BUSINESS COMMUNTITY PROTESTS PORT CARGO SCANNING

UNCLAS SECTION 01 OF 03 MAPUTO 000980 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EIND EINV EINT PGOV EWWT PREL ETRD MZ SF SUBJECT: BUSINESS COMMUNTITY PROTESTS PORT CARGO SCANNING FEES REF: A. MAPUTO 797 ¶B. MAPUTO 713 This cable is a collaboration between Embassy Maputo and Embassy Pretoria and is part of a series of reporting on regional transport infrastructure developments. ¶1. (SBU) Summary: In 2005, the Government of Mozambique (GRM) awarded a 20-year concession to Kudumba Investments to provide an integrated border and cargo security solution. The concession is based on the principle of "build, operate, and transfer" that requires no capital outlay from the GRM. Kudumba recovers its costs by directly charging businesses. The Mozambican business community stresses that trade volumes do not justify the scanning fees or level of technology implemented by Kudumba and has called on the GRM to carry some of the financial burden. Kudumba management has deflected criticism about the scanning fees and describes its public-private partnership with the GRM as a "win-win solution" that provides Mozambique with a modern turnkey security solution that the GRM could not afford otherwise. Kudumba management further asserts that privatizing the non-core screening functions has led to a drastic reduction in inspection and cargo processing times, which facilitates trade in the long-run. The GRM faces a trade-off between improving security screening and managing costs for implementation of new technology. It will have to address business concerns regarding the transparency, management, and cost of the concession if it hopes to continue expanding trade flows to Mozambique. Given the current global economic downturn, businesses might choose to channel trade via neighboring ports if cargo scanning fees seem unfair or unnecessarily high. End Summary. ¶2. (SBU) Emboffs recently met with Kudumba management to discuss the controversy surrounding its fee structure and to tour its scanning and training facilities in Maputo. The first phase of the concession between the Ministry of Finance/Customs and Kudumba called for the deployment of X-ray screening equipment at the Maputo International Airport and the Port of Maputo cargo facilities. Kudumba is also implementing biometric access control at the seaport and airport entry points. The second-phase will include the installation of scanners at Mozambique's two other main seaports, Beira and Nacala, and at the Ressano Garcia border crossing with South Africa. Kudumba's total investment cost expenditure for equipment and training is estimated at $42 million. -------------- Business Community Critical of Concession and Costs -------------- ¶3. (SBU) CTA, an umbrella group for the Mozambican business community, has been critical of the Kudumba concession and high scanning fees. CTA reps told Emboffs that importers initially threatened not to pay Kudumba's $100-per-container fee and to leave their containers uncollected in protest. CTA officials complained that even empty containers are being scanned and charged $20. CTA also raised questions about Kudumba's ownership structure and potential conflicts of interest. Kudumba's main shareholder Chassan Ali Ahmad, a naturalized Belgian of Lebanese origin, owns a 40 percent share. Mozambican holding company (and FRELIMO front company) SPI owns 35 percent and the remaining shares are held by Alima Jose (15 percent) and Rafique Sidat (10 percent). CTA questioned the concession process pointing to the ruling Frelimo party ownership interests in Kudumba through the SPI holding company. CTA representatives also alleged that Chassan Ali Ahmad had been kicked out of Angola for shady business dealings and could not be trusted to run a legitimate business in Mozambique. ¶4. (SBU) Selected Scanning Fees Charged by Kudumba: -------------- -------------- Type of Shipment Tariff -------------- -------------- Import containers $100 per container Export containers $70 per container Empty containers $20 per container Transit containers $45 per container Bulk cargo $0.25 to $1.90 per ton MAPUTO 00000980 002 OF 003 ¶5. (SBU) CTA officials agreed that scanners and new technology had to be implemented to increase security and facilitate trade. However, CTA criticized the fact that the business community was bearing all of the costs of the upgrades. Businesses are forced to pass on the scanning costs to consumers, they said, which reduced the competitiveness of Mozambique,s rail and port corridors. CTA said the GRM should be bearing the costs of the upgrades due to the financial benefits improved screening bring to Customs. CTA also asserted that the number of scanners at the airport overwhelms passenger and cargo flows. They argued that the previous system of physical inspection, even if time consuming, was free and it was the GRM's duty to absorb the cost of the new system. -------------- Privatization Allows GRM to Reach International Screening Standards -------------- ¶6. (SBU) Kudumba management deflected criticism from the business community regarding its fee structure, saying that as the concessionaire for the GRM their role was only to provide the services the GRM had outlined in the contract. They did not feel that it was necessary for Kudumba to publicly address the business criticism and instead said it was more appropriate for the GRM to review Kudumba's fee structure and decide whether the GRM or private businesses would bear the cost burden of the new system. ¶7. (SBU) According to Kudumba management, "the GRM would not be able to afford the technology Kudumba has installed, let alone the maintenance costs or the long-term training required to operate it efficiently." Kudumba has upgraded facilities and provided non-intrusive security at all frontier borders in a manner that does not disrupt trade flows with lengthy processing delays. Kudumba has instituted U.S. and European Union-level safety and security standards. Kudumba is utilizing the latest X-ray detection technology developed by Chinese manufacturer Nuctech. According to Kudumba management, the Nutech scanners are currently the only ones on the market that can separate organic from inorganic material in both bulk and compounds, which improves detection rates. Each scanner costs between $3-5 million. (Note: Nuctech was headed by President Hu Jintao's son and the company has recently been involved in a ontracting/bribery scandal in Namibia and the Philippines. End Note) ¶8. (SBU) Over 80 percent of the upgrades to the new Maputo international airport cargo facility have been completed. Kudumba has installed seven state-of-the-art cargo X-ray machines and about 60-70 percent of air cargo is currently screened. The airport handles approximately 250,000-300,000 international passengers per year. To address concerns regarding drug smuggling on international routes, Kudumba has included full-body scanners as a part of the technology being deployed at the airport. Kudumba management said high implementation costs partly resulted from the need to install electrical and telecommunications wiring at the international airport, which sorely lacked this infrastructure. Kudumba had to lay fiber-optic cables to connect the airport's communications systems (control tower, 73 CCTV cameras, etc) to appropriate government response departments. (Note: According to Kudumba, electronic data of all scanned items and persons at the Maputo port and airport are collected a central data warehouse for GRM review. Also Mozambican Intelligence (SISE) has seconded an officer to the airport scanning control room to review incoming scanning-related data. End Note) ¶9. (SBU) According to Kudumba officials, about 60 percent of maritime cargo is now being scanned. Kudumba was careful to point out several times that Customs officials decide which containers to scan based on risk analysis and intelligence. Former senior customs official Edna Matusse is now the Deputy Managing Director of Kudumba. Customs officials also decide which cargo containers to flag for secondary physical inspections based on the results of the scanning. The scanning also detects discrepancies in customs declarations, which theoretically allows Customs to control smuggling and generate additional customs revenue. Kudumba management noted that quicker screening and processing times at the Port of Maputo allow businesses to avoid the higher port access and utilization fees they would be charged at the neighboring MAPUTO 00000980 003 OF 003 Port of Durban, which takes substantially longer to screen and process cargo. -------------- Training Major Factor in Improved Screening -------------- ¶10. (SBU) Skills development and transfer are a major component of the contract Kudumba has signed with the GRM. Kudumba management emphasized that without adequate training the equipment it has deployed would be useless. They said other African countries, such as Uganda, have invested a lot of money in new technology that sits in boxes because there is no local expertise to utilize and maintain it. Kudumba has developed a training center in Maputo where it trains over 600 customs officers on equipment operations, personal security, and detection of nefarious products. Mozambican engineers are also being trained to maintain the new screening equipment. The objective is to make Mozambican officials operationally self-sufficient in the long-term. ¶11. (SBU) Much of the training Kudumba has implemented is the same as Transportation Security Administration-approved training used in the United States. Kudumba has recruited leading international experts who have years of experience working on border security and response systems in the U.S. and European Union to conduct this training. Computer-based modules are also included to individualize pace of training and allow trainees to gain simulated experiences before operating the new equipment. A similar mobile training center is being set-up to train customs officials in northern Mozambique. Kudumba has set a target of training 500 officials per year. -------------- COMMENT -------------- ¶12. (SBU) The ownership structure of Kudumba and its reliance on Customs to provide risk analysis and intelligence mean that Kudumba only provides the appearance of secure borders. Nonetheless, Mozambique is joining countries around the world that are working to improve their cargo and passenger screening systems in response to aviation and maritime security breaches and potential terrorist threats. It is unclear if the GRM has the political will to limit illicit activities at its ports, to include narco-trafficking (reftels). Improving cargo screening and processing times is a major goal for the GRM as it is hoping to expand trade capacity and volumes at all of its major ports. The GRM could not afford to implement the level of technology, integrated response system, and skills development Kudumba is providing. However, some of the technology that has been deployed by Kudumba in Mozambique is still not a part of cargo and passenger screening systems used in some first world countries. The number of scanners and the type of technology implemented might be excessive given the relatively low-level of cargo volume that transits through Mozambican ports. The GRM faces a trade-off between improving security screening and managing implementation costs. It will have to address business concerns regarding the transparency, management, and cost of the concession if it hopes to continue expanding trade flows to Mozambique. Given the current global economic downturn, businesses might choose to channel trade via neighboring ports if cargo scanning fees seem unfair or unnecessarily high. CHAPMAN