THE PORT OF MOMBASA: DETERIORATION,

UNCLAS SECTION 01 OF 05 NAIROBI 001668

SIPDIS

SENSITIVE

DEPT FOR AF/E, AF/EPS, AND AF/PD
USAID FOR AFR/EA

E.O. 12958: N/A
TAGS: ETRD ECON ETTC EINV ELTN EWWT AMGT ABLD ASUP ATRN PREL PTER SNAR KSTC KE
SUBJECT: THE PORT OF MOMBASA: DETERIORATION,
DISORGANIZATION, AND CORRUPTION

Sensitive but unclassified. Not for release outside USG
channels.


1. (SBU) SUMMARY: The Port of Mombasa is the largest port
in the Horn of Africa, and is the economic lifeblood for
the entire East Africa region. It is managed by a wholly-
owned government parastatal, the Kenya Ports Authority
(KPA). The Port is currently overwhelmed by a growing
trade volume, especially from containerized imports. All
GOK operators at the Port, including KPA, Customs, and
police, are widely viewed as corrupt and inefficient. The
real and opportunity costs to business in the region has
many looking for alternatives to Mombasa, either through
other ports in the region or increased reliance on
airfreight. The KPA and its management have been caught up
in a number of scandals related to the transshipment of
drugs, allegations of corruption, and poor procurement and
management practices. The KPA is also a source of
political anger and frustration for the local community,
which broadly feels disassociated from the Port's economic
benefits. The KPA has plans for new equipment it hopes
will smooth operations, but the possibility of
commercialization of port operations is still a long-term
prospect. Poor and deteriorating road and rail linkages
add further delays and expense to doing business in Kenya,
all to the detriment of Kenya's prospects for new private
investment. Mission programs to improve Port security and
effectiveness are limited due to concerns about the GOK's
sincerity to fix the port. Given the pivotal role the
Mombasa Port plays in the region's economic well-being,
USAID's Regional Economic Development Services Office
(REDSO) is exploring a coordinated approach to training and
technical assistance that includes other donors and NGOs.
END SUMMARY.

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THE PORT OF MOMBASA AND THE KPA
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2. (U) The Port of Mombasa is the largest port in the Horn
of Africa, and as such is probably Kenya's greatest
strategic asset. It is the economic lifeblood for not only
Kenya, but also for Uganda, Rwanda, Burundi, Southern
Sudan, and Eastern Congo. It is managed by a wholly-owned
government parastatal, the Kenya Ports Authority (KPA),and
is one of Kenya's biggest revenue generators. The KPA
employs about 5,000 workers at the Mombasa port and another
200 or so combined at administrative offices in Nairobi and
at KPA's two inland container depots in Nairobi and Kisumu.
The majority of exports through Mombasa destined for the
U.S. transit Sanaa or Dubai, where they are often
consolidated, or re-consolidated with other cargo.


3. (U) Policy formulation for the KPA is vested in a Board
of Directors under a Chairman appointed by the
Transportation Minister. The Board appoints the Managing
Director, who is also a member of the Board, and has the
responsibility for the day-to-day running of the Authority.
The Board comprises twelve members including the Permanent
Secretaries in the Ministries of Transport and Finance, the

SIPDIS
Attorney General, and the Managing Director of the Kenya
Railways Corporation.

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ECONOMIC BOTTLENECK
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4. (SBU) Because it is so critical to the rest of the
economy, the port also constitutes Kenya's greatest
infrastructure bottleneck, due primarily to mismanagement,
corruption, and outdated capital stock. The port has been
unable even to keep up with growing two-way trade between
Kenya, the region, and the rest of the world. The port's
container terminal has an official annual capacity to
process 250,000 twenty-foot equivalent units (TEUS),but in
2004, handled over 430,000 TEUS. For months, the Kenyan
and regional press has been reporting on the ever-growing
backlog of containers and bulk freight piling up at the
port awaiting processing. Containers are stacked four and
five high across the container terminal, and it is
difficult for an observer to identify any usable space. A
March 10 report cited an average of 6,000-10,000 containers
lying at the port on any given day over the past six
months. The storage yard's official capacity is 5,000
containers. As a result, port users are facing the
prospect of being assessed stiff Vessel Delay Surcharges
(VDS) by shipping lines whose ships are sitting off the
quay waiting to be unloaded. One U.S. consumer goods
importer claims it generally has "dozens" of containers
backed up at the port, all being levied demurrage charges
by the KPA.


5. (SBU) Mismanagement also means the Port currently has a
severe equipment shortage. While KPA has announced plans
to purchase additional cargo and container handling
equipment in the coming year, many observers are skeptical
about timely implementation. During a visit to the Port
almost two years ago, Embassy GSO officers were told that
new ship-to-shore cranes were on order and would be in
service soon. As of mid-February 2005, they had not
arrived. While the Port officials claim to have computers
for tracking containers, there is no indication of any
operational system. The port has two X-ray scanners but
the larger, static (and more efficient) unit is broken and
not operational. [NOTE: The public tender to supply these
scanners was awarded to a Chinese company over the
objections and legal appeal of a U.S. bidder who claimed
irregularity in the decision process. END NOTE.]


6. (U) A container's average dwell time at Mombasa Port is
approximately 14 days, with much of this caused by
preventable delays in paperwork and clearances. (By
comparison, dwell time in the Port of Durban is less than
three days, and for world-class ports like Singapore, it
can be less than one day.) The cost to the economy of this
excessive dwell time is estimated at more than $128 million
yearly. Retrieving a specific container can take days as
workers carry-out visual searches and then wait for one of
the few top loaders to become available and move the
containers around, as in a shell game, in order to collect
the targeted unit. Adding to delays caused by this
physical congestion is red tape. It currently takes 29
distinct steps (and 11 customs-related stamps) to clear
imports. In response, KPA Managing Director Brown Ondego
reportedly has asked the Kenya Revenue Authority (KRA) to
license additional Container Freight Stations near the Port
to help decongest the port's container terminal.

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HINDERING MISSION OPERATIONS
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7. (SBU) The U.S. Mission's own day-to-day experiences
dealing with the Port provide ample evidence of the
mismanagement and inefficiency there. The KPA charges
storage fees for containers in the terminal despite being
the cause of the port's inefficiency. Recently, three
containers of building material for the new USAID building
were assessed over $30,000 in storage fees while awaiting
customs and security clearance. [NOTE: Subsequently,
Embassy GSO successfully had those charges reversed. END
NOTE.] At that price, for many customers airfreight
becomes a viable option even for material generally deemed
too heavy or bulky to be cost effective via air cargo.


8. (SBU) Other mission goods have also been delayed at the
port. Currently, we have an OBO container of construction
materials that has been there since January. One Mission
member's HHE has been in the terminal since 22 February.
Post's contract transport company initially could not
locate this container for more than one week, and it is
still awaiting a slot for onward transport to Nairobi.USAID/Kenya has had
greater success at the port, but only
by expending a great deal of time and energy in forging
strong relationships with the KRA and KPA in Mombasa. Most
companies and organizations don't have the resources to
engage in this form of "relationship management" at the
Port.

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BAD ROADS AND RAILS COMPOUND THE PROBLEM
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9. (U) As the most important port in the region, the vast
majority of imports to Uganda and Southern Sudan go through
Mombasa. Compounding the problem for inland destinations
is the disastrous state of Kenya's roads and rail, and long
delays at borders. Current average transit time by road
from Mombasa to Kampala (718 miles) is 20-22 days; to
Kigali (876 miles),40 days; to Bujumbura (1,093 miles),60
days. Twenty years ago 80% of the cargo going to Uganda
was transported by rail. Now, with the deteriorating rail
beds and rolling stock, only 20 percent goes by rail
(approximately 2.5 million tons per year, compared to 10
million tons transported by road),compounding the
container logjam at the Port's terminal.


10. (SBU) Aside from the poor roads, bandits are a threat
to trucked cargo. Embassy contract shipper Transami
suspends most over-land shipments during the hours of
darkness due to the high threat of theft.

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CORRUPTION AND POLITICS
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11. (SBU) KPA Managing Director Brown Ondego was arrested
on January 6, 2005 in connection with allegations of
corruption at the port following a seizure of cocaine worth
approximately $85 million said to have passed through the
port with KPA and Customs complicity. He was freed on a
police bond the next day allegedly after intervention from
GOK Cabinet members. Police investigating the cocaine
shipment raised additional corruption allegations related
to a computer installation that reportedly lost $12 million
and Ondego was suspended on January 18. Compounding the
confusion, Ondego was reinstated on February 9 by the
Ministry of Transport, which claimed, "there was
unnecessary anxiety at the port." As a result of this drug
case, Kenyan police have demanded 100 percent inspection by
scanner of every container. With the critical lack of
scanning equipment, this has further exacerbated the port's
bottleneck.


12. (SBU) Depending on who you believe, Odengo and his
team are either negligent for allowing illegal drugs to
pass through the port, or unlucky to be caught. However,
the KPA also has its defenders. Embassy GSO heard from
freight forwarders who have a very high regard for the
integrity of the Port management team. One company
official claimed that Ondego was arrested because he was
"too diligent and was interfering with corruption by local
officials, namely the Kenyan Police."


13. (SBU) The drug bust and subsequent flip flops on who
was involved are just the latest examples of widespread and
deeply-rooted corruption at the Port of Mombasa. It is
perhaps no coincidence that as one of the country's biggest
revenue generators, the port, including all co-located GOK
agencies (Kenya Customs, Police, Transport and Railway) is
widely regarded as one of the country's most corrupt
institutions. In a variety of surveys and studies,
importers, exporters and business associations identify the
inefficiency and corruption at the Port as one of the most
significant hurdles to improved business and investment in
Kenya. Views vary, however, on who is the worst offender.
The Kenyan Customs Office, which is an agency of the Kenya
Revenue Authority (KRA),is most widely cited by shipping
and transport companies as the most pervasive player of the
graft and bribe game at Mombasa Port.


14. (SBU) Two recent KPA tenders, for new container cranes
and tugboats (priced at approximately $20 million and $23
million, respectively),were included in a recent list of
twenty suspect deals highlighted by British High
Commissioner Edward Clay in an ongoing effort to expose
high-level corruption in the Kenyan government. Recently,
however, the Kenya Anti-Corruption Commission announced
that while the Kenya Police continues to investigate the
tugboat tender, the container crane procurement is no
longer under investigation due to the lack of prima facie
evidence of wrongdoing.


15. (SBU) Apart from the drag on the economy from the
Port's current mismanagement, the KPA is also a source of
political anger and frustration in the Coast areas.
Embassy Poloff has heard repeated complaints from Mombasa
Mayor Taib, local politicians, and others in the community
about the Port and the apparent lack of benefit it brings
to the local economy. All eleven KPA board members come
from areas outside of the Coast (mostly up-country),and
the general feeling is that the GOK's administration of the
Port is a prominent example of how the government
marginalizes the Coast. [NOTE: More on Coastal attitudes
towards the Port and the Kibaki administration will be
reported Septel. END NOTE.]

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PRIVATIZATION? DON'T HOLD YOUR BREATH
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16. (U) Two years ago the Port was targeted for
privatization, but the GOK has backed away from that
position. Ondego has speculated publicly that the KPA
might become a landlord operator with most of the port
activities being contracted out to private firms, including
maintenance of marine craft (dockyard),stevedoring of
conventional cargo, and operation of bulk products. The
KPA is apparently also considering concessioning the
Mombasa container terminal and the inland container depots,
the construction of a modern cruise passenger terminal in
partnership with a private investor, and the establishment
of a free trade zone. A long-term strategic plan calls for
the container terminal to become a separate entity from the
KPA, but this is unlikely to happen in the next five years.


17. (U) Meanwhile, the Kenya Railway Corporation (KRC) and
the Uganda Railways Corporation (URC) are scheduled to be
jointly concessioned this year, with a private company
taking over most of the joint rail operations by December.
Both Kenya and Uganda have committed to capital
improvements in the rail track and equipment as part of the
agreement, but it is not clear from where the countries
will find funding for the project.


18. (U) Given both the KPA and GOK's limited financial
resources, donors will be targeted to help with any port
improvements. Despite strong business and revenue growth
(in 2004, KPA earned approximately USD173 million),KPA is
saddled with more than $90 million in debt. KPA's Ondego
has cited a number of long term liabilities for the Port,
including backdated taxes and interest, pension
requirements, and a range of outstanding foreign and
domestic loans. The Japanese government is set to fund the
conversion of some conventional berths into a second
container facility. The KPA has recently drafted a port
Master Plan, which includes an expansion of the container
holding area to meet the growing demand.

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COMMENT: WHAT CAN BE DONE?
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19. (SBU) We view the current situation at the Mombasa
port with alarm. The port has never had a reputation for
efficiency or security, and the situation seems to be
worsening. The material to facilitate the 2002 Kikambala
terrorist attacks came through the port and despite the
current directive for 100% scanning of containers, we do
not have confidence that the port provides adequate
security for smuggling of contraband, narcotics, or other
dangerous items. Given the culture of corruption at the
port, "100 percent scanning" does not guarantee an
effective anti-contraband program, and this new step is
widely seen as another bribery transaction point. At the
same time, the container backlog and delays for clearing
imports threatens business productivity and does nothing to
reverse Kenya's increasingly negative investment climate.


20. (SBU) Despite its problems, the KPA is a revenue
machine that the GOK is reluctant to give up. Japan is
reportedly considering financing a major expansion of the
container terminal, at an estimated cost of $205 million.
That kind of money makes every cabinet minister look for
opportunities to play a part in the port's future.
Classified as one of Kenya's "strategic parastatals," KPA
has many GOK supporters willing to accept the status quo.
At a recent UNCTAD-sponsored investment climate review
workshop, at which many Kenyan institutions, including KPA,
were roundly criticized, Assistant Minister for Trade and
Industry Zaddock M. Syongoh made the remarkable assertion
that "along with KQ (Kenya Airways),the KPA is one of
Kenya's most successful organizations, proving that Kenyanmanagement can be top
quality." We don't doubt that Kenya
Airways is well-run, or that there are excellent Kenyan
managers, but including the KPA in that definition is pure
GOK spin.


21. (SBU) This mission, through DHS, has provided
assistance to Kenyan customs and immigration inspectors,
and has worked with the Kenya Revenue Authority to verify
the origin of AGOA-related textiles that are exported
through Mombasa. However, finding an inroad to assist with
the massive problems facing the Port is extremely
difficult. A considered strategy has emerged to identify
key players in the private sector and NGO community to work
together to exert pressure on the GOK to implement forward-
looking policies that promote U.S. and other investment in
this regional port. Such an approach would mobilize port
users into an effective "constituency for reform" that
builds and advances a collective agenda and offers
coordinated input into the GOKs design and implementation
of port policies.


22. (SBU) To this end, USAID/REDSO is considering a new
project to organize and support regional stakeholders
concerned about corruption and inefficiency along the
Northern Corridor, most of which stems from the port. The
KPA, KRA and many regional private sector firms have
expressed an interest in enhancing their integrity efforts
to collaborate with the project. However, following the
apparent failure of port-focused projects by the U.K. and
the United Nations in recent years, this Mission and REDSO
are carefully deliberating on how to design such an
intervention for maximum effectiveness. END COMMENT.
BELLAMY