The family silver for hire: one of the most heated debates in Africa has been over the issue of the privatisation of state-owned organisations. Some countries have gone for a middle way by appointing private management to run state assets. Will this approach do the trick? Neil Ford discusses.

Discussions of economic reform in Africa often centre on the privatisation-versus-state ownership debate. Supporters of the former claim that state control stifles innovation, while its opponents argue that selling state owned assets is akin to selling off the family silver. Yet a third option is becoming increasingly popular. Rather than selling off state owned assets outright, some governments are awarding fixed term management contracts that make private operators accountable for the services they provide.

[ILLUSTRATION OMITTED]

The Kenyan and Ugandan governments have awarded a fixed term contract for the management of services on the key Mombasa to Nairobi to Kampala rail line. After a series of delays, the Rift Valley Railways (RVR) consortium, which is headed by South African firm Sheltam, has been awarded a 25-year contract to provide freight services on the entire line, plus passenger services in Kenya.

Kenya Railways Corporation (KRC) and Uganda Rail Corporation (URC) have therefore lost their main functions. Although RVR will be required to invest in rolling stock and track improvements in order to improve both rail efficiency and capacity, the actual rail infrastructure will remain the property of the two states and control will revert back to Kenya and Uganda in 25 years' time.

RVR may wish to bid for a renewed contract at that time, but other companies will also be permitted to submit bids. In the meantime, however, the two governments could revoke the contract if they consider that RVR has failed to implement its concession as agreed.

A well published contract has already been revoked in another sector. In 2005, the Tanzanian government cancelled a contract to operate Dar es Salaam Water and Sewerage Authority (Dawasa) that had been awarded to a consortium led by British firm Biwater and German engineering company Gauff Ingenieure in 2003.

The Tanzanian minister for water, Edward Lowassa, said that the company had failed to comply with the terms of its contract in improving and extending the city's water distribution network. Although the consortium, known as City Water, insisted that it had begun to connect new customers to the Dawassa grid, Lowassa insisted that service levels had declined during the first two years of the concession. A new state owned company, Dar es Salaam Water and Sewerage Corporation, was set up to replace City Water.

Yet despite such setbacks, the fixed term concession has become a popular option in the port sector, where it is generally known as the port landlord model. The state, or the former state owned port authority, generally remains the owner of all port infrastructure but private sector companies are awarded long term contracts to manage and develop facilities, either within an entire port, or more popularly within a specific port terminal.

Still in Tanzania, a 10-year contract to manage the container terminal at the port of Dar es Salaam was awarded to Hutchinson Port Holdings (HPH) in 2000. Since then, efficiency has improved markedly at the terminal as a result of the installation of new cargo handling equipment, the introduction of new management methods and the automation of a great deal of administration. The Tanzanian government has been so content with the operations of HPH that it has decided to relaunch the tender for a concession to operate the general cargo terminal at Dar es Salaam.

The government aims to transfer management of the terminal from the state owned Tanzania Ports Authority (TPA) to the selected bidder by June this year. An earlier tender was held in 2006 for the break-bulk and bulk terminal plus smaller terminals at the ports of Mtwara and Tanga but was subject to a series of delays. However, a spokesperson for the TPA says that his company has been able to improve its financial position over the past few months and the deal should now be more attractive to bidders.

Battle to be premier port

The government will expect the selected bidder to provide additional berths, improve cargo handling efficiency and deepen the harbour in order to allow entry for larger vessels.

Dar es Salaam has long vied with Mombasa to be East Africa's premier port, largely because railway lines from both ports serve as conduits for trade within the wider eastern African region. As a result of HPH's success, it had appeared until relatively recently that the Kenyan government would seek private sector management for Mombasa. At the start of the year, the minister of finance, Amos Kimunya, said that the 'privatisation' of port facilities was high on the list of government priorities, but this was later contradicted by the minister for transport, Chirau Ali Mwakwere.

The latter told journalists: "We have found the push for privatisation to be unnecessary, unjustified and counterproductive. The local people need to be part and parcel of the privatisation process. I don't believe they have been involved."

Indeed, the Kenyan government now seems to have moved away from any form of port concession, possibly because of popular opposition to such a move. Firstly, thousands of jobs were lost in Kenya Railways Corporation (KRC) when its operations were taken over by RVR and many people believe that a similar process could occur in Mombasa. Given that most state owned companies in sub-Saharan Africa are overmanned, this fear seems justified.

Secondly, there is a great deal of opposition in Kenya and in some other parts of the continent to 'privatisation'. Although the use of fixed term concessions is very different to outright privatisation, the term is readily applied in some African states to any process that sees the provision of services transferred from state to private companies.

The ruling National Rainbow Coalition (Narc) in Kenya has enough problems with internal divisions in the run-up to the presidential and legislative elections that are due at the end of this year. As a result, the government may have decided that another 'privatisation' could threaten its electoral chances.

[ILLUSTRATION OMITTED]

Instead of taking on the role of port landlord, the KPA seems likely to retain control of all core functions at Mombasa. According to the company's own figures, it has already cut its workforce from 12,000 to 5,000 over the past two years, so there may be little scope for any private sector operators to reduce the wage bill still further. As a result of a variety of reforms, the KPA has become profitable over the past two years and introduced a new tariff structure at the start of April.

The managing director of the KPA, Abdullah Mwaruwa, commented: "The Authority is in the process of reviewing the current tariff, which has been in force since 1995. The objective is to enhance service delivery and the competitiveness of the port. The cost of doing business has been rising in line with the rate of inflation."

Wharfage charges for 20 foot and 40 foot containers have been increased to $50 and $75 respectively, while new security payments for each container or tonne of bulk cargo have been introduced in order to boost revenues. In addition, a shippers' council is to be formed in conjunction with the shipping companies in order to determine terminal handling charges.

Local companies favoured

Opposition to any form of private sector takeover regardless of the terms on offer has occurred elsewhere on the continent. The Nigerian government had to fight a long and hard campaign to persuade the Nigerian trade unions to accept the introduction of port concessions. A combination of foreign and Nigerian private sector interests have begun to take control of several port terminals. Further tenders are likely but it is expected that some port facilities will remain under the control of the state owned Nigerian Ports Authority (NPA).

The various tender processes seem to be giving an opportunity for Nigerian companies to grow. The Nigerian firm, Ports & Terminal Operators Nigeria Ltd, originally bid for the Apapa contract awarded to Danish shipping giant A.B. Moller.

Chairman of the company, Otunba Olatunde Olowu, said: "It was the first time we were engaging in the exercise, so in technical delivery we made some mistakes, so the Bureau of Public Enterprises (BPE) said we were not able to secure the pass mark of 80%." However, the company learned from its mistakes and later secured a contract to operate Terminal A at Port Harcourt. Ports & Terminal Operators Nigeria is actually a consortium of five smaller Nigerian firms: Denca Services Ltd, Ekulo International Ltd, Michele Nigeria Ltd, MIGFO Nigeria and Sifax Nigeria. All have experience in the shipping sector.

Whether or not the Nigerian concessions ultimately prove successful, it is vital that each potential tender and each specific port is judged on its own needs. Dogma has ruled the roost for far too long in economic development in sub-Saharan Africa; with supporters of privatisation and state control each backing its version of development on principle.

As South Africa has demonstrated, private sector control has proved successful at Richards Bay Coal Terminal (RBCT), while Durban and Cape Town container terminals are functioning well in state hands. The best option in each circumstance should be chosen and not just the most politically expedient alternative.