The Kenya Ports Authority (KPA) is just about to complete construction of a new container terminal at the port of Mombasa which is being built and funded by the Japanese government.
This is a critical project for Kenya because it is going to double the capacity of the port and allow access to container vessels twice as large as those currently calling at the port of Mombasa.
Indeed, this new facility will allow Mombasa to reposition itself as the reference port in the Indian Ocean coast, making it possible for the port to out-compete Djibouti, Dar es salaam and Maputo -catapulting Mombasa to become the pre-eminent gateway to Asia and a major trade centre.
The government’s ambition is to have a high performance port which will connect to the Standard Gauge Railway, currently under construction — to form a fully integrated transportation chain and corridor running all the way to Kampala.
Which is why a decision was made that instead of having the port managed by KPA, it will be privatised and given to an international port operator to run it under a 30-year concession.
When the tender for the concession was put out a few months ago, the government introduced what is known as a local shareholding threshold -a requirement stipulating that to win the lucrative contract, an international investor must cede 15 per cent shares to local Kenyans.
As it has turned out, the fight to clinch the local shareholding deal has spawned major political undercurrents.
How was the government going to insulate the process from manipulation by the ruling elite? Had the stage been set for another Mobitelea?
Mobitelea was the vehicle powerful individuals under the Moi regime crafted to acquire free shares in Vodafone Kenya Ltd -the largest shareholder in the mobile company Safaricom Ltd.
To put the whole issue in context, here is the background against which the fight for the concession of the Mombasa Port is happening.
All over Africa, port concessions have been plagued by rumours of corrupt dealings and allegations of high-level rent-seeking.
Last year, Djibouti filed an arbitration case in London against the international port operator there, alleging that the company had paid bribes to top government officials to win the contract. In Senegal, the Justice ministry has been investigating Karim Wade, former minister and son of the ex-president, on corruption related to the concession at the port of Dakar.
The authorities suspect that Wade is a sleeping partner in the port concession there and accuse him of having connived with the port concessionaire to sell to him shares in the company on the cheap.
Clearly, port concessions -like in most privatisation transactions in Africa, allow powerful elites to arm twist multinationals into giving them free shares.
The process in Mombasa is still in the preliminary stages and it is too early to predict how events are likely to unfold.
But when you look at the names of the local partners in each of the consortia fighting for the prize, it is clear that the stage has been set for a battle royale.
This is not going to be an ordinary tender war as it involves politically-well-connected groups.
And, there are indications that the whole thing is likely to snowball into a major diplomatic row with the Japanese government.
All of the 12 international port operators in the bidding for the lucrative contract have connections with politically powerful groups.
All the big names within the tiny elite in Mombasa that controls and dominates transport and logistics business moved with alacrity to sign up 15 per cent shareholding deals with the international port operators.
They include Mombasa Maize Millers Ltd which is associated with the hugely influential Mr Mohahmed Islam, Freight Forwarders Kenya of the powerful Somjee family, Interperl Investments, which is associated with the influential Feisal Abbas of Paramount Bank, Siginon, associated with the family of former President Daniel arap Moi, Multiple Hauliers — perhaps the largest cargo hauling company in East Africa, associated with the family of Mr Rajinder Singh and Jaffer Mohammed of Grain Bulk Handflers..
The second category of local interests fighting for the prize is a group of well-connected Nairobi elites. A well-known local acquisition artist and big investor in the Nairobi Stock Exchange but whose name does not appear in the lists is linked to the consortium led by one of the internal bidders from Singapore..
Dalbit Petroleum Ltd , associated with influential businessman Humphrey Kariuki is also in the mix.
One of the consortia is widely believed to enjoy the support of individuals in a very high office in Nairobi. Which begs the questions: Will the government deliver a transparently-procured privatisation transaction this time around?
All indications would appear to suggest that a big tender war is in the offing. It is instructive that the first stage of the tender -the technical stage -has already sparked off a barrage with appeals being lodged before the public private partnerships tribunal.
Documents seen by the Saturday Nation show that during evaluation of technical proposals, five companies were knocked off, leaving seven in the running.
The results of the evaluations were not made public with losers being sent letters individually. But according to available documents, the consortium led by the Chinese group PSA International and Multiple Hauliers emerged top on the list, scoring a total of 94 marks in the disputed evaluations.
They were followed closely by Dubai World with a score of 93, Cosco Pacific and Paramount Bank (92.98) Siginon Group (91.5) and Freight Forwarders (90.10).
With the case lodged by some bidders at the review board still outstanding, the opening of the next stage -the financials – has been postponed.
But indications are that the dispute is likely to drag in court for a long time. If that happens – and considering that the contractors will be handing over the state of the art container terminal to KPA in February, we may end up with a new facility that is not being used.
Even before the process reached the technical evaluation stage, a major controversy erupted when KPA suddenly introduced new conditions whose effect was to fundamentally alter the rules of the game.
Hardly 10 days before the closing of the tender the Kenya Ports Authority introduced a new local shareholding rule stipulating that – over and above the 15 per cent for locals -bidders would have the option of offering the government of Kenya free 15 per cent shares of their companies.
Strangely, this new requirement was dictated to KPA by the National Treasury’s Mr Stanley Kamau.
The rules of competitive international bidding do not allow you to arbitrarily change from one procurement method to another in the middle of a tender.
Why was this requirement being introduced so late in the day? And how was national interest going to be served by direct government ownership of shares in a concession operating under supervision of the State-owned Kenya Ports Authority?
Critics say that the National Treasury had tilted the playing field to favour foreign government-owned entities who were in the race.