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Lamu Port: Kenya's Transshipment Hub Risks Becoming a White Elephant

lamu
Lamu Port under construction (LAPSSET Corridor Program)

By Njiraini Muchira 04-26-2021 10:47:47

The Kenyan government faces a hard decision over whether to encourage shipping lines to make use of the new Lamu Port, which is set for commissioning in June. If traffic shifts to Lamu, the government risks failure to generate enough revenue from its main gateway facility, Mombasa Port.

After years of delay, Kenya is preparing to open Lamu Port for business on June 15. The port's commissioning marks the completion of the first three berths at a cost of $367 million, but industry experts warn that the facility risks becoming a white elephant.

"Lamu port is at the risk of becoming a white elephant because I don’t know who is going to use it come June. Factors against its viability are many and unless Kenya negotiates with Ethiopia, the facility will not achieve its purpose," said Wycliffe Wanda, the executive officer of the Kenya International Freight and Warehousing Association.

To start with, the government is grappling with the tough choice of pushing business to Lamu Port, a decision that would mean decline in revenues for Mombasa Port. The ripple effects could include an inability to generate enough revenue to repay the Chinese loans that were used to construct Kenya's Standard Gauge Railway (SGR) project.

Mombasa port is the main source of business for SGR, because 40 percent of the port's cargo is required to be transported on the line to the hinterlands - mainly the Nairobi and Naivasha inland container depots.

Another challenge facing the Lamu Port is waning interest by Ethiopia and South Sudan, the two countries that were expected to be the main source of transshipment business for the facility. The port is a key part of the wider Lamu Port South Sudan-Ethiopia Transport (LAPSSET) Corridor, which is being implemented at a total cost of $24 billion.

Landlocked Ethiopia, which mainly uses the port of Djibouti, has shifted its interest from the Lamu Port to the Somaliland port of Berbera, where it is partnering with DP World to build a regional trade hub for the Horn of Africa. Ethiopia has since acquired a 19 percent stake in the Berbera Port project, and DP World is investing $442 million to expand and increase its capacity by 500,000 twenty-foot equivalent units (TEU) per year.

Ethiopia is also seeking a stake in Eritrea Port following the cessation of hostilities between the two neighbors.

Despite Lamu Port's design as a transshipment hub, transit cargo in Kenya remains minimal, with the port of Mombasa handling about 120,000 TEU in 2018 and 210,000 TEU in 2019 out of a total of 1.3 million TEUs. This means the facility may struggle to attract business.     

Threats of insecurity - particularly from the terrorist group al-Shabaab - and delays in completion of road networks are other factors that could see Lamu Port become an expensive but idle facility. Last week, the Kenya National Highway Authority awarded a $166 million contract to China Communications Construction Company (CCCC) to implement two key road projects that are central to making the port feasible. CCCC is also constructing the port.  

Additional challenges facing Kenya’s crude oil project - including construction of a pipeline to Lamu Port - mean that it might take years before the country can start utilizing the facility in exporting its crude resources to the international markets.

Conceived in 2012, Lamu Port was originally designed to be a massive $3 billion project that would be implemented over a 16 year period. As envisioned, it would have a total of 32 berths and a total capacity of 24 million tonnes of cargo per year.

Though shipping lines like Maersk and Express have indicated a desire to direct some cargo to the new facility, Lamu Port faces many challenges ahead and its future is still uncertain.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.