Joho firm set to take over lucrative cargo terminal deal

A private logistics company linked to the family of Mombasa Governor Ali Hassan Joho is poised to finally take over a cargo terminal in Nairobi built by public funds in a controversial deal that once again puts the spotlight on the operations of the multi-billion-shillings Standard Gauge Railway (SGR).

COLD FEET

Mombasa-based Autoport Freight Terminals Ltd has for months been piling pressure on Kenya Railways Corporation (KRC) to give it exclusive use of the Nairobi Freight Terminals (NFT), near the SGR terminal in Syokimau, locking out other players who use the new railway cargo services from the site. Sources at the Transport ministry indicated that the Joho family company is also keen on acquiring a strip of land between the SGR and the old meter gauge railway within the same area.

Last month, the pressure culminated into a near confrontation after KRC pulled down a billboard erected by Autoport at the NFT even before full approval was given.

In documents seen by the Sunday Nation, Autoport wants the NFT to handle its loose or bulk cargo transportation business on the Mombasa-Nairobi SGR, giving it a near monopoly over rivals.

The KRC board eventually succumbed to pressure and asked the management to allow the Johos to take over the fully-developed terminal in an opaque deal with little or no financial value to the public, according to those familiar with the matter.

This was despite concerns by the Kenya Revenue Authority (KRA) that the private firm had intended to use the NFT for purposes outside those for which it was designed for.

The Sunday Nation has also seen letters written by Autoport to the KRA to get the greenlight to start operating at the terminal.

Although KRC offered the firm a lucrative 45-year lease for the facility in November 2018, our sources say railway officials developed cold feet after the deal raised eyebrows, attracting attention of the investigative agencies.

UNCLEAR

“The initial plan was that KRC runs the facility but questions began to emerge after it was given out to Autoport and investigations began with the DCI being involved. That place is very strategic given its location,” an insider source said in confidence.

Autoport had previously also asked for preferential rates to carry cargo over the SGR but the fate of this request is unclear.

Although such cargo only accounts for two per cent of the SGR business, the more than Sh500 million was envisaged to pay for itself mainly through the transportation of bulk cargo (also referred as loose cargo) such as cement, fertiliser, steel, clinker and grains among others.

The initial approval by the KRC board for Autoport to use the NFT was in September 2018 before the matter stalled later after the Sunday Nation exclusively broke the story.

The NFT deal for Autoport was passed during KRC’s 410th Special Board Meeting on September 26, 2018, where the board approved Autoport’s application to lease 26 acres out of the total 36 at the NFT for a period of 45 years as from December 1, 2018.

The logistics company was meant to pay a stand premium of Sh78 million, exclusive annual rent of Sh19.5 million, an application fee of Sh5,000, pegging fees of Sh50,000, three months security deposit of Sh4.88 million and administrative charges of Sh100,000 — all totalling Sh103 million.

PRESSURE

KRC is said to have fallen back to its earlier condition to Autoport that other agencies also needed to give consent for the firm to begin loading cargo from the facility, which also has a close to 2km SGR siding.

 While the Kenya Ports Authority (KPA) seemed to have given its nod, the next hurdle has been the KRA whose officials have been under intense pressure to yield to the deal.

 The Mombasa-based logistics operator wrote to the taxman in late March seeking for a no objection to start operating the NFT. Autoport claimed they had no other government agency objecting to the deal that had also set them a target to handle two million tonnes of cargo every year.

 “I wish to urgently seek for your no objection letter to facilitate us to load out cleared cargo from the port so that the same will be transferred to our facility (Nairobi Freight Terminal) by SGR. Kindly take note that the NFT has been leased to Autoports Freight Terminals Limited for 45 years and the lease monies have been paid in full,” the firm wrote to KRA.

The firm argued that the deal would be helpful in decongesting the nearby Inland Container Deport if allowed to run the facility under the four decades’ lease.

Although it remains unclear whether KRA had responded directly to the Mombasa based firm, sources within Times Tower said the agency was concerned that the NFT was not designed for containerised cargo, compounding the same fears Kenya Railways had after Autoport wrote to notify them of its intentions to start loading containers at the NFT and even asking them to notify KRA for ‘smooth operations.’

LIABILITIES

 KRC which signed the offer dated November 2018 giving Autoports a 45 years lease for land measuring about 26 acres began to change tune in late March 2019 after investigations into the deal started with the top railways officials choosing to distance themselves from liabilities that may result from putting the facility into a purpose for which it was not built.

Autoport was also asked to ensure it got all the other relevant approvals as part of it’s no objection letter.

 “In our letter of even dated March 6, 2019, we raised our concerns regarding the use of NFT for container handling due to structural design which is limited to break bulk cargo. However, in your reply, you have stated that Kenya Railways shall be indemnified by Auto Ports against all claims and or damages that might arise as a result of such operations at NFT,” said a KRC letter dated March 22, 2019.

KRC management did not immediately respond to our enquiries over the disposal of the publicly funded facility. Board chairman Michael Waweru had also not responded to our emails by the time of going to press.

 In previous discussions that gave a glimpse of the intrigues, KRC board appeared to have been sharply divided over conditions in the offer letter, which Autoport had objected to.

DISOWN

KRC wanted the Joho-linked firm to acknowledge its ties with Portlink Logistics Ltd (a firm that had taken KRC to court over contractual disputes). The corporation wanted the case withdrawn and the land in dispute returned to KRC. Portlink in 2015 had sued KRC for attempting to illegally terminate a contract for a 0.692-acre parcel of land the former has leased near the Mombasa railway station for 15 years as from August 1, 2013.

KRC managers and some Ministry of Transport believe that both the companies are linked to the Joho family and hence saw a chance to deal with them as one.

In January 2016, KRA and KPA suspended Autoport and another company known as Portside Freight Terminals Ltd over claims of engaging in tax evasion and smuggling of goods into the country.

At the time, the Joho family did not disown ownership of the two companies. Documents held by the registrar of companies indicate that the three companies indeed do have interlinked shareholders.

Governor Joho previously criticised the government’s plan to develop dry ports in Nairobi and Naivasha to handle the SGR cargo, maintaining that it would kill businesses at the Coast but has since softened his stand. He has also warmed up to President Uhuru Kenyatta.

Additional reporting by Kipchumba Some.