Debate rages on over second grain handler

As the country grapples with the task of feeding more than 10 million Kenyans facing starvation, food politics have resurfaced, centred around the sole grain handler at Mombasa port.

Prime Minister Raila Odinga has once again been drawn into the row surrounding the never-ending battle on licensing of a second grain handler to compete with Grain Bulk Handlers Ltd (GBHL).

Kangundo MP Johnstone Muthama accused Mr Odinga of supporting the monopoly enjoyed by the grain handler, a situation millers have blamed for skyrocketing prices of wheat and maize flour.

The monopoly had made importers pay punitive Vessel Delays Surcharge (VDS) slapped by shipping lines for unusually long delays at the port, he said, adding that the charges were passed on by millers to consumers, making flour prices high.

The MP further claimed that grain imports had surpassed the company’s capacity, leading to unusually long delays by ships.

Mr Odinga has since said that grain imports had not surpassed Grain Bulk Handlers’ capacity adding that it was not necessary to have a second grain handler.

Violence and drought

Debate over the controversial issue has been rekindled at a time when the country is facing a serious food shortage, blamed on, among other things, last year’s post election violence and drought.

Grain Bulk Handlers terminal manager Mustakim Shivji said the facility can handle three million tonnes of grain a year, but it was only handling slightly more than a million today.

But Mr Munir Thabit, the financial manager at Mombasa Maize Millers said that when the country was recently making huge imports of maize to address the food shortage, some ships had to wait for up to 20 days before they could offload their cargo at the Grain Bulk Handlers’ terminal.

“Grain shipping lines normally start charging demurrage charges after four days,” Mr Thabit said, adding that the charges sometimes went as high as $50,000 (Sh3.9 million) a day.

“When this cost is passed to the consumers, it becomes very difficult to reduce the cost of flour despite a drop on import duty,” he said.

However, Mr Shivji accused millers of exaggerating amounts paid as demurrage to justify high prices of flour.

He said delays on shipping lines were largely a result of unplanned imports rather than grain handling at the terminal. “For instance, currently we do not have a single vessel waiting to discharge grain,” he said.

Whereas the installed capacity to discharge grain at Grain Bulk Handlers is more than 11,000 tonnes a day, it is only 2,500 to 3,000 tonnes that are being delivered from the company’s silos daily.

“With the near collapse of the railway, which is the best placed mode of transporting grain, transporters are overwhelmed, leading to the terminal being used as a storage facility,” said Mr Shivji, adding that more than 60,000 tonnes of wheat meant for millers had been lying at the terminal.

He said the National Cereals and Produce Board (NCPB) has not been involving grain interveners whenever major imports were scheduled, so that logistics could be put in place to minimise the stress that comes with bulk importation.

“For instance, we are learning from the media that there are 10 million bags of maize to be imported in the next few months,” Mr Shivji said.

“Unplanned imports have led to bunching arrivals hence overstretching the grain terminal and delaying vessels.”

Currently, there is a standoff between the Government and millers over importation of three million bags of maize.

Millers have demanded a government guarantee that it will waive any charges arising as a result of vessels waiting to discharge grain.

“We are at the moment not interested in a second grain facility, which can take up to four years to instal. Another conveyor belt, which can be used to offload grain whenever there is a crisis as we recently experienced, could be a solution,” said Mr Thabit.

Millers have been pushing for the licensing of a second grain handler since early last year, arguing that Sh16 per tonne that Grain Bulk Handlers Ltd charges as handling fees was too high compared to what other countries in the region were charging.

However, the grain handler says handling prices which were set by KPA have not changed since the company signed a memorandum of understanding with the Authority in 2004.

Industry players have argued that granting a license to millers to operate a second grain handling facility will shift the monopoly from GBHL to the new outfit without improving efficiency.

“With over 70 per cent of the country’s wheat requirement being imports, the milling companies will monopolise the entire chain of grain handling in the country,” said Mr Shivji, adding that allowing one player to control vital food stuff such as grains was risky.

Mombasa Maize Millers, Pembe Group and Premier Flour Mills command 59 per cent of the market share, with a milling capacity of 2,540 tonnes a day.

Eight-year monopoly

Estimates from a KPA master plan with the current grain handler show that the volume of grain being handled in the country is set to grow from 754,000 tonnes to 870,000 tonnes by 2010; 1,276,000 tonnes by 2020 and 1,508,000 tonnes by 2028.

GBHL was to operate as a monopoly for eight years to recover the cost of the massive investment in the project. At the end of the monopoly last February, attempts by GBHL to have it extended to 2028 were rejected by the KPA board that July, arguing that KPA was losing up to 20 per cent of revenue due to the monopoly.

Upon the expiry of the monopoly, more than 10 grain handling companies, mainly millers, expressed interest in the business and have been lobbying to have KPA license a second grain handler.   

Some of the companies are Mombasa Maize Millers, Premier Flour Mills, Kenya Bulk Handlers, Pembe Flour Mills, Kitale Industries, Supaflo Flour Mills, Coast Silos and Mini Bakeries.

Bowing to pressure, KPA on September 22 last year, advertised, calling interested parties to submit expression of interest to run a second facility, which was cancelled three days before the two-week deadline. Details later emerged that Grain Bulk Handlers Ltd had moved to court to block KPA from licensing a competitor.

The Parliamentary Public Investment Committee probing the cancellation of the tender, had also opposed the extension of the monopoly before it was reviewed, adding that it did not augur well with the public and the business community.

A July report by KPA had argued that grain handling had increased beyond the original design of the facility and that opening up of a second grain facility would have increased competition and improved efficiency.

However, GBHL says its capacity is underutilised at 48 per cent.

Grain Bulk Handlers controls 80 per cent of the business, way above the 25 per cent limit defined for a monopoly under the KPA act.  

Following the tender cancellation, Mr Odinga said that allowing a second grain handler would undermine investor confidence, sentiments that were supported by transport minister Chirau Mwakwere.

“Although the Government was not opposed to the second grain facility at the port, there were a lot of issues that needed to be discussed, hence cancellation,” Mr Mwakwere said, adding that the construction of Lamu port would give those interested in handling grain another chance.