The Mediterranean Shipping Company (MSC) is set to take over the operations of the second container terminal at the Port of Mombasa, after receiving approvals from a regional competition watchdog, but upon meeting tough conditions.
This is even as a similar proposal to have the United Arab Emirates (UAE) Dubai Ports (DP) World take over the running of some ports and logistical facilities kicked up a storm last week, with various players including the political class and dock workers divided over the plans.
In the deal with MSC, the giant Swiss shipping line has been given the go-ahead to increase its shareholding in the Kenya National Shipping Line (KNSL).
KNSL is in turn expected to become the new operator of the second container terminal at the Port of Mombasa, where it will offer freight forwarding and container liner shipping services.
MSC – through its wholly-owned subsidiary Shipping Agencies Services Sarl (SAS) – will have joint control of KNSL with the Kenya Ports Authority (KPA). The shipping line will increase its stake in KNSL to 47 per cent while KPA will have a stake of 53 per cent.
The Comesa Competition Commission (CCC) – the regional competition watchdog – while approving the transaction put in stringent conditions, noting the joint venture between SAS and KNSL could significantly lessen competition and even be contrary to public interest while resulting in job losses.
It approved the transaction but put in place requirements for the companies to meet and subject the joint venture to making annual reporting to the Commission on their compliance with conditions over the next five years.
Among the requirements is for KNSL to treat all liners equally and not offer preferential treatment to any, including MSC. It also limits how much information on port operations that KNSL can share with MSC.
“KNSL will not exclusively allocate the capacity of the container terminal two to one container liner shipping company and shall operate it under a common user facility principal,” said the Commission in its determination.
“The tariffs applied by KNSL for container terminal services in container terminal two shall be the tariffs reflected in the KPA tariff book … where KNSL is providing discounts and rebates to its customers on its tariffs or on any other charges for its services, this should be done on non-discriminatory terms.”
The government has for years had plans to cede operations of some port facilities to private sector players. Several industry players have raised concerns about a shipping line – such as MSC and even KNSL – operating terminals at the Mombasa port or other port facilities, noting that this could be to the detriment of its competitors.
KPA might also be disadvantaged as the second terminal may take away business from the container terminal one and in turn dent KPA’s revenue.
The Merchant Shipping Act barred shipping lines from operating port facilities but this was amended in 2019, giving the Cabinet Secretary the powers to exempt State-owned companies from the requirement.
Such an exemption would apply to KNSL which will be 53 per cent owned by KPA. In its determination, the CCC requires KNSL and MSC to maintain a 'Chinese Wall', whereby MSC would not be in the know of what KNSL would be doing in its operating the terminal.
“Commercially sensitive information of KNSL’s customers, other than MSC, such as competing liner shipping companies, freight forwarders and providers of inland transportation will not be exchanged under any circumstances between KNSL and its shareholders,” said the Commission.
The Commission also requires KNSL to retain its current workforce, noting that the company should not undertake any merger-specific retrenchments. It also prohibited MSC officials and directors from holding posts in the management and board of KNSL.
“Employees of KNSL shall not have dual roles within KNSL and MSC simultaneously… senior positions at KNSL shall not be held by someone who has held that position in MSC during the one year preceding the Commission’s approval of the merger,” said the Commission.
“No director serving on the board of directors of MSC shall simultaneously serve as a director on the board of directors of KNSL. No existing director of MSC can serve on the board of KNSL prior to three years after the end of the expiry of his directorship at MSC.”
The second container terminal comprises three berths (20 to 22). In its first phase, two of the berths were completed in 2016 and are currently operated by KPA.
The third berth is about to be commissioned. It has been constructed at Sh32 billion and financed by the Japan International Cooperation Agency (Jica). Construction works are being undertaken by the Japanese Toyo Construction Company.
KNSL is being handed a terminal that has far much great advantages over the terminal one, which KPA will continue operating. Terminal two has berths with great depth that can accommodate much larger vessels.
The three berths are also much newer with more recent equipment and should push come to shove in terms of wooing new clients, the KNSL’s terminal might easily beat KPA’s terminal one.
Container terminal one - operated by KPA – comprises berths one to 19 but only berths 16 to 19 are used by international container shipping companies.
“The depth of the berths of container terminal one can berth vessels of 5,000 TEU (20 Equivalent units) capacity,” noted the Comesa Commission after its studies on the different components at the port of Mombasa.
“Berth 20 (at the Second Container Terminal) has a depth which can allow it to berth vessels which have a capacity of 8,000 TEUs. The CID (Committee responsible for Initial Decision) noted that container terminal two is, therefore, more efficient than terminal one in terms of depths of the berths, its cranes which are twin lifts and newer, a vast container stacking space and capacity to berth larger vessels.”
The planned takeover of operations at the second container terminal by MSC comes even as a similar plan to have the Dubai Ports World (DP World) kicked up a storm in the country.
The National Treasury in March invited DP World to submit a commercial proposal on how it would go about running the Port of Lamu, Berths 11-14 of Mombasa Port as well as develop and operate cold chain storage units in Naivasha ICD and Kisumu port and SEZs in Lamu and Mombasa.
The Dr William Ruto-led Kenya Kwanza coalition last week claimed that the government had gone about the process illegally and that a ports operator should have been selected through a competitive process as prescribed by the public-private partnership law as well as allowed public participation and involved Parliament.
Treasury has defended the move noting it is at the early stages of consideration and that due process will be followed once key decisions have been made.
The Dock Workers Union on Saturday said while it had reservations about the company and how it treats employees in other regions of the world where it has taken over port operations, the government should subject the proposals to the public.
“DP world all over the world is not always known for being a good employer in terms of taking care of worker’s interest, that is in terms and conditions of services,” said the union in a statement by the general secretary Simon Sang.
“If the government or those parties who have engaged DP World feel it will be useful in developing Special Economic Zone, they should subject it to public participation and a task force made up of Kenyans who have the expertise of such investments. But they should be Kenyans who have the interest of Kenyans first at heart.”
The union also urged politicians to stay off the matter for now and not use it to gain political mileage.
“Any politician who is currently seeking political position right from MCA to President should avoid the port matters currently being discussed until after elections. They will be seen to be doing the right thing if they can write to the Cabinet Secretary concern to have the matters put the matter on hold until after August 2022.”