Kenya: Mombasa Port Tops Agenda in Infrastructure Reform Plan
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Business Daily (Nairobi)
16 June 2008
Posted to the web 17 June 2008
Jim Onyango
For the first time in many years, the Government is seeking Parliament's permission to guarantee a long-term international loan for a state-owned enterprise.
If the deal goes through, the Treasury will guarantee loans amounting to Sh16.2 billion in favour of the Kenya Ports Authority from the Japan Bank for International Cooperation, one of the foreign development agency arm of the Japanese Government.
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This money is urgently needed to radically reform the Mombasa-based port, operated by the Kenya Ports Authority, which has been starved of cash for upgrading and expansion.
This guarantee also points to a bolder strategy by the Government in financing huge infrastructure projects planned in the current financial year by offering guarantees to parastatals with strong balance sheets like KPA to borrow directly in the international markets. KPA is one of the few parastatals that regularly pays the government a sizeable dividend.
The Treasury is also expected to enter into the local and global debt markets to sell infrastructure bonds and Eurobonds.
Among the projects expected to be implemented is raising money to implement the Nairobi Metropolitan Authority plan. This financing plan is expected to be in the form of a possible central government guarantee to raise billions of shillings through municipal bonds and syndicated loans.
Entry point
The Mombasa port has particularly received attention, because it serves as an entry for goods into Kenya and five neighbouring countries. Its poor state has been a
major obstacle to the competitiveness of the local and regional economies. If the port is fixed as envisaged by the five-year goals under the Vision 2030 development strategy, Mombasa will play a significant role in the regional trade routes.
The proposal comes as the strategic role of the Mombasa port comes under threat from new projects-one of them a transcontinental railway stretching from the Democratic Republic of Congo to Dar es salaam that could substantially shift the route for consignments entering the Great Lake's region.
The guarantee is however, likely to raise questions over how the Treasury will hedge the foreign currency and interest rate risks that this loan is likely to pose to the balance sheet of KPA and the exposure that taxpayers must face if things don't go according to plan.
This is because such guarantees have in the past forced the government to divert funds to rescue state-owned enterprises that ran into trouble. This is especially in the 90s when such guarantees were abused by parastatals like the Kenya Meat Commission and Nzoia Sugar, which almost brought the lender National Bank of Kenya to its knees.
However, KPA's guarantee is likely to have high resonance with the business community, which for almost a decade have been calling for the port to be fixed because it had made Kenya an expensive manufacturing location due to a slow flow of goods.
Delays in clearing cargo at the port and surcharges on importers for overstayed goods all count in arriving at the retail price of goods either imported as finished products or made from raw materials passing through the port.
The government has already allocated Sh430 million for starting the port expansion project, while awaiting Parliament to approve the sessional paper. The first phase of the expansion of the port will be ready in five years while the final phase will end in 2015.
"We expect the implementation of this project to significantly reduce the dwell time in handling port cargo and bring our port operations in line with international standards.
This and other reforms will also position the port of Mombasa as a regional service hub and generate increased trade and employment," said Finance Minister Amos Kimunya when he read the budget speech for the financial year starting next month.
The Sh16.18 billion loan will be used to redesign the port to handle two million containers annually from the current 600,000 containers and position the port as a regional service hub.
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Shippers have perennially complained of delays in allocation of berths for docking thereby delaying the off-loading of cargo.
Analysts say the guarantee to the Kenya Ports Authority is important because the expansion of the facility would be beneficial to the country and to the larger east African region as long as the money is channelled to the intended use.
Mr John Wanyela, the executive director of the Kenya Bankers Association, said KPA was not making losses and that it could repay them without financial strain.
"The port is a better performing facility. If it is expanded and managed well, it will repay the money without strain. If the port can be made efficient the better for Kenya and for the region," he said.He also said the performance contracts signed by parastatal chiefs brought more accountability like never before, raising the confidence that the funds would be put to good use.
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The KPA loan which bears an interest rate of 0.2 per cent per annum carries a 10-year moratorium and has a repayment period of 30 years.
KPA intends to expand the port to international standards by establishing three new deep water berths to allow much bigger ships to dock.
KPA officials say the port's harbour channel will be dredged to an average depth of 15 metres, while the turning basin will be widened.
Mombasa port, which is used by over five countries of DR Congo, Rwanda, Uganda, Burundi, and Kenya itself, is one of the most congested in the east African region. Cargo owners have in the past complained of loss or tampering of cargo containers due to the rudimentary handling ways.
Congestion and delay in the transmission of cargo has been blamed on the lack of space at the port.
"The scope of work will include the reclamation of the sea to create 100 hectares of space, civil works for the berths, container stacking yards, rail terminal and six lane access road, buildings, purchase of equipment and consulting services" said Mr Kimunya when he tabled sessional paper number one of 2008 in Parliament.
The paper is seeking authority for the government to guarantee the loan to be advanced to KPA by the Japanese Bank, which has also given a government guaranteed loan to East Africa Portland Cement Company.
The company has been seeking to replace the loan with locally sourced funds to escape the foreign exchange risks that come with overseas funding.
Under the Guarantee (Loans) Act, a sessional paper once tabled in Parliament is deemed to have been approved unless a notice of objection is filed within seven days of the sitting at which it was tabled.
Barring developments in Parliament today, the guarantee appears set for approval because no intention of such a notice was known to be in the works as we went to press.
"The modernization of the port of Mombasa is long overdue" said Mr Charles Munyori, a car importer and a regular user of the port. "Due to the congestion, ships take long to discharge cargo and most of the time the off-loading of cargo is done manually"
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The port has been unable to handle what is coming through and has contracted private inland container handlers where cars are stored after being off-loaded.
"There is the danger of the vehicle being damaged or stolen while being driven to the outside cargo stations," said Mr Munyori, the chairman of the Kenya Auto Bazar Association, an umbrella body of second-hand car dealers.
Even though cargo handling constitutes its core activity, KPA manages the sea port which includes Mombasa, Vanga, Shimoni, Mtwapa, Kilifi, Funzi, Malindi, Kunga and Lamu.
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