Las Juntas de Caminos

The criteria in assessing fees for concession is of great concern for both KPA and the private operator. The method to be applied could prove critical, as the operator would want to maximise profits for quick return on investments, though this depends on how successful the operator can attract traffic. Carlos Canamero of argues that normally port authorities will establish fees on the view of the charges the lessee will apply to users. This has the effects of raising higher charges at the detriment of consumer’s affordability.

The most suitable way KPA could adapt a noble price strategy is by benchmarking one of the three strategies used in contracting out container terminal operators in the West Coast of USA which are:

Flat rate lease.

This involves KPA offering the concessionaire the right to operate the Mombasa Container on a fixed sum for a specific period of time. Ideally, an assessment of the total investment cost of the facilities and calculating a yearly recovery cost including a suitable rate of return on the assets is put in consideration. Alexander Lijster says this strategy has a guaranteed return of the value of the property. However, with KPA being handicapped with shortage of funds the possibility of equipping a modern terminal which involves colossal sums of money is far from reality as this factor has impinged it from development. Nevertheless, the flat rate strategy has less risk, hence KPA could have the highest guarantee of returns in investment.

Mini max strategy.

In this type of strategy, KPA grants a concession in return for a variable fee. The concession fee is paid by the lessee on a determined scale of actual minimum and maximum cargo throughput of the Port of Mombasa. The minimum rate is applied to the lowest part of the cargo throughput. From the minimum, a sliding scale is applied until a certain maximum, there on, no further increase of revenue. This strategy however requires careful consideration since the system heavily depends on cargo throughput of the port. Bearing in mind the low volumes and unreliable cargo traffic of Mombasa, the minimax strategy offers high risks for KPA not getting back its return on investment. With the current average throughput of 8 million tonnes per year and 200,000 TEU’S handled at the Port of Mombasa, this could indeed prove risky. As Alexander Lijster (1999) argues on the conditions of minimax:

The exact determination of the cost factor to be recovered is difficult and the establishment of the minimum and maximum rates to be applied in relation to the terminal capacity is difficult.

Shared revenue strategy.

KPA in this situation does not impose any ceiling on the fee to be paid by the lessee. However, a floor is determined. A minimum amount of lease fee and compensation per move (container traffic) where a decrease of traffic is anticipated is normally applied in this system. The lessee guarantees a minimum annual compensation. The strategy offers advantages to KPA since it offers the opportunity to maximise its profits, employment and traffic without subsidising the lessee. (Canamero, 1999). However, the terminal operator is set to loose during periods of low traffic while his notion is to maximise profits. The terminal operator therefore may be forced to recoup his profits by raising unreasonable handling charges either not affordable to users or could prove too high, creating an opportunity for the neighbouring Tanzanian Port. The end result is loss of business for the Kenyan Port .

The strategies offer better opportunities for both the Port Authority and private terminal operator. Carlos Canamero argues that these 3 lease price strategies try to reach a win- win situation for the port authority and the private terminal operator. It is imperative therefore that the best strategy is chosen which should be tailor made for Mombasa Port. In this case KPA could select the flat rate price strategy since it has less risks while it also offers the terminal operator the opportunity to maximise profits out of the deal.

3.5. Concession.

This is a contradictory type of port reform as it can easily be mistaken with leasing. During divestiture of a port, the state transfers the operating and development rights to a private terminal operator. If a concession is granted to more than one legal entity, a consortium concession is established (UNCTAD, 1995, 78). The major difference between concession and leasing is that the former has the responsibility for capital and investments of a terminal while the latter may involve contracting out existing facilities. In view of this therefore, with KPA’S limited financial resources to develop and buy new equipment, the adoption of concession may be a commendable approach in reforming KPA, particularly the Mombasa Container Terminal. The sentiments are shared by

privatisation of the authority in liaison with the Executive Secretariat and Technical Unit (ESTU). Ndua (1998) says:

Mombasa Container Terminal will be placed under concession by involving a well placed foreign private terminal operator though it should not be ruled out at this stage that other methods of privatisation are being exploited in arriving at the most suitable mode.

He continues to say:

The notion behind it is that the government wants to choose the best method that is tailor made in the Kenyan context taking in account the safety net of port labour force.

A form of concession is the build-operate-transfer, which will be dealt later in this chapter. Concession will no doubt involve a foreign operator, a profound factor as the method demands an already established and financial, managerial expert terminal operator. The system will no doubt deny Kenyans ownership of the terminal.

3.6. Corporatisation.

This is privatisation without change of ownership. It involves transforming the port into a corporation through an enactment of law in parliament, which is the case with KPA that was established by an Act of parliament in 1978. The port is converted into a legally and economically independent entity with a board of directors while the government retains its equity ownership (UNCTAD, 1995, 71). Although KPA has achieved this status, the Act is obsolete since the Board of Directors and Executive are neither independent as they have to take decisions from the political echelon.

Corporatisation further involves the government to sale KPA shares it owns to the public. In so doing, it exposes KPA to operate similarly to a private entity, being exposed to the

the government may be unwilling to sell its shares fearing loosing ownership of a strategic profit making parastatal.