Privatisation wars threaten to drown port of Mombasa

Behind the high-voltage politics on the privatisation of the Mombasa port, is a facility reeling under the weight of inefficiency and capacity constraints that continue to hurt regional economies.

As East African countries which rely on the port for trade mull over what privatisation of the facility would mean to them, its emerging that the region’s largest port may soon be overwhelmed as the economies expand.

This is likely to push the demand for more imports of finished goods and the urge to export additional raw materials and semi-processed products.

According to a World Bank study, inefficiency of port operations and constraints on capacity are threatening the growth of Kenya and its East African Community neighbours, stocking fresh pressure for urgency in the privatisation process.

The report says operational capacity for containerised cargo is particularly acute, and with additional growth expected this year, the port is facing, in the immediate term, very serious capacity problems.

“It is a problem which is set to get worse very quickly unless decisive action is taken,” warns the latest study entitled ‘The Port of Mombasa’.

The warning comes at a time when economists are predicting a positive economic outlook for the region, despite the current drought affecting member states’ food security status.

East Africa is projected to achieve the highest growth, in the continent with more than six per cent on average in 2010/2011, compared to North and West Africa, which are expected to grow at around five per cent and Central Africa four per cent during the same period.

But the benefits of positive economic growth might face major challenges, short-term immediate impact being an increase in vessel delays, port congestion surcharges, and slower throughput of the facility (when congested), causing significant cargo delays and higher costs to importers.

“Exporters will also experience increased cost because of possible unscheduled delays at the port, disappointing customers who have based their own business decisions on fixed delivery schedules,” adds the report.

Capacity issues at the port could be the region’s Achilles heel in the drive to increase inter trade among the member states.

The warning should be a concern to many, since the port is the main gateway for the import and export of goods from Kenya, other East African Community countries, the Democratic Republic of Congo, southern Sudan and southern Ethiopia.

Liquid bulk items, like petroleum, oil and lubricants, for example, are the single greatest import item by weight and without them, the economies of East African Community countries, which depend on such imports, would grind to a halt.

A case in point was the post-election violence in Kenya in 2008, which disrupted the transport of fuel, raw and manufactured goods.

This not only affected the economy of Kenya but also that of Uganda, Rwanda and Burundi.

The Burundi government, for example, said it lost up to $3 million a month in taxes due to the high cost of importing goods through Kenya during the turmoil.

Other major imports are maize, clinker, wheat, iron and steel, all critical in meeting the regions food and industrial needs of the region.

In fact, imports into Mombasa have been rising continuously since 2005, with the exception of 2008 because of the post election violence in Kenya.

Imports of petroleum, for example, have been rising at an average annual rate of 9.7 per cent, containerised cargo 11.5 per cent and dry bulk (mostly maize, clinker and wheat) at 23 per cent.

“The weight of goods imported in containers has risen by 55 per cent since 2005. The rate of growth of containerised cargo slowed in 2008, reflecting the slowdown in Kenya’s economy,” says the report.

The main worry is that despite the strong import growth, the overall volumes handled in Mombasa have remained low by international standards.

In 2008, for example, Mombasa handled 616,000 twenty-foot equivalent units (TEU, is the standard measurement of port activity).

Though it represents double the volume of Dar es Salaam, it is less than a quarter of Durban and only two to 2.5 percent of what goes through the busiest ports in the world; Singapore and Hong Kong.

Dar es Salaam Port, the only other major port in the region, mainly handles goods destined to the Democratic Republic of Congo and Zambia, leaving the rest for Mombasa, a proof of the importance of the facility to the region.

Last year, the port handled 63.7 per cent of total cargo from DRC, leaving 36.3 per cent for the Kenyan port.

“The government of Kenya faces a costly, time-consuming and potentially acrimonious process if structural and regulatory changes are not undertaken now in parallel with expansion and concession plans for berths 11-14,” the World Bank report says.

It adds that past failed attempts to secure significant private sector participation in port operations and investments are proof of the lack of a clearly defined structure of public-private relationship based on law.

The financial institution proposes the creation of a landlord port, in which the public sector, in Mombasa’s case, Kenya Ports Authority, withdraws from front-line cargo handling operations, allowing these to be concessioned to the private sector.

“The port authority focuses on broader aspects of port development such as estate management, navigation and planning.”

In fact the government of Kenya committed to transforming Mombasa to landlord port in 2002, but there has been little progress on implementation except for the decision to concession berths 11-14.

All the transformation plans have all come to a cropper after stiff resistance from trade unionists and politicians from Coast province.

The main reason for the strong opposition, according to one Coast politician who did not want to be named due to the sensitivity of the matter, is that the local leadership fear privatisation will deny them control of one of the region’s most valued assets.

“With the passing of the new constitution and the creation of semi-autonomous counties, local leaders feel the port will be one of the major contributors to the development of Mombasa County and do not want it to be under control of foreigners,” says the politician.

Chamgamwe MP, Ramadhan Kajembe, is more categorical; “ We shall not allow the privatisation of the port without the locals being consulted,” he says.

Garsen MP Danson Mungatana has even brought a motion to Parliament that questions the government intent in privatising the facility.

His counterpart, Amason Kingi, the Fisheries Development minister, says Coast leaders are united and ready to block the process.

“We are ready to go the full length, including using legal means, to block the move,” says Kingi.

The port, according to the politicians, is well equipped and posts huge profits of up to Sh4.5 billion a year, hence no reason to privatise it.

The leaders also fear putting the facility in the hands of the private sector will result in about 4,000 job losses out of the 7,330 at the Kenya Ports Authority.

The politicians and the trade unionists are currently winning the battle as the government seems to be backpedalling on the process, given the anticipated political campaigns ahead of next year’s general election.

Some in the private sector now fear the process might be still born as politics take centre stage at the expense of privatisation plans.

Both Prime Minister, Raila Odinga, and Vice President, Kalonzo Musyoka, who have publicly declared their intentions to vie for the 2012 presidency, have denied reports that the port is about to be under private control.

According to the two, the plan would have to be approved by both the Cabinet and Parliament.

The remarks made by the two politicians, both members of the Cabinet, are contrary to the decision passed three years ago.

In fact in December 2008, the government approved the privatisation of the port and a Kenya Gazette notice published on August 14, 2009 endorsing the plans.

According to Solomon Kitungu, the executive director of the Privatisation Commission, three projects were included in the programme approved by the cabinet in December 2008.

They are; the conversion and development of berths 11 to 14, Privatisation of stevedoring services and the operationalisation of the Eldoret Inland Container Terminal built in 1994, currently leased to Moi University for use as a university campus.

Mr Kitungu says, the programme comprises a list of government investments and operations approved for review to facilitate preparation of detailed privatisation proposals for consideration by the cabinet.

“The commission reiterates that it is not aware of any approved privatisation plans for the port operations. The key objective of its work is to enhance the ports cargo handling capacity and efficiency and therefore creation of more jobs,” he adds.

But the private sector, through its lobby group, the Kenya Private Sector Alliance (KEPSA), the private sector lobby group, has criticised those opposed to the plan, adding that the facility is in urgent need of major structural changes.

“The argument that private sector involvement will result in job loss at the port is not true. There is proof that private sector involvement is good for business,” says KEPSA chairman Patrick Obath.

Obath says the process can leverage the interest of the community and the investors for increased efficiency.

“Privatisation creates business and it can be a benefit for the local communities,” he adds.

Obath adds the coastal politicians can also form a consortium and bid with the rest of the private sector companies to manage the port.

“They can then go into a partnership with Kenya Ports Authority and run the business, because all that Kenya and the East African region needs is an efficient port,” he adds.

Titus Naikuni, the managing director of Kenya Airways, agrees with Obath’s sentiments.

“Privatisation can not only increase efficiency but also create jobs, so long as the government gets the right partner,” says Naikuni, who is also a board member of Maersk Kenya.

Betty Maina of the Kenya Association of Manufacturers stresses that the government should take Naikuni’s advice seriously.

“We must also ensure those brought on board are companies or organisations with proven track record and free of corruption. It is the only way operations can be improved,” adds Maina.