July 1, 2022 - 5 minutes read

Kenya-Dubai port deal: The question of missing public participation and litigation risks

By Naisiae Simiren
Background

The alleged Kenya port and Dubai Port World FZE (“DP World”) deal has caused an uproar among Kenyans and particularly leaders from the Kenya Kwanza coalition. The Kenya Kwanza leaders have alleged that President Uhuru Kenyatta appointed DP World, acting on behalf of the Government of UAE, as Kenya’s sole agent to undertake the development, operation, management and expansion of transport logistics services in Kenya. In a letter dated March 30, 2022, from the National Treasury CS Ukur Yattani and addressed to the chairman of DP World, Sultan Ahmed Bin Sulayem, DP World was to prepare a commercial proposal and implementation plan of various transport components in Kenya such as;

  1. Redevelopment of berths 11-14 of the Port of Mombasa;
  2. Operation, development and management of the container terminal at the Port of Lamu;
  3. Development of a special economic zone in Lamu;
  4. Kisumu port, cold chain and logistics park;
  5. Naivasha, cold chain logistics park; and
  6. Port-linked special economic zone in Mombasa.

In the letter, CS Yattani mentioned that the Attorney-General had issued a green light on the transaction and DP World was expected to execute a Non-Disclosure Agreement to access information and visit Kenya to perform due diligence necessary for preparation of the detailed proposal. Leaders of Kenya Kwanza called out the transaction claiming that crucial procedures and national values were contravened in the process.

Economic Cooperation Agreement

Last year, there were plans by the Government of UAE to sign an economic partnership agreement with Kenya to enable it strengthen its global trade and investment. This was during the time Kenya and UK signed an economic partnership agreement on trade in goods. UAE and Kenya are yet to sign any comprehensive economic partnership agreement that would have entailed a detailed objective. The current transaction could have been an objective had there been a partnership agreement in the first place.  Concluding a partnership agreement would include detailed negotiations between the two governments with relevant Cabinet Secretaries in the affected ministries as lead representatives.

A council will need to be established that would involve relevant parties from both governments who will steer implementation of the partnership agreement. Financial implications arising out of the partnership agreement will have to be budgeted for in annual budgets for relevant ministries and county governments. Public participation is a critical national value under the Constitution of Kenya, as such, negotiations would entail all relevant stakeholders and sensitization programmes in both national and relevant counties outlining available opportunities from the Agreement. The partnership agreement would then be submitted to Parliament for consideration and approval before execution.

Challenges with the DP World Transaction  

The DP World transaction is being challenged for its failure to meet constitutional threshold such as the most critical on public participation, a national value that must be considered by the State when making a decision.

The DP World transaction also fails to meet the threshold requirements under the Public Procurement and Asset Disposal Act, 2015 read together with the Constitution which provides that procurement by the State Organ shall ensure that the process is fair, equitable, transparent, competitive and cost-effective.

Parliament through its relevant departmental committees on transport, that have recently adjourned sine die, have also not been consulted over the transaction, a process which usually involves public participation before submission of its report to the Committee of the Whole House. This omission contravenes the functions of the National Assembly and Senate enshrined in the Constitution to deliberate on issues of concern to the people and represent and protect interests of the counties respectively.

Public-Private Partnerships

The Public-Private Partnerships (PPP) Act 2021 provides for the participation of the private sector in the financing, construction, development, operation, or maintenance of infrastructure or development projects of the government through concession or other contractual arrangement. The Act provides that a contracting authority may procure through Privately Initiated Proposals (PIP), but has a duty to ensure public participation. A contracting authority may consider a PIP for a project negotiation without subjecting the proposal to a competitive procurement process. This happens in instances such as;

  1. The project provides value for money;
  2. The project proposal provides sufficient information for the contracting authority to assess fiscal affordability and the potential contingent liability implications of the proposal;
  3. The project can be delivered at a fair market price;
  4. The project is aligned with national infrastructure priorities and meets a demonstrated societal need;

The Directorate PPP which replaced the PPP Unit established under the PPP Act 2013 and under the National Treasury evaluates and assesses approval of the PIP before making recommendations to the PPP Committee on the PIP. Evaluation entails consideration of public interest criteria; project feasibility criteria; public private partnership suitability criteria; and affordability criteria. Public interest criteria involve; proposed project aligns with stated infrastructure needs, policy objectives and priorities of the Government, addresses a defined societal need, and contributes to the country’s socio-economic agenda.

The PPP Unit (later replaced by the Directorate of PPP) in March 2020 published a PPP status report with the contracting authority, Kenya Ports Authority, indicating that there was a PIP under negotiation for equipment, operation and maintenance of Lamu Port Project Berths 1-3. In terms of development of a special economic zone for the Lamu Port Project according to the status, this was under the feasibility stage where Maritime & Transport Business Solutions (MTBS) and its consortium were appointed as Transaction Advisors in the feasibility study. The PPP status report is yet to be updated for monitoring on the status of the Port of Kisumu, Port of Mombasa, and Naivasha which are components to be undertaken by DP World.  

The PPP Act provides for a concession period for investors involved in Build-Operate-Transfer (BoT) projects to be capped at 30 years. The timeline set is for investors to recoup their investments. However, according to a report by Cytonn, the timelines should consider: the lifespan of the technology used, investment standards required, economic and financial viability, and the consideration for maintaining delivery standards. 

Conclusion

The Directorate PPP under the PPP Act has a duty to submit an annual status report to the PPP Committee with the CS National Treasury submitting the same status report to Parliament. The status report entails among other things: the state of public private partnerships in Kenya; the number, types and value of public private partnerships being implemented in Kenya; and the contracting authorities implementing public private partnerships in Kenya. This has not been done as such puts the legislative arm of government in a position where they are unable to perform their supervisory role and represent the interests of the people.  

The DP World transaction fails to satisfy the most critical constitutional and PPP Act threshold requirement of public participation. Courts of law have numerously issued stay orders on government projects for failure of conducting public participation which brings to question the legal compliance of Directorate of PPP in its mandate in facilitating implementation of the Public Private Partnership Programme and Projects in Kenya and leading contracting authorities in project structuring, procurement, tender evaluation, contract negotiation and deal closure.

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