How to Utilize Eritrean Ports

Prime Minister Abiy Ahmed (PhD) signed a Joint Declaration of Peace and Friendship agreement with Eritrea in Asmara, on July 9, 2018. The Declaration explicitly allows resuming transportation, trade and communications between the two countries. This opens the door for both countries to utilize the Assab and Massawa ports for their mutual benefit. Currently, Ethiopia uses the Djibouti Port to transport 95Pct of its import and export commodities. Due to the increase of import-export trade, which costs Ethiopia close to one billion dollars every year in port service fees, utilizing alternative ports in the region is almost inevitable. However, this does not mean that the Port of Djibouti will cease to be the main entry and exit point for Ethiopia’s exports and imports.

Under international maritime laws signed and ratified by Ethiopia, any landlocked nation has the right of access to and from the sea for the purpose of exercising the rights provided to landlocked states in the United Nations Convention on the Law of the Sea, ratified in 1982. These rights include freedom of navigation; freedom of over flight; freedom to lay submarine cables and pipelines; and freedom to construct artificial islands and other installations.
To this end, land-locked Ethiopia has the right to use ports located within the territories of transit states in the region [example: Djibouti, Eritrea, Sudan, Somaliland and Kenya] by all means of transport. However, the terms and modalities for exercising freedom of transit should be agreed between the land-locked and transit states through bilateral, sub regional or regional agreements. But, transit states have the right to take all measures necessary to exercise their full sovereignty over their territory and ensure the rights and facilities provided for land-locked states in no way infringe their legitimate interests. Although this international maritime convention governs the relationship between landlocked and transit countries, due to the fact that Eritrea is not a signatory nation, practical and detailed agreements are needed between Ethiopia and Eritrea.

Although the use of Eritrean ports has been long awaited by many Ethiopians, port utilizations are not something a government should dive into without proper economic feasibility studies. Luckily, the Eritrean government policy in maritime sector reflects its strong interest in adopting more commercial management practices, by contracting new port structures which can be implemented through concessions to private companies. In addition, Eritrea has a plan to enhance the competitiveness of Eritrean ports in handling regional transit traffic through improved customs and cargo clearance procedures, improved transit agreements, and increased capacity of multi-modal transport systems.
Beside the offers that have been surfaced by Eritrean Authorities for the use of Port Massawa, this policy potentially smoothen up things for Ethiopia to prelude with the negotiations of both transit and port utilization agreements.
Moreover, the government of Ethiopia through its Maritime Affairs Authority has to visit both port cities and observe the infrastructures and facilities of the port before starting negotiations, on top of studying investment, financial, tariff and labor policies in line with their legal structure.

As a landlocked nation, obstacles of trade transiting through other territories are very common. So, Ethiopia should evaluate the adequacy of transport service and infrastructure, and the efficiency of institutional and operational transit frameworks in Eritrea. Efficiency of maritime business depends on the distance to the sea and travel times; as well as regulatory arrangements for transit and the cost of transit.

Status of Eritrean Ports
Eritrea has only two main ports: Massawa and Assab. In the past, Massawa was one of the leading ports in the country. But currently, its transport networks and infrastructures have been destroyed, both through neglect and as a result of the 1990 war. At present, the port has six general-purpose berths with an overall length of 907 meters and four specialist berths that comprise two for oil, one for cement and one for salt.
The port of Assab was constructed in 1964. Ethiopia made investments in the development of Assab. As a result, the port generally served as the main entryway for most Ethiopian inland cargo in the past. The port has seven general-purpose berths with an overall length of 1,025 meters, and four specialized berths, three oil terminals and one salt loading terminal.

Both the ports of Assab and Massawa lack adequate operating facilities to provide efficient services to Ethiopian transit cargo. The operational equipment used is obsolete. Furthermore, the ports have no specialized container terminals, even though containerization of cargo transport is indubitably important in the shipping industry. The number of berths is few, and the draft is usable only by small and medium ships. So, there is a need for expansion of specialized berths that can accommodate big ships.

Ways of Utilizing the Ports
It is unquestionable that Ethiopia needs additional ports for its escalating transit cargos and Eritrea as well have policy to contract new port structures which can be implemented through concessions to private companies. These two interests can be combined and nurtured for economic development of both nations.

Furthermore, Ethiopia can benefit from investments in port assets which can have strong direct and indirect multiplier effects on the entire national economy. However, the challenge that can face both Eritrea and Ethiopia from investing on port development could be the lack of critical resources needed to invest and build a port. Both initial construction and port expansion require large amounts of capital. As a result, this may lead to the invitation of investors from the commonly known friends of the region (Gulf States). That’s why; many countries with ports encourage the co-development of various value-added services through franchising, licensing, and incentive leasing.
Developing Eritrean ports in cooperation can take various forms. One is to make them a landlord port by which the port authority remains an actor of regulatory body and as a landlord, while port operations (especially cargo handling) are carried out by private companies (in our case this could be Ethiopian Shipping and Logistics Service Enterprise). In this case, infrastructure is leased to private operating companies or to industries such as refineries, tank terminals, and chemical plants. Companies also purchase and install their own equipment on the terminal grounds as required by their customers. In landlord ports, dock labor is employed by private terminal operators, although in some ports part of the labor may be provided through a port wide labor pool system.

The other way is by privatizing the ports fully. In this case the state no longer has any meaningful involvement or public policy interest. Port land is privately owned and this requires the transfer of ownership of such land from the public to the private sector.With the sale of port land to private interests, some governments may simultaneously transfer the regulatory functions to private successor companies. Then privatized ports are essentially self-regulating.

Some may argue the risk of sale of land to private ports may affect national security issue. But advanced countries like the United Kingdom decided to move to full privatization for three main reasons: to modernize institutions and installations, to make them more responsive to the needs of the users, to achieve financial stability and financial targets, with an increasing proportion of the financing coming from private sources and achieve labor stability and a degree of rationalization, followed by a greater degree of labor participation in the new port enterprises.

6th Year • Sep.16 – Oct. 15 2018 • No. 66

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