Why State must annul Kenya Ports Authority concession process

On Wednesday, during a key Kenya Ports Authority function, acting Transport and Infrastructure Cabinet Secretary James Macharia went off his written script.

He used the occasion, an annual luncheon which KPA uses to thank its key customers and update them on developments at the port, to assure his audience that the Government would ensure the ongoing search for a concessionaire to manage the port’s second container terminal is done in a manner that is ‘transparent and above board’.

The CS, whose primary docket is Health, stressed that it was in the Government’s interest to get an ‘efficient operator’ for the port.

While this message was apt given the circumstances currently surrounding the tendering process for an operator to manage the second container terminal; it was coming too late in the day. The process was going on smoothly until the Treasury, through its Public Private Partnerships (PPP) unit, which is the custodian of the transaction, wrote a letter instructing KPA to make some changes to the bid documents. By this time, the process was already well underway, with the technical evaluation ongoing.

True, the changes were material enough to raise the suspicion of the seven bidders and other parties involved in the process. In fact, KPA is on record resisting the ‘last minute changes’ arguing, through a letter penned by its Managing Director Gichiri Ndua, that they would compromise the integrity of the process.

PPP proposed changes to the previous shareholding structure. Apart from the provision making local shareholding mandatory, the winning bidder would now be required to reserve at least 15 per cent shareholding for the Government. The concessionaire would also get a ‘first right of refusal’ in planning and arranging the next phases of the project.

Anyone who has ever participated in the tendering for a keenly contested project of this magnitude will tell you that the introduction of such changes, midstream, after the process has already taken off, can be pretty disruptive. It means you have to alter your business plan to take cognizance of new requirements like the accommodation of new shareholders and other operational exigencies. It is akin to moving goalposts during a football match.

Landlord port

But perhaps the biggest damage is that done to the integrity and credibility of the process and the project at large. Regardless of the motivation by the Treasury may have for inserting such alterations into the bid documents, the impression created is that someone is rigging the process to favor a certain bidder. Already, a certain firm, alleged to have connections within Government circles and top echelons where power is transacted, is being mentioned as a possible beneficiary of this. Three bidders have appealed to the PPP Review Committee for redress.

Also weighing in are the Japanese, who through the Japan International Cooperation Agency (JICA), have basically told the Government that should it go ahead to execute the ‘altered’ bid, further aid to Kenya, of which port development constitutes a key component of the portfolio, cannot be guaranteed. JICA said the changes negate previous agreements with Kenya and they were not keen to be part of a process which was not ‘accountable and transparent’. The Japanese are the financiers of the second container terminal through concessionary loans. In March this year, they signed a contract with the Government for the second phase of the project.

The search for a private operator for the second container terminal is a key project for buttressing Kenya’s primacy as a trade logistics hub for the region. The idea is to have Mombasa operate as a landlord port, with KPA being the former, while the management is left to a qualified operator with international credentials. This is the trend globally.

The concession is a major play, which together with ongoing capacity expansion is meant to underpin Mombasa’s pole position as the preeminent port on Africa’s eastern seaboard, especially in the face of ongoing and proposed heavy investment in port infrastructure by Dar es Salaam, Bagamoyo (both in Tanzania) and Djibouti.

Government operatives have claimed that the changes were ‘sweeteners’ intended to make the deal more enticing to international capital. But the fact of the matter is that the process is already damaged and fatally flawed. This process, being a first, is critical for Kenya. Like Ceasar’s wife, it must be beyond reproach. The honorable thing for the Government and the Treasury mandarins is to eat humble pie, accept they made a mistake and start the process afresh.

This is the only way they can save face and procure some extant reputation for the concession. Otherwise, we must be prepared for those protracted court battles with no end in sight.

—The writer is a consultant on governance and political issues