US embassy cable - 05NAIROBI1668

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. 
 
------------------------------- 
THE PORT OF MOMBASA AND THE KPA 
------------------------------- 
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. 
 
------------------- 
ECONOMIC BOTTLENECK 
------------------- 
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. 
 
---------------------------- 
HINDERING MISSION OPERATIONS 
---------------------------- 
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. 
 
---------------------------------------- 
BAD ROADS AND RAILS COMPOUND THE PROBLEM 
---------------------------------------- 
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. 
 
----------------------- 
CORRUPTION AND POLITICS 
----------------------- 
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.] 
 
------------------------------------- 
PRIVATIZATION? DON'T HOLD YOUR BREATH 
------------------------------------- 
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. 
 
-------------------------- 
COMMENT: WHAT CAN BE DONE? 
-------------------------- 
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