Ethiopia: Investment for Berbera Port Expansion Dropped By 23pc

Port of Berbera

The parties made an assessment which reduced the amount close to 200 million dollars

DP World and Somaliland Port Authority have reduced the investment for the expansion of Berbera Port by 23pc. The price adjustment came into the scene after the update of the feasibility study of the project, in which Ethiopia holds a considerable stake.

The initial pricing was made by a European consulting firm and is estimated to be 260 million dollars. Hence, the two parties made the re-assessment that reduced the amount to close to 200 million dollars.

"The re-assessment was amended as the initial one was made a couple of years ago," Abdi Abdillah Hassen, deputy manager of Somaliland Ports Authority told Fortune.

On the port, Ethiopia recently acquired a 19pc stake while the UAE based DP World and Somaliland hold a 51pc and 30pc stake, respectively. In the partnership, Ethiopia is committed to constructing the 780Km road between the port and Ethiopia's border town of Togochale, according to a statement by DP World.

The existing road was built in 1972, with a financial aid from the European Union (EU), but is currently in poor condition.

The expansion project is planned to lie on 800sqm area in two phases. The first phase, which will be executed with a 200 million dollars investment, will sit on 400sqm and can accommodate two vessels at any given time. The expansion includes the construction of additional berths.

The parties have set aside 442 million dollars for the entire expansion and the development of other facilities. However, the first phase will get a priority and is expected to be finalized by 2020. A company which will undertake the development is expected to be selected by June 2018, and the construction is set to be commenced by September 2018, according to Ali Ismail Mahamoud, operations manager of the port from DP World.

"The second phase will follow depending on the need and the efficiency of the first phase," said Mahamoud.

The first phase of the expansion is expected to enable the port facility to hold 150,000 containers. Upon the completion of the two phases, the capacity of the port will be upscaled to serve seven to nine vessels, on average, at any given time. SRG, an Australian based company in Victoria and established in 1961, will be the consultant to the expansion project.

"Ethiopia is expected to commence the construction of the road from the port to Togochale before the end of this year," Saad Ali Shire (PhD), minister of Foreign Affairs & International Cooperation of Somaliland told Fortune.

Though Ethiopia holds shares in the port development, details of the proceedings are not outlined yet, according to a source close to the project.

"The construction needs to start once the three parties form a JV company with a legal framework," said this source. "So far the detailed agreement among the parties has not concluded and the company has not formed."

The existing old port facility has a 650-meter-long linear wharf. Berbera's facility encompasses more than 600-meters with terminals for containers, general cargo, office building and other properties. Somaliland Port Authority handles the customs and marine services while DP World administers the operations of the port.

In September 2016 DP World won a 30-year concession, with an automatic 10-year extension for the management and development of the port. The terminal is currently operating with 800 employees. The vessels it serves are coming from Dubai, China, Oman, India and Yemen. It also receives consignments of grains for humanitarian aid and assistance of the World Food Program (WFP) and the United States Agency for International Development (USAID).

Berbera port currently serves 250 customers a day with an average container stay period of 6.5 days. DP World works with five container shipping companies, namely Maersk Line, MSC, Pacific International Lines (PIL), CMA CGM S.A and Perma Shipping Line. Among the five companies, CMA CGM takes the largest share.

Having an alternative corridor will give a great opportunity to Ethiopia, which had only 1.3 million metric tonnes of cargo in the 1990's. Out of this, 90pc of it was ferried through ports in Eritrea, while the remaining was shipped through Djibouti. After the Ethio-Eritrea war, Ethiopia switched its route to Djibouti.

Since then about 97pc of Ethiopia's import-export cargo is delivered through Djibouti ports while two percent and one percent are shipped through Port Sudan and Berbera, respectively. Ethiopia planned its import-export loads to be 60pc through Djibouti, 30pc through Berbera and 10pc through Port Sudan, which Ethiopia has been using since 2015.

Before the start of the first edition of the Growth & Transformation Plan (GTP I), which was set in 2010 for five years, Ethiopia's import cargo was around 8.5 million metric tonnes and export was 600,000 metric tonnes a year. But currently, the imported freight hits 13.5 million metric tonnes while the export reaches more than 1.8 million metric tonnes a year.

In having a stake at Berbera, the national security interest of the country has more weight than the commercial interest, according to Mamo Mihretu, an expert on logistics and currently working as a program leader for the Ethiopia Trade Logistic Project at World Bank. He believes that it will create competitiveness for Ethiopia's export.

"On top of that, it could have been a solution for the inefficiency at the port of Djibouti," he said. "It will also give Ethiopia the power of negotiation on prices as it will sit at the table."

The project also excites the local business community. Gizeshwork Tessema, managing director, Gize Plc Logistics & Shipping, is one of them as she believes that it will bring a great opportunity for transport companies whose businesses were stalled after the commencement of the Ethio-Djibouti Railway transportation service.

"Beyond having alternative corridor and price competitiveness, it will help to retrieve the businesses of transport companies," she told Fortune.

However, she fears that the major shareholder at the port, DP World, might manipulate the prices like it has been doing at the Port of Djibouti.

Along with developing the port, Mamo suggests the government should work on a couple of things; integrate port development with inland corridors, form an agency that will oversee port ownership and operations, and develop port ownership strategy.

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