VZCZCXRO2154
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHTO #0509/01 1210840
ZNR UUUUU ZZH
R 010840Z MAY 07
FM AMEMBASSY MAPUTO
TO RUEHC/SECSTATE WASHDC 7234
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHLMC/MILLENNIUM CHALLENGE CORP  0195
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 MAPUTO 000509 
 
SIPDIS 
 
SIPDIS 
SENSITVE 
 
AF/S FOR HTREGER 
JOHANNESBURG FOR TDA 
MCC FOR SGAULL 
USAID FOR AFR/SA 
STATE PASS USTR FOR PATRICK COLEMAN 
 
E.O. 12958: N/A 
TAGS: ETRD ECON MZ
SUBJECT: Mozambique - Cargo Scanning Fees Threaten Trade Through 
Maputo Port 
 
MAPUTO 00000509  001.2 OF 003 
 
 
Sensitive But Unclassified - Handle Accordingly 
 
¶1. (SBU) Summary: A new Mozambican company, Kudumba, which is 
partially owned by the ruling FRELIMO party, has a concession to 
operate scanners checking cargo at Mozambique's ports of entry.  It 
is charging high fees on all cargo, scanned or not, going through 
Maputo port.  The port and the business community deem Kudumba's 
fees to be highly exorbitant and a significant deterrent to trade. 
Kudumba plans to place scanners soon at Beira and other ocean ports, 
at land crossings and at airports.  Spurred by an outcry from the 
commercial sector, a government-business task force is reconsidering 
Kudumba's fee schedule.  We and other donors have expressed concern 
that the fees will discourage trade and investment.  End summary. 
 
--------------------------------------------- ---- 
Murky Tender Awards Contract to Connected Company 
--------------------------------------------- ---- 
 
¶2. (SBU) In October 2005, the GRM awarded a scanning concession to 
the newly created company Kudumba.  65 percent of the company is 
owned by its chairman, Chassan Ahmad, a Lebanese who immigrated to 
Mozambique a few years ago after being involved in the diamond 
industry in the Congo and quickly became wealthy here, owning two 
"Homecenter" furniture stores.  35 percent is owned by SCI, the 
holding company of the ruling FRELIMO party. 
 
¶3. (SBU) Other bidders accused Kudumba of improper bidding, and 
press reports suggested irregularities in the tender process.  The 
head of the US-Mozambique Chamber of Commerce told post Kudumba was 
defending the award by stating that it had a letter of support from 
the US Ambassador and that USG pressure (from agencies other than 
those normally involved in commercial issues) on the Mozambican 
government led to its selection.  (Note: Post is not aware of any 
USG support provided on behalf of Kudumba.  End note.)  Kudumba also 
claimed that U.S. legislation required the use of scanners on all 
goods shipped to the United States.  This claim is not accurate, 
although scanning is required at Container Security Initiative (CSI) 
ports like Durban, and shipments coming from CSI ports face less 
stringent inspection to enter U.S. ports. 
 
¶4. (SBU) Kudumba's bid had said that the company would use a U.S. 
company, Rapiscan Systems, as its supplier of scanning equipment, 
and a Rapiscan representative was closely involved in preparing 
Kudumba's bid.  Ahmad told the Ambassador that Kudumba planned to 
order over usd 12 million in equipment from Rapiscan.  Kudumba later 
hired the representative, Kevin Davies, as its managing director 
and purchased scanning equipment from the Chinese company NuTech.  A 
portable NuTech scanner was installed at Maputo's port in July 
¶2006. 
 
--------------------- 
The Fees (and Outcry) 
--------------------- 
 
¶6. (SBU) The tender gave the concessionaire the right to recover 
costs by charging fees to shippers.  Kudumba was apparently given 
free rein in this regard.  Kudumba's initial fee schedule would have 
earned it in excess of USD 11 million annually from Maputo port 
alone if shipments remained at their 2005 levels.  Kudumba's scanner 
investment at Maputo port was estimated to have been only around USD 
2 million, with maintenance costs for the portable scanner costing 
around USD 250,000 per year.  The business sector's reaction to the 
initial fee schedule was so vehement that Kudumba quickly released a 
second, lower, set that it said contained the correct, final 
figures.  This second set of fees (that would have earned Kudumba 
USD 7 million at the 2005 level of shipments) was considered by the 
private sector still to be exorbitantly high. 
 
¶7. (SBU) When scanning commenced at Maputo port in July 2006, 
approximately 80% of all cargo, including transit cargo, was being 
scanned.  However companies were charged scanning fees for 100% of 
all cargo, scanned or not.  Kudumba's fee schedule since July is as 
follows:  Import containers - USD 100 per twenty foot equivalent 
unit (TEU); Export containers - USD 70 per TEU; Empty containers - 
USD 20 per TEU; Transit containers - USD 45 per TEU; Vehicles (all) 
- USD 65 per unit; Bulk Cargo - from USD 0.25 to 1.90 per ton. 
These fees seem particularly high when one considers that container 
security fees at 20 ports listed in a 2006 United Nations report on 
maritime security reportedly range from USD 1.50 to USD 19 per TEU. 
 
--------------------------- 
Outside International Norms 
--------------------------- 
 
MAPUTO 00000509  002.2 OF 003 
 
 
 
¶8. (SBU) Comment:  Kudumba's fee and scanning practices deviate from 
standard international practice.  Typically, shipments are scanned 
based on risk assessments, and most countries inspect no more than 
twenty percent of shipments.  It is rare for bulk or transit cargo 
to be scanned.  Further, most ports do not levy scanning fees, even 
when scanning occurs.  Instead, scanning costs are assumed to be 
more than covered by the increased customs revenue that results from 
correct declaration of goods.  Significantly for Maputo port, its 
two main competitor ports, Durban and Port Elizabeth, scan based on 
risk assessment, do not scan bulk or break-bulk or transit cargo, 
and do not charge for scanning services.  Needless to say, all of 
this has created considerable concern within Mozambique's private 
sector that the fees will cause trade through Maputo port to 
stagnate or decline.  End Comment. 
 
--------------------------- 
Port Operator, Donors Upset 
--------------------------- 
 
¶9. (SBU) The port operator/concessionaire, Maputo Port Development 
Company (MPDC), which is a venture owned by British, South African, 
Portuguese, and Swedish companies, is particularly upset.  It says 
that scanning costs will drive away some customers to Durban or Port 
Elizabeth even though Maputo is closer than those ports to the 
Johannesburg area and Mmapumulanga province of South Africa. 
According to MPDC, significant investment at the port, including a 
planned car terminal that could result in 50,000 vehicles exported 
through Maputo each year, is on hold pending resolution of the 
scanning fee issue.  MPDC claims that the current Kudumba fee of USD 
65 per vehicle would make shipping cars out of Maputo economically 
unviable. 
 
¶10. (SBU) Concerted lobbying efforts by both Kudumba and the private 
sector ensued almost immediately after scanning commenced in July 
2006 and continue to date, with each side engaging in high-level 
meetings with government officials.  Many donors, particularly those 
whose companies own MPDC, back the private sector, and we understand 
that the British government raised the issue with President Guebuza 
during his visit to the UK last year.  The issue was discussed on 
the margins of our bilateral Trade and Investment Council meeting 
last October.  The Charge followed up with a November letter to 
Trade and Industry Minister Fernando that refuted claims that U.S. 
law required scanners and that expressed concern over the impact 
Kudumba's fees would have on trade and investment.  (We have not 
received any substantive response.)  The private sector effort has 
been led by MPDC, which has proposed to the government a compromise 
schedule of fees that would earn Kudumba roughly USD 2.4 million per 
annum, which is currently under review. 
 
---------------- 
The GRM Response 
---------------- 
 
¶11. (SBU) The GRM's initial response was that this was a dispute for 
the private sector to resolve - namely, MPDC and Kudumba.  With both 
sides still far apart in the fall of 2006, however, and as the press 
began to report on FRELIMO's ownership interest in Kudumba, the 
government realized it would have to act.  In late 2006 the 
government created a task force to analyze the situation, review 
MPDC's proposal and make a recommendation regarding fees.  The task 
force includes the head of the Ports and Rails parastatal CFM, the 
President of the USAID-funded umbrella private sector association 
CTA, and representatives from the Ministries of Planning, Transport, 
and Finance.  In an April 20 newspaper interview, Minister of 
Finance Chang maintained that the GRM was justified in awarding the 
concession to Kudumba, but added that the GRM was committed to 
finding a solution that ensured the port remained competitive. 
According to Chang (and others), a decision is expected shortly. 
 
------- 
Comment 
------- 
 
¶12. (SBU) This is essentially an issue about back-door decisions and 
high-level relationships, and the current practice benefits the 
ruling party at the expense of the private sector and the Mozambican 
economy.  When the GRM realized the magnitude and potential negative 
impact of the situation it began to move, but slowly and, sources 
say, with significant internal resistance.  We do not know to what 
extent the GRM's reluctance to address the issue is related to the 
party's financial stake in Kudumba or to what extent it may believe 
that the charges will not greatly affect the competitiveness of the 
 
MAPUTO 00000509  003.2 OF 003 
 
 
ports or of Mozambican importers and exporters.  How this matter is 
resolved will be a sign of the GRM's commitment to a sound business 
environment and sustainable economic growth. 
 
Dudley