International cruise ship operators have threatened to pull out of the port of Mombasa, citing high operational costs brought about by newly introduced Value Added Tax on all marine and port services.
The lines argue that the move by the Kenya government is unjustified, at a time when business stakeholders in the region’s cruise ship industry are grappling with the effects of global economic crunch.
The global cruise operators also say they are struggling to navigate the rising piracy in regional waters, not to mention the high cost of sailing brought about by unstable fuel prices and consumer apathy.
The add that the levies by the Kenya government are untimely and create an unfavourable environment for business.
Over and above is, cruise ship lines’ claim that they shy away from the East African ports of Mombasa, Dar es Salaam and Zanzibar due to their poor infrastructure.
Tourism Minister Najib Balala told The EastAfrican that he had raised the matter with his Finance counterpart, Uhuru Kenyatta, with a view to exempting cruise ships operators from paying VAT.
“The taxes are meant for port users. This is premised purely on the need for the Ministry of Finance to fund the budget. Whereas I sympathise with the ministry in its pursuit of these funds, cruise ships do not have a terminal exclusively meant for them, so we are deliberating on the issue,” Mr Balala explained.
“Here is a situation where one is caught between a rock and a hard place,” he added.
The port of Durban has announced that it has so far scheduled 53 port calls, including the multiple ones of Mediterranean Shipping Company’s cruise vessel MSC Sinfonia.
The vessel will be based in Durban between November and April 2010.
Others include the giant 150,000-gt Queen Mary 2, calling at Cape Town and Durban, the P&O cruise ship Aurora, Crystal Cruises’ Crystal Serenity, Fred Olsen’s Balmoral and Seven Seas Voyager and Holland America’s Amsterdam.
Later in the year, their two Vista class cruise ships Noordam and Westerdam will remain in South African waters for the duration of the 2010 Soccer World Cup.
All these ships were meant to dock at the port of Mombasa.
In letters sent to the Kenya Ports Authority management, the shipping lines said their decision to give Mombasa a wider berth is due to the fact that the VAT would augment the cost of calling at the port.
If the liners make good their threat, the move will have knock-on effects on Dar and Zanzibar as the three ports complement one another.
Mombasa enjoys a huge market share of the business due to its proximity to wildlife sanctuaries, excellent sandy beaches and hotels. Dar es Salaam is second and then is Zanzibar.
In the letters, sent on diverse dates last month by the world’s leading cruise ship operators — Mediterranean Shipping Company (MSC) and Costa Romantica — it was stated that the issue would be discussed by the European Cruise Council board meeting to be held sometime this month.
“The new requirements will push the cost of calling at the port of Mombasa up by 16 per cent. For instance, pilotage fees, which per operation are subjected to a minimum charge of $150, would rise to $174. Pilotage is but one of the services offered by KPA,” a letter from MSC dated September 17 this year reads.
It further says: “Note that, given the gravity of the problem for international cruise liners, the issue will be discussed at the European Cruise Council board meeting next month.
“MSC ships sail worldwide all year round, calling at important ports on the globe. Please believe me when I say that this is the first time we have had to deal with such a charge.”
A letter from Costa dated September 8 states: “We are now reviewing alternative port calls to avoid these cost increase and will advise you of any schedule changes we make. We will also be reporting this issue to our parent company, Carnival Corporation Plc, which runs the largest number of cruise ships in the world, including Holland America, Princes Cruise, Cunard /P&O Cruise, Seabourn, AID and Iberocruceros.
“Take this up with the relevant authority and warn them that they are in danger of losing major cruise business in Mombasa if they choose to impose such high fees.”
The marine services expected to be subjected to the punitive VAT provisions include pilotage fees, tug services, mooring services, port and harbour dues, supply of fresh water, dock, buoyage and anchorage, among a long list.
In response to the threats, Kenya Ports Authority chief operations manager Joseph Atonga said they had taken up the matter with relevant authorities and he expected a solution soon.
In his letter dated September 25, Mr Atonga, however, ruled that the status quo would be maintained until the matter was resolved through the relevant ministry.
“Let me highlight how relevant it is for Kenya to rethink its decision, going by the huge direct and indirect economic impact of every ship that calls at Mombasa. The effects of the decision would be detrimental to the sector,” said the MSC letter sent to KPA managing director James Mulewa.
According to statistics from Cruise Lines International Association, a passenger ship carrying 2,000 people and a 950 crew generates an average $322,705 in spending per call in a home port.
A similar ship making port of call visits generates $275,000 in onshore spending.
The association estimates that 14 million people will go cruising during the current year.
Cruise season begins in the month of November and lasts till March, the following year, during the European winter season.
In the region, according to Abercrombie and Kent Kenya director Auni Kanji, a cruise tourist spends approximately $200 a day.
Research shows that between 50 and 70 per cent of passengers say they would like to return for land-based holidays after visiting a new country for the first time.
The business has been in the doldrums recently, with the country recording eight calls last year as opposed to 20 in 2005/2006.
The port of Mombasa expects to receive eight or 10 vessels this season, starting November.
Costa shipping lines have, however, announced that they will give Mombasa a wide berth if the VAT is not removed.
“Currently, we have a total of eight calls scheduled for 2009/2010 season, starting early December, for the third year. We are now reviewing alternative ports of call to avoid these cost increases. We will advise you of any schedule changes,” said Costa Crociere SPA in another letter dated December 8, 2008, to KPA.
East Africa ports, especially Mombasa, are expected to benefit from South Africa’s expected cruise shipping boom around the World Cup.
Meanwhile, Kenya has protested at the United Kingdom’s move to impose a £95 ($153) on tourists from London to developing countries.
This will impact negatively on the tourism industry, Mr Balala told an international forum.
Speaking at the 18th session of the UNWTO General Assembly held in Astana, Kazakhstan, Mr Balala said the move will block many tourists from visiting Kenya and other developing countries.