit commercial proposals for four projects. They include deploying its money to build three berths at Mombasa port, develop cold storage supply chains in Kisumu and Naivasha and to build a special economic zone in Lamu.

Treasury has also extended an invitation to submit a commercial proposal to equip and operate the three completed berths in Lamu.

By stating that the government has signed a contract to sell three ports to DP World, Kenya Kwanza leaders got it wrong. What is on the table is an offer to an investor to develop a project, and not sell the ports. The transaction is still at the early stages of submissions of proposals.

Questions, however, arise. Why is the government offering such sweet deals to DP World? Have procurement regulations been breached?

Mr Yatani should have prepared a prospectus for these projects and put it out there for investors to come up with expressions of interest.

The flip side of this, however, is that having last year introduced an amendment to the PPP Act that allows investors to present and engage the government on unsolicited project proposals and without subjecting such projects to open tenders, the fact that the competitive bidding has been breached in gifting the projects to DP World may be a moot point.

Dubai World has displayed dubious tactics since first expressing interest in a port concession in Kenya in 2006.

Political fortunes

American economic historian Fred Cooper described the African state as the “gate keeper” where elites are perpetually fighting to earn corruptly acquired money through control of ports, customs centres and other interfaces between their countries and the rest of the world.

The DP World saga appears to be the latest in the scramble by corrupt elites to control the gate. The scramble has assumed global dimensions in Kenya in the past one year.

International ports and transport logistics operators are involved in battles over ownership and control of port concessions or control over profitable projects involving development and building storage and logistics facilities along main transport corridors. It is a vicious fight where only players enjoying patronage of powerful godfathers succeed.

Public litigation actors have already – at the behest of a global shipping group – lodged a legal battle where they have injuncted a plan by the government to shift control and ownership of the Japanese-built ultra-modern second container terminal to a consortium compromising the state-owned Kenya National Shipping Lines (KNSL) and Portuguese player – Mediterranean Shipping Lines (MSL).

The timing of the case, coming just as the government had concluded plans to hand over management of the terminal to an entity effectively under the control of MSL, would appear to suggest shipping lines opposed to this  deal have calculated that they would rather have the deal postponed until after the elections.

Political undercurrents

They hedge their bets on the possibility that the new government will be inclined to block the deal.

Dubai Ports first entered the Kenyan fray in 2014 when the government floated an international competitive tender to concession the second container terminal in Mombasa.

Port operators from China, Japan, Singapore, Netherlands and several other countries participated in the tender.

The Chinese group, PSA International, which had partnered with local firm, Multiple Hauliers, had the highest marks, with DP World emerging second.

The process was then cancelled amid political undercurrents. Having lost in the open tender, DP World devised another approach.

In October 2016, the UAE quietly signed a bilateral agreement where it committed to lend Kenya $275 million (Sh32.4 billion) for expansion of the second container terminal on condition that Kenya allowed DP World to take control of the terminal.

Two months later, the UAE ambassador wrote to the National Treasury.

What happened next is still difficult to decipher. It seems political fortunes of DP World and its backers took a nosedive. Transferring the second terminal to DP World no longer enjoyed the support of the political elite.

In August 2018, the Cabinet decided to transfer the operations and management to the State-owned and almost moribund KSNL in a deal that included a new shareholding arrangement between that parastatal with MSL.

Effectively, the power and control of the terminal had been transferred to the Portuguese firm.