Inside the high-stakes vicious fight for Mombasa port

As businesses at the Mombasa port re-adjust to the new normal thrust upon the sector by President William Ruto’s decision to dismantle the monopoly that the Standard Gauge Railway has been enjoying over other transport modes in haulage of containers to Nairobi, sources say the new administration could introduce more changes. These are bound to disrupt interests and fortunes of power-broking networks that have been aligned to and survived on the patronage of the administration of former President Uhuru Kenyatta in major ways.

Well-informed sources have told The Weekly Review that President Ruto had called several meetings this week to ask hard and difficult questions about some of the controversial policy decisions that were made by the past government, especially during the second part of the Jubilee administration.

Questions on the table included why the amorphous entity known as the Kenya Transport Logistics Network that was created two years ago by presidential decree and that is headed by Mr John Ngumi became necessary, and justification for the transfer last year of responsibility over the port from the Ministry of Transport, Public Works and Infrastructure to the National Treasury.

There are also queries about the plan announced last year by the National Treasury for concession of the three berths in Lamu to Dubai World Ports and the controversial decision to transfer ownership and control of the Japanese-built second container terminal to a new outfit co-owned by Mediterranean Shipping Lines (MSC) and state-owned Kenya National Shipping Lines (KNSL).

The stakes are high indeed because President Ruto is shining the spotlight on an arena where some of the most viciously fought political struggles are happening in Kenya today, namely, the fight for control and ownership of concessions of private terminals, the dry ports and inland terminals along the Northern corridor. Perhaps where the stakes are highest is the struggle for control of the second container terminal. Whether the President will reverse the plan to hand over control of the ultra-modern facility to the outfit co-owned by MSC and the KNSL remain to be seen.

The plan, widely believed in maritime circles to have the backing of powerful insiders of the outgoing administration, would have been closed were it not for a court injunction lodged by Mombasa-based civil society groups who are said to be acting at the behest of an international shipping line in a proxy pitting two international players.

As it is, the manner in which the past administration was handling the matter raised several question. Why was the government in a hurry to transfer ownership and control of the most profitable part of KPA business to an entity that is under the control of the MSC? Where was due process in this transaction?

Critical voices questioned why the transaction was not being managed transparently through a competitive procurement process and why details and terms such as concession fees, tenor, service level agreements, investment benchmarks, throughput fees and sanctions for default on performance, were not being disclosed.

As it was to play out, the criticism was not headed because the transaction had the backing of influential power-broking networks within President Kenyatta’s administration.

An episode that happened in September last year added to the perception that the KNSL and MSC deal had high-level political backing.

One Thursday, the KPA board had convened in Mombasa to deliberate over several issues, including a resolution to rubber-stamp the deal. During the meeting, a number of board members resisted the idea and demanded a comprehensive paper on the pros and cons of the deal for KPA’s financial health, and the legal implications. That afternoon, the board members were hurriedly called back to Nairobi by the National Treasury and directed to attend an urgent meeting at the headquarters.

At that meeting, they were read the riot act and ordered to sign the resolution to rubber-stamp the deal. Yet in resisting the deal, the board members of KPA based their arguments on legal grounds. Under section 16(1) of the Merchant Shipping Act of 2009, “No owner of a ship or person providing the services of a shipping line shall either directly or indirectly provide in the maritime industry crewing services, pilotage, port facility operator, quay side service provider, terminal operator, general ship contractor...”

Put plainly, the law does not allow MSC and KNSL a shipping line to operate at the port. However, political backers of the deal had set the stakes extremely high, to the point that minor details about the law were not going to deter them from sealing the transaction.

Here is the background to the legal issues that arose around this transaction: In 2011, a group of shipping lines went to court to challenge the constitutionality of Section 16(1) of the Merchant Shipping Act. The issue dragged on in court until 2020, when the Attorney-General entered a consent with the parties agreeing that the section was unconstitutional. It was this consent that the backers of the MSC and KNSL deal decided to exploit to the maximum.

Even as the matter remained in abeyance, the backers of the transaction quietly altered the law through a miscellaneous amendment to say that Section 16(1) ‘shall not apply to a shipping line owned by the Government’.

The deal could now go through because KNSL is owned by the Government. The Dockworkers’ Union went to court to challenge the decision and a three-judge bench — Justices Erick Ogolla, Mugure Thande and Alfred Mabeya — agreed with them that no public participation had taken place. They successfully influenced the government to expediently adopt the self-serving interpretation and position that the transaction could now proceed since the matter would take years at the Court of Appeal.

The opposing side held a different view: No such thing happened since Section 16(1) of the Merchant Shipping Act has yet to be repealed and remains intact in the statute books. Chances are that President Ruto may not cancel the proposed merger between KNSL and MSC and float a competitive tender inviting international port operators to run the facility on a long-term concession.

This controversy has implications on relations between Kenya and the Japanese government that funded building of the terminal. The Japanese have written several protest letters to the government pointing out that the plan to transfer of ownership and control of the terminal to MSC was in breach of the terms of the loan agreement.

Although President Kenyatta’s regime made major investments in ports, confusion reigns because the administration appeared to have evolved a consensus on how best to employ the infrastructure to serve the long-term interests of the country. Even as the right hand of Government was busy signing MOUs with MSC to take control of KNSL, it emerged that National Treasury and KPA had engaged the international maritime consultant, Maritime & Transport Business Solutions BV, to prepare a project information memorandum for four projects, including the very same second container and implying that a concession of the facility to an international port operator was still a possibility.

Other projects in the information memorandum seen by The Weekly Review include the three Chinese-built berths at Lamu Port and the proposed Lamu Special Economic Zone. In the build-up to the recent elections, it emerged that former finance minister Ukur Yatani had put out yet another letter inviting Dubai Ports of the World to send in proposals for concessions over several projects, including the Lamu Special Economic Zone, and the three berths.

How events will unfold in the coming weeks remains to be seen. But the change of regime may have opened a new window for the country to rethink the most efficient was to deploy these donor-funded and critical infrastructure assets.