The move by the Kenya Ports Authority (KPA) to revise the qualifications of potential private port facilities operators has raised questions as the latest call for bidders has lower requirements.
On September 6, the authority issued a public notice inviting bids for the operation and management of some facilities at Mombasa and Lamu ports. This was followed six days later with a revised call that had lower qualifications.
If the agency goes ahead with the latest requirements, it may not be able to increase efficiency as intended since it has set lower loading and unloading speeds for the new operator.
According to the initial call, bidders were required to guarantee 50 moves per 24 hours for container loading/unloading, but this was reduced to 20 moves in the addendum—KPA currently has between 24 and 26 moves per 24 hours.
“We are shocked by KPA’s intention. Why reduce the target number of moves instead of demanding an even higher level of performance, yet it is privatising due to inefficiency?” asked a concerned port user.
KPA has also lowered the guarantee payment from $1 billion (Sh146 billion) to $300 million (Sh43 billion) annually, which is also less than the amount the agency earns each year. According to the latest records, the port of Mombasa generated about $400 million (Sh55 billion) in the 2021/2022 financial year, which is $100 million (Sh14.6 billion) more than the new operator has to part with annually.
Efforts to get KPA Managing Director William Ruto to respond to our queries proved futile. However, a senior official said that was an initiative of the National Treasury through the Privatisation Commission and the data that was used in the revised bid was in a different study.
Reportedly, the reduction of the annual fee is meant to break the monopoly of big companies that have dominated the industry and ensure small companies also get a piece of the cake.
Additionally, the government is said to have considered Lamu Port, which needs rigorous marketing. The low annual payment will serve as an incentive to bidders and elevate the port, which is predominantly marketed as a transshipment port.
The government is keen to promote Lamu port in terms of business and attract the private sector as a key stakeholder.
In what is shaping up to be the biggest privatisation effort in Kenya’s history, KPA has issued tenders for global companies to partner with Kenyan firms to take over the operation of Lamu Port, parts of Mombasa Port and the Lamu Special Economic Zone (SEZ).
Because of the high stakes, any global company interested in taking over any of the assets must form a joint venture with a Kenyan company, with the local company controlling at least 15 per cent of the total shares in the project company.
In the first call, the bidding conditions favoured large firms and only a handful qualified. It required a throughput of at least 10 million twenty-foot equivalent units (TEUs) in the last three years, annual revenues of at least $1 billion, 10 years of experience, at least five terminals operating in Africa, Latin America and Southeast Asia, and at least two new greenfield port projects in the last 10 years.
For Lamu Port, which has been largely underutilised since it was commissioned in May 2021, the authority is considering a landlord concession model under which a private investor will be fully responsible for the operation of the terminal for 25 years.
The same model will apply to Mombasa Port Container Terminal 1, which comprises the existing berths 16, 17, 18 and 19 and is a specialised container terminal. The private investor will take full control of the facility over a 25-year concession period.
For Mombasa Port berths 11 to 14, the authority is opting for a design build finance operate maintain structure to bring the terminal up to international standards. Developed in 1967 and operating as a multi-purpose berth, the facility requires strengthening, straightening and deepening.
In the case of Lamu Port, KPA wants private investors to take over the development of the SEZ to the west of the port, which is touted as ideal for warehousing and light industrial activities.
But the privatisation plan has caused a rift between local leaders and the KPA Dock Workers Union (DWU).
This week, a closed-door meeting convened by Coast parliamentary group leader Danson Mwashako and attended by Changamwe MP Omar Mwinyi (ODM), Matuga’s Kassim Tandaza (ANC), Kilifi North’s Owen Baya (UDA) and their Mvita counterpart Masoud Machele (ODM), among others, to discuss the matter failed to make any headway, forcing the leaders to schedule another meeting.
“We agreed to reconvene in two weeks after consulting all stakeholders. Apart from the port, we have no other significant economic activity here at the Coast. Before we take any decision on privatising the port, we will hold several stakeholder meetings to ascertain the preferences of the people of the Coast,” said Mr Mwashako.
Mr Mwinyi and Mombasa Governor Abdulswamad Nassir have also come out strongly against the move.
The silence of other Coast leaders and the DWU, which once vociferously protested against the privatisation of KPA’s assets,has caused unease among the more than 7,000 workers.
With private firms set to own about nine KPA assets after the privatisation process is completed before the end of this year, job losses are expected.
“We are shocked by the silence of our local leaders and even our union (DWU), which has been at the forefront of defending our rights. We have been waiting for them to take a stand on this issue but there has been no communication,” said a KPA employee.
When contacted, DWU General Secretary Simon Sang promised to make a statement soon.
“We have met with the KPA and got more information about the whole process and we will make our stand on it known soon,” said Mr Sang.
Afraid of being laid off
“We suspect that the union will not be on our side this time. We are afraid of being laid off,” said an employee.
During last year’s election campaign, the President William Ruto-led Kenya Kwanza Alliance opposed a similar privatisation plan mooted by former President Uhuru Kenyatta, claiming that the assets had been secretly sold to Dubai Port World FZE.
Now, the Kenya Kwanza government says leasing out the ports will boost the competitiveness of the maritime sector and generate at least Sh1.4 trillion annually by 2030.
According to President Ruto, the move will transform the port facilities, which have been faced with the challenge of congestion and therefore higher dwell times for cargo, into world-class ports.
While Kenya has historically been the gateway to the East African region through the port of Mombasa, it is facing increasing competition from Tanzania.
The government is taking advantage of an amendment to the Merchant Shipping Act, which previously barred shipping lines from operating port facilities. This was amended in 2019 to give the Transport Cabinet Secretary the power to exempt government-owned companies from the requirement.
There have previously been concerns about private companies operating KPA facilities, with stakeholders saying this could eat into KPA’s revenues.