Andria Mancini
Desk Officer for Yemen
European Commission (EU)

Date: 07 September 2005

Subject: The Port of Aden and the Fight Against Corruption

Dear Ms Andria,

I am writing to you as the Chairman of the Yemen Human Rights Watch and as a Yemeni national who feels devastated by the corruption within our government that affects the nations' social welfare. I am also writing to you on this important issue of the future of the Port of Aden because the EU has been involved directly in this matter and EU funds have been spent on projects in Aden.

The involvement of the EU was through technical support projects to the Aden Free Zone Authority who, up until 2003, supervised the Aden Container Terminal (ACT) operations together with the normal free zone activity. The ACT is now under the supervision of the Minister of Transport. Your appointed advisor would presumably have explained the factors that lead to the failure of the free zone to initiate business and I would guess that the most important of these factors would be identified as "corruption".

I also quote from your web-site, page (7), which states that - quote:" Yemen’s medium to long-term challenge is … . and an ever growing need to address the problem of corruption. The fight against Corruption ranks high in the official government policy, there is however some doubt within the donor community and the World Bank whether the fight against corruption in Yemen finds the necessary political support in order to be successful." Unquote. You have specified "corruption" and indicated that no genuine political effort is given to fight this conduct. This then is where we both stand and I hope that by taking action, we can do something for Yemen.

The issue of the Port of Aden should indeed be addressed at a higher level than simply corrupt government officials, whoever they are, because this port has been, and can be in future, the gateway to this very needy nation to allow it to prosper. The Aden Governorate in South Yemen, as it then was, was a high prosperous and successful port, city and province in the 50s and 60s and even before that, with the wealth generated by the port spreading far out into the rest of the country.

We seek therefore your assistance as a group of nations acting together to use your considerable influence to check an action being taken by a corrupt government, which will help directly to alleviate the increasing poverty that the bulk of the population is forced to live with.

We are attaching a detailed report with supporting documentation (see attachments) to demonstrate that the government is again in the process of cheating by giving its most important national renewable resource to a company/organization that was simply categorized from the beginning of the process as being inappropriate because of the clear "conflict of interest" that exists when a key national asset is being handed over to a direct competitor.

Your supportive action in studying this matter, and taking action, will certainly be blessed by the "nation" of Yemen.

Yours faithfully,

Lutfi Shatara

Chairman of Yemeni Human Rights Watch in (UK)
www.yhrw.net
هذا البريد الالكتروني محمى من المتطفلين , يجب عليك تفعيل الجافا سكر يبت لرؤيته

Background Information:

Name of Project:            Concession Agreement for the Management, Operation and Development of Aden Container Terminal (ACT) and Ma'alla Container Terminal (MCT).

Government party:            Minister of Transport (MoT)[1].

Private sector:            Dubai Ports International (DPI) and a local partner.

Other parties involved:            The Port Cities Development Program (PCDP), Aden Free Zone Authority (AFZ), Ministry of Finance (MoF), Ministry of Legal Affairs (MLA).

Name of consultant:            Rotterdam Maritime Group (RMG), The Netherlands

Background:            The Port of Aden – a very well known port in one of the finest natural harbours in the world that extends over 70 square kilometers – is located at an important cross-road where international shipping lanes from Europe to the Far East connect with lines operating to Australia and East Africa.   It lies on one of the busiest shipping lanes in the world.   Its former glory and world significant was a direct result of its excellent harbour and strategic location, together with the nations' willingness to utilise such a gift properly. It became the 2nd busiest bunker port in the world by the 1960's, supplying well over 5,000 ships a year with fuel oil and handing regional cargo. Aden was the primary regional centre that provided goods and services for countries in the Red Sea, Gulf of Aden and The Gulf.
                                This position was lost after 1967, when the Suez Canal closed for 8 years, shutting down the route on which Aden lies.   This, combined with years of failure under socialism in south Yemen, largely killed the business of the port.
                                But the port started to see some optimism after unity between North and South Yemen, specifically when in 1999 the Aden Container Terminal (ACT) was opened for business. ACT was run and managed by the Port of Singapore Authority (PSA) – the world's 2nd biggest terminal operator. However, after the Limburg incident off the coast of Mukalla (290 nautical miles from Aden), mainline container ships stopped calling at Aden because of hugely increased war risk premiums that they had to pay. This also resulted, late in 2003, in ending the concession agreement with PSA, with the terminal being handed over to the government (AFZ)[2] and being operated for the time being by a small company called Overseas Port Management that was set up, largely by retired or ex-PSA employees, for the purpose of operating the ACT.
                                The Government needed to get a large operator in to run the Terminal and to provide investment, and decided to invite international terminal operating companies to run the terminal and develop it as had been intended (but not executed) under the Yeminvest Agreement. They again requested the assistance of the World Bank who participated by preparing the terms of reference for a consulting company to develop the necessary procedures to ensure a proper and "transparent" selection process to identify a successful bidder.
                                RMG was appointed as the government consultant, prepared a market study and produced reports in this regard in close cooperation with the Ministry of Transport and the World Bank arm in Yemen which is, for this purpose, was the PCDP.
                                A Request for Expressions of Interest (EOI) was then published and promulgated to interested parties. Nine companies submitted letters of interests as below:
1.       Dubai Ports International (DPI)
2.       Johor Port Berhard (JOHOR)
3.       Kuwait & Gulf Link Transport (KGL)
4.       Gulftainer Company Limited (GULFTAINER)
5.       Gulf Stevedoring Contracting Co. Ltd., (GULFSTEVEDORING)
6.       International Container Terminal Services Inc. (ICTSI)
7.       Hutchison Port Holdings (HPH)
8.       International Port Management Beirut SAL (IPMB)
9.       Overseas Port Management (OPM) {the current terminal operator}
                                In January 2005, all companies were invited for a 'Data Room' presentation. However, in early March 2005, which was the time for the bidders to submit their offers, only three companies decided to participate in the bidding process. These were DPI, KGL and ICTSI. The bids were opened and the Kuwait-based KGL won the contract (see attachment No. "_1_"). The government then decided that they wanted to introduce a second round and they claimed that the bidders did not offer what Aden deserved, plus they wanted to tie the bidder into other economic activities in Aden (free zone, ship repair and air-cargo hub) although these had had no weightings in the offers received by the Government in March. The Government also claimed that this step was supported by the World Bank.
                                Later in May 2005, the government opened the 2nd round bids which, so the government claimed, was in favour of DPI as shown in attachment No. (_1_).

The Problem:            We believe that the government has been less than transparent in this process for the following reasons:
1-       They intentionally introduced 2nd round after DPI failed to come as the favoured bidder in the 1st round. The Government had in fact already attempted to sign a concession contract with DPI even before the process was started, this occurred in August 2004. But the national media became aware of and raised the issue and the government decided to stop taking this action. It is also highly likely that they realized that such a clearly non-transparent action would damage their future support from the World Bank.
2-       The government realised that DPI would probably not win the contract because of the strong offer provided by KGL, so they had to introduce new items that would favour DPI against KGL.   This was done by requesting bidders to tie their proposals with the development of other economic activities in Aden. Yet these other factors were not given any weighting on the bid analysis – but affected the perception of the ‘quality’ of the bidder.
3-       The bid analysis of the 2nd round that the government has not shown to the public is shown in attachment no. (_1_). This shows clearly that KGL was better than DPI, but in order to justify its position, the government claimed that DPI was better using the analysis that was published in the Yemen Observer newspaper (see attachment no. "_1_"). Our assumption is that the government based its weighting to the guaranteed TEU fees that will be collected during the concession period. While KGL's policy to share revenue was not given any weight. This issue, although will have no standing as per the point below, needs to be analysed by an economist and strategist. As Yemenis we believe in the future success of Aden and so we believe that Aden port will indeed regain its glory.   It is therefore better to share the revenue as is the practice in many port concessions.
4-       The government had not put any restrictions on bidders and/or conditions to deal with the question of 'conflict of interest'.   It seems very strange that the consultant who, in all his writings and reports, in his powerpoint presentation at the 'Data Room', clearly indicated that Dubai is a competitor to Aden. If a search of the web for "Aden Dubai competition" is made, this generates thousands of pages that talks about they threat of that Aden is to Dubai and vice versa. So why has the government allowed DPI to participate from day one when they expressed interest in submitting a bid? Our claim for corruption stands from this "main" argument.


The Expectation from EU:            "Corruption" is a problem that has infested Yemen for many years.   International institutions, Banks and donors such as the EU should be clearly seen to be standing against this conduct/behaviour especially when, as is the case here, the government is behind the action being taken. Our expectation from the EU is to set-up actions that will prevent the government from concluding this agreement with DPI because of the 'conflict of interest' by doing the following;
1-       as a Human Rights organisation, we request the EU to use its utmost power to stop the negotiations between the government and DPI because we think that government members including MoT, who was the Projects Manager in Mukalla for the Yemen/Saudi businessman Mr. Mohamed Al-Amoudi (yet he is) and then became a MoT is a partner with DPI's local partner Mr. Abdulla Buqshan. Should this negotiations be suspended, it is then possible to carry out international investigation regarding this deal which is in direct conflict to the interests of Aden as a competitor to Dubai and analyse the effects of DPI's monopolistic power in the region (they are running Djibouti, part of Jeddah and are looking at other ports in the Red Sea),
2-       investigate this inquiry in cooperation with the World Bank, which is being duly informed of all the steps that are being taken,
3-       support such investigation by taking a specialist advice from the transport (port) sector and an anti-trust committee,
4-       request from RMG (the government advisors) full details of the issue and their view in what happens. Moreover, request from them all the reports that they have produced for this project as we consider that they were not done in a fully professional and unbiased manner.
5-       emphasis on that the government did not do its obligations towards promoting Aden as a port and free zone internationally. This should indicate that the corrupt government officials responsible was only looking at their pockets before the interests of the nation,
6-       you should pinpoint why the government insisted on local not (say) Arabic participation with a government company (DPI owned by Dubai government) for operating the container terminal
7-       warn the government that they should follow the rules of transparency as stipulated by 'Transparency International', not as they look at it.
8.    Take any other action that the EU feels is relevant to the proper investigation and resolution to this case such as, for example, making it very clear to the Government that the whole process should be re-started and that in the new process steps to avoid any conflict of interest should be clearly built in.

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[1] Why Minister of Transport and not Ministry of Transport. The reason is that when the government decided to move the terminal from the hands of the free zone authority to the port authority, they intentionally made it to the name of the Minister to prepare the grounds for the suspected deal with DPI. This by it self considered an improper decision and unaccepted professionally.
[2] It should be noted that the agreement with Yeminvest and, later, PSA was already flawed because the Government had signed an agreement with Yeminvest in 1995/6 to construct the Terminal, but the Agreement put all commercial risk onto the Government and guaranteed a 15% return to the investors. The World Bank withdrew its support for the project after the Government elected to sign with Yeminvest, even though a second company was offering a much superior business plan and would carry the commercial risk itself. This again was due to corruption in the Government