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Published: November 2017
Infrastructure boom for East African cargo flows
The region’s transport infrastructure is benefitting from the biggest wave of investment since the early years of the colonial period.
Operations on the new Mombasa-Nairobi standard gauge railway (SGR) began in June, and work has begun on a similar project to connect the Tanzanian port of Dar es Salaam with landlocked areas to the west. New port investment has been secured for Mombasa and Dar es Salaam, but the almost total dominance of the region’s two entrepôts faces a challenge from the development of alternative ports.
The first phase of Mombasa Container Terminal 2 was officially opened in September, providing an additional 550,000 TEU/year of handling capacity. The Japanese government, which financed the construction of phase 1, agreed in September to provide another KES35B (US$332M) loan for phase 2.
Work on phase 2 is due to begin in January, and will add 450,000 TEU/year of capacity to the facility. The deepest berth will have a 15m draught, and will be capable of handling vessels of up to 60,000 dwt. Phase 3, which will include dredging work, the construction of another berth, and 200,000 TEU/year of additional container handling capacity, is scheduled for completion in 2022.
There have been mixed messages over whether a concession to operate the new facility will be awarded soon. DP World was reported to have won a tender earlier this year, but that tender process was later cancelled.
Different officials have variously suggested that a new tender will be launched soon, or that the Kenya Ports Authority (KPA) will remain in control for the foreseeable future.
Mombasa is the biggest container port on the east coast of Africa between Egypt and South Africa, and the original tender attracted 12 bids, so the prospect of a concession is, again, likely to attract a great deal of interest.
However, as in South Africa, the concept of transferring control of state-owned ports to private-sector companies is very controversial. The Japanese ambassador to Kenya, Toshitsugu Uesawa, said: “Mombasa port is a key economic gateway for Kenya, and we put a lot of importance on the port for Kenya. Of course, my government will be interested to play a role in the port operation, but that is completely for the Kenyan government to decide.”
The loan agreement with the Japanese government requires private-sector operation of the terminal. Unlike many other port concessions in Africa, this concession contract solely relates to operation, rather than to construction as well.
The existing container terminal is working at full capacity, and handled 1.091M TEU in 2016. Mombasa received two new mobile harbour cranes in August, at a cost of KES868M. Trade- Mark East Africa handled the purchase on behalf of the UK government’s International Climate Fund, as part of Mombasa’s “green port policy”.
Mombasa handled 11.9% more cargo in the first six months of 2017 than in the same period last year, with a rise from 13.4 Mt to 15 Mt. However, the balance of trade remains very heavily in favour of imports. Exports accounted for 1.87 Mt in the first half of this year.
Catherine Mturi-Wairi, managing director of KPA, said: “Handling such quantities needs an efficient and automated cargo handling system. We already have one in place, but we will be working with partners like TradeMark East Africa to improve on it.”
Relatively little has been heard of the Lamu project in recent months, despite the fact that China Road and Bridge Corporation is supposed to complete the first of phase 1’s three berths (one of which will be able to handle vessels of 100,000 dwt) by the end of next year.
The last update was provided by the Kenyan government in June, when it said that work on the three berths was 20% complete. Phase 1, which comes with a price tag of US$480M, will provide handling capacity of 1.2M TEU/year.
The construction of the remaining berths will be dependent on both private-sector investment and the development of associated infrastructure, including a railway between the port and Ethiopia.
The government intends to oversee the construction of a huge new port at Manda Bay in Lamu, which is located between Mombasa and the Somali border. It envisages the provision of container handling capacity far in excess of that on offer at Mombasa, with 32 berths in total on a natural harbour that the KPA says is 18m deep. Nairobi hopes that the project will attract exportorientated businesses, as well as serving transit trade for neighbouring Ethiopia and South Sudan.
The fate of private-sector operation at Mombasa’s great rival, Dar es Salaam, seems to have been settled. There had been a great deal of controversy over Tanzania International Container Terminal Services’ (TICTS) concession to operate the container terminal, which began in 2000. The original concession was set at 10 years, but was extended to 25 years after just five years of operation, triggering widespread criticism by a number of Tanzanian MPs and others within the country.
It seems likely that TICTS, which is owned by Hutchison Port Holdings, delayed muchneeded investment in the port because of doubts over its ability to retain control.
President John Magufuli asked the Tanzania Ports Authority (TPA) to reconsider the concession last September, after controller and auditor general Musa Assad suggested that it should be reviewed. However, in June, the government extended the concession by a further five years, subject to a performance review, thereby appearing to end the debate. In return, TICTS has agreed to give up control of Ubungo inland container depot to the TPA, and double the annual fee that it pays the authority to US$14M in this financial year, followed by a 3.8% annual increase thereafter. The operator will be allowed to increase its own charges, in order to recoup the cost.
The concession settlement and the commencement of 24/7 operation at the port may have been related to a US$345M World Bank loan to the government for use at the port, which was agreed in June.
The World Bank’s lead transport economist, Richard Martin Humphreys, said: “The project represents the start of an incremental process towards increasing the capacity of the port of Dar es Salaam, and strengthening its economic role in the region.”
The Tanzanian government has also agreed to a target of boosting the volume of cargo handled at the port from 15 Mtpa in 2015 to 28 Mtpa by 2020, although there does not appear to be any sanction if this goal is not met.
The World Bank is contributing exactly half of the planned US$690M investment in port improvements. A new multipurpose berth is to be built, the entrance channel and turning basin widened and deepened, a new ro-ro terminal built, and berths 1-11 deepened to 13-15m. China Harbor Engineering Company (CHEC) is carrying out some of the work, under a US$154M contract.
Most interestingly, the substructure for a second container terminal is to be laid. It is expected that the second terminal will be operated by a different private-sector operator, in order to engender some competition in the port. The government is now seeking to put the remaining financing in place.
Bagamoyo and Tanga
Despite the focus on Dar es Salaam, the Tanzanian government is still keen to see the rapid development of two other ports. Bagamoyo, which is located just to the north of Dar es Salaam, has been mooted as Tanzania’s answer to Lamu, but there, too, development has been slow. Developer China Merchants Holdings International (CMHI) insists that the project is still on track.
Hu Jianhua, executive VP of CMHI, said in September: “We had not abandoned this project. We were waiting to compensate the people whose land was taken for development of various business programmes.” The government has set up Bagamoyo Special Economic Zone, but it will be difficult to attract investors at this early stage. CMHI has invested in other similar projects elsewhere in Africa, including in Djibouti.
The expansion of the existing port of Tanga has attracted less attention, but is probably a better bet for completion in the short term. The government of Kenya had been favourite to gain Uganda’s signature on a deal to build its oil-export pipeline to an Indian Ocean port. However, last year, Kampala opted for Tanga, in part because of fears that a pipeline to Lamu might be vulnerable to attack from Somali militants. This will require the wide ranging upgrade of the port, so the government now wants to make the most of this by providing a dedicated container terminal. Talks are ongoing with the Ugandan government over the construction of a railway from Tanga to Lake Victoria to serve Ugandan trade.
As in the port sector, Tanzania appears to be trying to replicate Kenya’s rail industry upgrades. Dar es Salaam and Mombasa have long competed to handle cargo for the landlocked states to the west. Generally, Mombasa has won out, in terms of Ugandan, South Sudanese and Rwandan business, while Dar es Salaam has secured most of the trade into and out of Burundi and the east of the Democratic Republic of Congo (DRC). The rapid development of Kenya’s SGR has prompted Tanzania to start work on its own new railway to the west.
The US$3.8B first phase of the SGR was completed by China Communications Construction Company (CCCC) in May. Once test freight services are completed, scheduled commercial services will begin in December, with an initial haulage capacity of 22 Mtpa. Freight services, which will only travel at 80 kph (50 mph), will be served by 43 new locomotives and 1,620 wagons.
To ensure that the 472 km line between Kenya’s capital and its main port is operated profitably, the government has mandated that at least 40% of all cargo between Mombasa and Nairobi must be transported by the new line. The Kenya Revenue Authority is to ensure that at least 40% of all freight arriving and leaving the country must be taken by rail to Nairobi Internal Container Depot for clearance. It is not clear when this target will be imposed, but the depot’s annual handling capacity is currently being expanded from 180,000 TEU to 450,000 TEU.
All of this has cast doubt on the future of Rift Valley Railways (RVR). RVR had held a concession to operate the existing Mombasa-Nairobi-Kampala line, but has failed to achieve a big shift in freight from road to rail. It has now formerly lost its Kenyan concession, while the Ugandan government has recreated Uganda Railways Corporation, in order to operate RVR’s services in the country. The colonial era line could be retained to operate short-distance services, but it seems unlikely that it will be able to offer the SGR serious competition for long-distance freight transport.
It now looks likely that the SGR will be extended to Kampala in the near future, as planned. In May, it was announced that the Kenyan government had secured US$3.59B in Chinese funding to extend the line to Malaba on the Ugandan border, and also to Kisumu on Lake Victoria, presumably via a spur line. The governments of Kenya, Tanzania and Uganda are all keen to make much more use of the lake for freight transport within the region, and Nairobi believes that connecting Kisumu lake port to the SGR would support this strategy.
The Ugandan government had signed a Memorandum of Understanding with China Civil Engineering Construction Corporation in 2012 to build the 273 km section of the line from Malaba to Kampala. However, at the start of this year, this was superseded by its decision to award a US$2.3B contract to CHEC to undertake the same work.
Yet again, China’s Exim Bank is involved in financing the project, although terms do not yet appear to have been finalised, and the Ugandan government is expected to provide about US$345M itself, presumably via borrowing from alternative sources. Construction is scheduled for completion in 2020, but it is expected that the Rwandan government will sanction work on the next section from Kampala to Kigali before then.
Several spur lines to the SGR have been mooted, including to Juba in South Sudan. This seems the most commercially questionable, and it is unlikely that Juba would be connected to both Mombasa and Lamu by rail for many years to come. The question of who will operate services on the network also appears undecided.
The Rwandan angle
Rwanda’s participation in the SGR is far from a foregone conclusion. Kigali would certainly like to join the project, but it is also the expected final destination of a new railway under construction from the Port of Dar es Salaam.
Turkey’s Yapi Merkezi and Mota- Engil of Portugal began work on the first 300 km section of the railway from Dar es Salaam to Morogoro in April, and expect to complete the work in late 2019.
In early October, the government announced that it had awarded the contract, apparently to Yapi Merkezi, to build the second 336 km section of the project, from Morogoro to the country’s official capital, Dodoma. However, the government is still trying to finalise financing for the line, on which freight services are to operate at 120 kph, 50% faster than on the Kenyan SGR.
Speaking at the 8th East and Central Africa Roads and Rail Infrastructure Summit in late September, Makame Mnyaa Mbarawa, Tanzania’s minister for works, transport and communications, said: “We expect to see this railway line link Tanzania with other regional, landlocked states including Rwanda, Burundi, DRC, Zambia and Uganda, through quick and timely access from Tanzania’s Indian Ocean ports.” Two further construction contracts are to be awarded to take the line as far as Kigali....