Cancel port concession deal for competitive bidding

Tuesday March 7 2017

The port of Mombasa on March 5, 2017. PHOTO | WACHIRA MWANGI | NATION MEDIA GROUP

The port of Mombasa on March 5, 2017. PHOTO | WACHIRA MWANGI | NATION MEDIA GROUP 

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Throughout the developing world, port concessions have been plagued by rumours of corrupt dealings and allegations of high-level rent-seeking. The most dramatic of them all was the case where the Djibouti Government filed an arbitration case in London against international port concession operator Dubai Port World (DP World), alleging that it bribed a top public official to secure the concession to run the largest container terminal in that country, Dolareh.

Although, Djibouti lost, the case revealed sensational insights into dealings between corrupt elites and global concession operators. In Senegal, the Justice ministry was reported to be investigating Karim Wade, former minister and son of the ex-president, on corruption related to the concession at the port of Dakar. I recently also came across a story about how a major scandal had erupted in Guetemala over a port concession involving another global operator.

A port is a very critical piece of infrastructure and national asset. Here in Kenya, 30 per cent of national government revenues come from Customs duties. But even more critical, ports are the means by which contraband, ranging from drugs to ivory, escapes to the rest of the world. Thus, when you are giving out a port built with public money to a private party to run for you, security and the integrity of the private operator must be paramount. In retrospect, I think we did not do a very good job at screening owners for integrity when we introduced container freight stations. Which brings me back to the story of the plan to concession our own second container terminal that was abruptly terminated in 2015 following intense tender wars.


I came across a recently signed bilateral agreement between Kenya and the United Arab Emirates (UAE), which reveals plans to give the concession of the Japanese-funded and built second container terminal to DP World. Under the deal, the UAE, through the government of Dubai, has committed to lend Kenya $275 million apparently in exchange for giving the port concession deal to DP World.

The agreement merely states that the money will be used to enhance the operations of the second container terminal. But the devil is in the detail. It is stated that the UAE will appoint from among its nationals, an entity to “undertake the operation, management and expansion of the second container terminal”.

And, the embassy of the UAE has informed the government that it has nominated DP World as the entity to enjoy rights stipulated in the agreement. What are the issues? First, the sense of discrimination felt by the nearly 12 port operators, who defeated DP World during the open tender. Mark you, nearly all the international port operators, the Chinese, Japanese, Singaporean, and Dutch, including Dubai World Port, participated in the tender.


The Chinese group PSA International, which had partnered with a local group – Multiple Hauliers – emerged top. Where is transparency when you give such a major project to a firm that had lost in the open tender? As an international port operator, you spend millions of shillings preparing bid documents, only to be told that the tender has been cancelled and learn later that a competitor who had presented an offer patently inferior to what you had offered eventually clinched the deal.

In my view, the so-called government-to-government procurement deals are a big con basically meant to create jobs for the countries that lend us money. At the end of the day, the repayment terms on the loan by the UAE will most likely be a commercial with no better terms than what we get from conventional sources such as the International Development Association of the World Bank.

By taking the government-to-government route, we have given away our right to procure the most efficient operator. And, this is no simple matter as we are trying to take efficiency of Mombasa Port to the next level. Indeed, this project and the Standard Gauge Railway, are supposed to be the game-changers in terms of making Kilindini Port the leading transport hub on the Indian Ocean.

There are implications for diplomatic relations between Kenya and the biggest financier of port development projects, Japan, which, having funded the building of the second terminal, had also been eyeing the port concession. This deal with the UAE should be cancelled to allow internationally competitive bidding.