Somaliland sun- The Parliament of Somaliland must forensically review the Memorandum of Understanding of Berbera contract to ensure that it serves the interest of Somaliland economy.
The following points must be considered before signing any deal with DP World:
1. The parliament must demand to see a detail projected plan of how the port of Berbera is going to be transformed in the coming short to medium term period. This include the projected volume of container that will be handled in Berbera in the coming five years supported by empirical evidence approved by the management and CEO of DP World. The five-year period must cover the short and medium term projected traffic volume that will be passing throughthe port of Berbera.
2. The parliament of Somaliland must request to see the agreement between DP World and Ethiopia in relation to the percentage of cargo that will be diverted to Berbera as a result of this deal. For example, currently Djibouti handles almost 98% of Ethiopian cargo and earns close to $2 billion dollars annually. The question is will the DP World deal ensures that theport of Berbera competes with Djibouti and share the 98% of Ethiopia cargo market which Djibouti currently enjoys given its monopoly due to lack of competition in the region?
3. We are all aware that the port of Doraleh, a container terminal in Djibouti was constructed and currently in operation under the management of DP World to serve the Ethiopian market. The questionis given that DP World manages the neighbouring port doesn’t this raise a conflict of interest from the company point of view? In other words, the deal will compromise competition. DP World will be forced to choose between Berbera and Doraleh portsin the future and the chances are given that DP World has already invested substantially in Djibouti particularly in Doraleh port there is a risk that DP World may favour Djibouti Doraleh port over Berbera because of size and the existing transport networkin place.There is a risk that the port of Berbera may be used as a supporting hub rather than a competing hub and the small sum of $442 million investment indicates such a role. The parliament must ensure no conflict of interest exist and where there exist one it must ask DP World to choose one port operation. For example, where conflict of interest exist port of Berbera cannot engage in competition with Djibouti as it cannot pursue price wars nor tax reduction strategies to attract more customers in the region. This is because the DP World management may not welcome such aggressive strategy because this will lower their profit in Djibouti and therefore the leasing of Berbera port by DP World could be a strategy to stop competition affecting their business operation in Djibouti Doralehport.
4. Given that DP World under the signed Memorandum of Understanding agreement will award the company 65% ownership while Somaliland will obtain 35% respectively. Such ownership will give DP World more powers to block any strategy that will divert the traffic away from Djibouti ports back to Berbera. In other words, the conflict of interest will prevent competition from taking place because such competition will reduce revenue at Doraleh port and this will affect the financial position of DP World. There is also a political risk as the Government of Djibouti may force the management of DP World notto allow any price wars as this will make the port of Berbera a cheaper option for transit goods which means the Republic of Djibouti will lose tax revenue due to competition.
5. Another important point which has not been debated in depth is the valuation of the port of Berbera. This involves facts such as how much revenue the port currently generates and what is the optimum revenue can be generated once the port is operating at full capacity? How much cargo passes at the port annually and what are the potential traffic the port can attract annually when the port is expanded? The minister of foreign affairs of Somaliland was recently interviewed by Horn cable TV and suggested that customs and other export and import fee will continue to flow to the government of Somaliland coffers as normal and that Somaliland will earn additional income once DP World expand the port. The question is what evidence does the minister have to back up his statement?
It has recently been reported by Wall Street Journal that deal will grant DP World 90% of the port revenue and Somaliland will receive $5 million dollars and 10% of revenue annually. Does the foreign minister aware of such claims and is it included in the Memorandum of Understanding? The parliament must compare the current revenue generated by the port versus the revenue that will be generated by going into partnership with DP World? The parliament must question why Djibouti earns more revenue under DP world deal than Somaliland given that Somaliland is closely located to Ethiopia than Djibouti. Also Somaliland has longer coastline than Djibouti this make Somaliland even more attractive over Djibouti if DP World chooses to expand the port and expand its operations.
6. The parliament must request that DP World provide its assessment of Ethiopia economic outlook in which this investment is based on. The parliament must only consider IMF and World Bank assessment of Ethiopian economy as an accepted yard stick. This will help understand how much revenue is expected to be generated from the port deal. No doubt that the Ethiopia economy will grow even further once the electricity dam project is completed and China transfers more manufacturing jobs to Ethiopia due cheap labour. Such information will help the Somaliland government to make an informed decision.
7. The Berbera road corridor wanted to be funded by the European Union (EU). If this was the case why not allow the EU fund the road while DP World concentrate on expanding the port, in this way Somaliland can demand more tax revenue and ownership in any port deal. The question is why the EU commitment of the Berbera corridor never materialised and why DP World is now funding the road in return for increased shareholding on the deal? The parliament of Somaliland must obtain full information of the cost of the Berbera corridor and ask why the EU failed to sponsor such investment? What are the alternative of obtaining such investment in order to negotiate more ownership of both revenue and voting powers?
8. Will the deal allow truck companies from Somaliland to carry most of the cargo to and from Ethiopia? This will generate jobs for drivers and wealth to Somaliland businessman and women. Does Memorandum of understanding reflect this arrangement?
9. How many people will be directly employed from the expanded Berbera port? How many are working in the port currently? DP World must have this information because this is pretty basic thing to do when taking over any company. The parliament must obtain such information to assess the economic importance of the deal in terms of the job creation claims.
10. Also it will be interesting to know whether this newly partnership between DP World and Somaliland government once operational the financial performance will be audited annually. This will help assess the revenue generated and whether Somaliland is getting its fair share based on revenue generated.
11. Furthermore, the Somaliland parliament must ensure that the individuals involved in the signing of the port deal do not make up the new management team as this will create familiarity issues and may lead to corruption. The parliament must appoint a team of 5 to 7 people made up of all the three political party which will oversee the performance of the port. They will meet every three months to review the performance of the port under new management. The individuals must be qualified like lawyers, economist, accountants and commercially knowledgeable about port operations.
12. The parliament must obtain evidence that the government of Somaliland has obtain legal advice from legal experts who are knowledgeable about such deals. Also whether the World Bank has provided such advice. Somaliland parliament must obtain a proof of the existence of such technical advice. The independence of the legal firm and how big the law firm is and its past reputation must be obtained.
13. Finally, the DP World deal could have been rejected at the early stages of the bidding process due to conflict of interest that comes about through managing two competing ports in the same regionby the same company. The parliament must obtain evidence of other bidding proposal offered by other shipping companies to see whether they offer more and it is line with Somaliland development agenda. Otherwise a knew bidding process should be introduced so that all shipping companies in the world can bid and thiswill see the value of Berberaport go up as it represents access to markets such as Ethiopia, South Sudan and Uganda. The three countries have a population of about 150 million people and all are landlocked nations with no access to the sea. Somaliland can be the Singapore of Africa if it adopts an aggressive maritime vision because it has a longer coastline than Djibouti.
Thee are some of the issue which I have not seen being discussed openly nor in the Memorandum of Understanding. It is important that Somaliland get the facts right before signing any deal. The big issue is the conflict of interest surrounding DP World as it cannot make Berbera port competitive and bigger in size without affecting Doraleh port. The second biggest issue is the revenue allocation percentages. The fact that Somaliland get $5 million annually and 10% additional revenue makes this deal commercially useless. The revenue allocated to Somaliland is very small given that Djibouti makes $2 billion a year and has a smaller coastline than Somaliland.
I strongly advice the parliament of Somaliland to take more time and carry out a due diligence assessment independently with port experts to ascertain the true value of the deal. Somaliland has made mistake in the past by blindly going into the union with Somalia which cost lives and wealth and a continue struggle for recognition to date. TheDP World deal as itcurrently stands will have the sameimpact to Somaliland economically since it will not create the competition desired in the region and hence will not create value to the port of Berbera. The fact that DP World still controls Doraleh port in Djibouti supports the argument that the reason why it wants to lease the Berbera port is to stop competition affecting its operation in Djibouti if another company takes it. The fact that it will invest less in Somaliland in comparison to Djibouti and pay less revenue, $5 million and 10% of revenue respectively, supports the claim that the deal isto stop competition and to maintain monopoly in the region. Under such arrangement Somaliland loses out because it will be prevented from lowering prices and reducing custom charges in order to attract more customersas far as South Sudan and Uganda. Therefore, I urge the members of the Somaliland parliament and the three political parties to critically review all the informationpresented and interview the foreign minister who signed the deal and where possible delay the signing of the contract until a thorough assessment is completed otherwise the deal is a threat to Somaliland national security. The risk to national security comes about because the revenue generated by Somaliland government will be lower to fund government expenditure such as military, internal security personnel, and other key pubic infrastructure including roads, water projects etc.
By: Omar Guleid