IES688

September 2017

The Grand Afroport: General Instructions

Summary
The Grand Afroport (TGA) is an international consortium of construction and infrastructure
companies that wants to build a port on the east coast of Africa. The African Union established
a special body, the African Union Commission for Infrastructure Development (AUCID), to
decide on the precise location and other details of the port construction. After receiving several
bids, AUCID finally decided to award the project to TGA. However, construction of the port is
subject to receipt of a loan from the African Development Bank (AfDB). The AfDB will not
approve the loan unless some important concerns are resolved. As a result, at the behest
of AUCID, both the AfDB and TGA have agreed to a multiparty negotiation at which all the
stakeholders involved would be present.

The Project
TGA has proposed a deep-water port, which would be the first of its kind on the east coast of
Africa.1 It would be located in the delta of the Prettybanks river and on the shore of the Indian
Ocean in the Republic of Africania in east Africa. Like the European seaport Rotterdam, it
would accommodate a new generation of large cargo ships and supertankers, believed to be
especially cost-effective in transporting raw materials and finished goods. The port would
be likely not only to benefit the local economy but also bring tremendous economic benefits
to the entire African continent. The port would not only provide better infrastructure but also
offer new job opportunities. AUCID established a special committee to select the promoter, and
the selection was done in a very transparent manner. The project requires a total estimated
investment of about $25 billion, of which $10 billion is needed for the first phase of
construction. TGA proposed a sound equity base as well as a commitment from the World Bank
to finance up to 75% of the project. However, the World Bank would form part of the
consortium only if the African Development Bank agrees to provide a portion of this loan, at
least in the first phase, to TGA.

1 For the exercise, students may use a different country name and coast with the professor’s permission.

This exercise was prepared by Professor Kandarp Mehta. September 2017.

This is a cross-cultural contextualization of Harvard law school’s Harborco exercise.

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Last edited: 9/29/17

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NEGE-4-E The Grand Afroport: General Instructions

The proposed construction would take about eight years. However, economic activity would
begin and part of the port would start functioning within three years. TGA has proposed that,
once part of the port starts generating revenue, the financing of the second and third parts
should be supported in part by the revenues generated and so the debt burden would be reduced
considerably. AUCID has also envisioned that the port would eventually be extended and
converted into a special economic zone to serve the economic interests of the entire continent.

To construct the port, an artificial island would be created by reclaiming part of the sea. This
would partially alter the flow of the river and would probably affect some agricultural land in
the delta as well as the fisheries operating in the area. Many environmental agencies have
criticized the project in the recent past because of these potential environmental issues. As a
result, both the African Development Bank and the African Union agreed on a multiparty
meeting to decide whether the AfDB should provide the expected financial support or not.

Interested Parties
Global Environmental Protection Group
The Global Environmental Protection Group (GEPG) is a nongovernmental organization that
has been working to spread environmental consciousness and reduce the harmful impact of
new infrastructure construction across the world. The group has openly expressed concerns
about the ecological feasibility of the port and has argued strongly against its supposed
potential economic benefits. The group has openly asked the African Union to shelve any plans
for such a development because it might greatly affect the ecology, agricultural land and
marine life.

Ministry of Labor, Republic of Africania

Opponents in the Republic of Africania had been raising questions about the potential job
creation in the port. The main argument of the opposition has been that the port might not
create as many jobs as its supporters claim and that the majority of any jobs created might
actually go outside the country as the project is sponsored by the African Union and TGA is
an international consortium. As a result, the country’s Ministry of Labor has expressed its
desire to take part in any negotiation on the project.

Association of African Harbors

The local representative of the Association of African Harbors (AAH) has expressed a desire to
attend the meeting. A few days previously, the representative sent an open letter to the African
Union and asked it to reconsider the project. According to the letter, the construction of
Afroport by an international consortium might result in significant losses for African
companies in the sector in the long run. The representative also claimed in the letter that,
because TGA was an international consortium, it would not help increase African wealth as
most of the dividends would go outside Africa.

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 The Grand Afroport: General Instructions NEGE-4-E

African Union Commission for Infrastructure Development

It was the African Union Commission for Infrastructure Development (AUCID) that had
managed the entire bidding process. However, the commission made it a condition that the
process of accepting the bid should be transparent and democratic in nature. That is why,
despite having chosen TGA, AUCID responded to AfDB’s concern about different stakeholders
and agreed to attend the meeting.

African Development Bank

The African Development Bank (AfDB) is going to be at the meeting because it was the bank
that first proposed such a multiparty meeting to understand the concerns of the different
stakeholders. To finance the project, the AfDB has decided to create a consortium of different
banks from the region. The AfDB proposed this meeting because it is important, for the
feasibility of the project, to see whether different political and social stakeholders agree with
the deal.

The Grand Afroport

The Grand Afroport (TGA) has won the bid to construct the port, in theory. However, the
bidding process will not be considered as ratified unless TGA confirms the World Bank is
committed to the project. In turn, the World Bank’s commitment is conditional on the AfDB’s
commitment to the project. As a result, for TGA it was crucial to address the concerns raised
by the AfDB and to persuade other concerned stakeholders to give their approval. Funding
from the AfDB is essential as it is one of the conditions for funding from the World Bank.
However, AUCID has made clear that, if nothing is concluded at the meeting, the approval of
awarding the bid to TGA will be cancelled and a fresh round of bidding will take place in the
near future.

Issues to Be Discussed
A. Industry mix: Initially The Grand Afroport had asked to keep the port open for all types
of industries to set up their facilities. This would have included the oil and food
industries but different environmental groups raised issues regarding the ecological
dangers of such industries. Now TGA has finalized three different proposals for the
industry mix to be discussed at the meeting.

i. Open: An open industry mix means any industry can be included.

ii. Mixed: A mixed industry mix would mean an industry mix with a combination
of industries that are primarily classified as clean (high-tech production
industries) and somewhat “dirty” (e.g., food processing industries). However,
industries with a very high potential to produce toxic waste, such as oil
processing, would be excluded.

iii. Limited: A limited mix would mean only “clean” industries such as high-tech
production would be included and industries with the potential for economic
harm would be excluded completely.

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NEGE-4-E The Grand Afroport: General Instructions

B. Compensation to local communities: Different environmental groups have raised

concerns about the potential environmental impact of the construction process. They
have asked for significant compensation for the local fishing and farming communities
that will be affected directly by the construction process. While TGA in principle has
agreed to pay compensation, the amount is still in dispute. For the meeting, TGA has
come up with three options.

i. Compensation of $25 million: This is direct compensation to the region’s

fishermen and farmers and, according to TGA, this represents the best estimate
of the total ecological harm that the construction process might cause.

ii. Compensation of $50 million: This is to compensate local communities as well

as create facilities to reduce potential ecological harm in the future.

iii. Compensation of $75 million: This means compensation for local communities,
the creation of infrastructure and significant investment in raising awareness of
different aspects of the construction process and its impact on community life.

C. Employment preference: Another issue that attracted a lot of controversy in the

Republic of Africania was that TGA would create jobs primarily for foreigners and
would do little to improve the employment situation locally. Local unions and the
chamber of commerce raised the issue and even the opposition in parliament criticized
the government for not being proactive on this issue. TGA has denied outright that the
port will not help create jobs for local people. For the purpose of the meeting TGA has
outlined four different alternatives.

i. Open recruitment: An open recruitment scheme would mean that TGA would
employ individuals purely on the basis of merit, irrespective of their nationality.
ii. 2:1 National preference: This policy would mean that, for every foreign
national, there would be at least two local employees. In other words, no more
than one-third of the workforce would be foreign at any stage.
iii. 1:1 National preference: This policy would means that, for every foreign
national employed, there would be at least one local employee. In other words,
no more than 50% of the workforce would be foreign.
iv. Locals first: This policy would mean that only nationals of the Republic of
Africania would be recruited as a general rule and foreign nationals would be
recruited only in exceptional cases.

D. Loan from the AfDB: The African Development Bank should finance a significant part
of the project. This is one of the conditions laid down by the World Bank to finance the
project. However, the World Bank has not really laid down any limit on financing.
Initially the World Bank had said the AfDB should invest at least $3 billion in the project.
After the initial reservations expressed by the AfDB, TGA asked the World Bank to
reconsider. In its last communication to TGA, the World Bank outlined three scenarios.
i. A $3 billion loan.
ii. A $2 billion loan, with the rest funded by another international consortium.

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 The Grand Afroport: General Instructions NEGE-4-E

iii. A $1 billion loan, with the rest funded by another international consortium as
well as by the World Bank directly.
iv. No loan. No loan would also mean the negotiation has not resulted in an
agreement.

E. Economic compensation to other harbors: The Association of African Harbors has

claimed that the construction of the new port will result in a direct economic loss for
its member ports and so they should be compensated so that they can not only
withstand economic losses but can also invest in making their ports equally competitive
as the port to be built by TGA. In the previous few months the association has garnered
significant support from different governments in the region and its demands have
been increasing over time. TGA has proposed five compensation options to the
association.
i. TGA pays $800 million compensation to the existing African harbors.
ii. TGA pays $600 million compensation to the existing African harbors.
iii. TGA pays $400 million compensation to the existing African harbors.
iv. TGA pays $200 million compensation to the existing African harbors.
v. TGA pays no compensation to the existing African harbors.

The Negotiation
The following parties have agreed to send their representatives to the negotiation.

1. The Grand Afroport.

2. African Development Bank.
3. African Union Commission for Infrastructure Development.
4. Ministry of Labor of the Republic of Africania.
5. Global Environmental Protection Group.
6. Association of African Harbors.

The negotiation will take place at the Hotel Africania in a special meeting room reserved by
the African Union. An African Union representative previously sent a set of rules to all the
parties, which agreed to the rules in advance of the meeting.

Rules for the Negotiation

1. The negotiation will be concluded on the basis of a vote. To reach a deal at least five
parties should be in agreement.

2. The Grand Afroport, as the promoter, and the AfDB, as the financier, have the right to
veto any deal. In other words, no deal can be agreed that fails to include both the AfDB
and TGA.

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NEGE-4-E The Grand Afroport: General Instructions

3. There will be three voting rounds over the period of the negotiation. The first vote
should be taken within 15 minutes of the negotiation starting.

4. On the day of the negotiation, all the parties will be informed of the total time available
for the negotiation.

5. If an agreement is reached before all the voting rounds take place, then the parties may
forgo any further rounds of voting.

6. Any party can make a counterproposal during the negotiation.

7. To facilitate a quicker negotiation, The Grand Afroport has made an initial offer to all
the parties. Every party has received this initial offer, as outlined below.

Number Option Description

1 A1 Open industry mix
2 B1 $25 Mn compensation to communities
3 C4 Open Recruitment
4 D1 $3Bn Loan from AfDB to TGA
5 E5 No compensation to AAH

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