Kenya’s Somali incursion cuts piracy costs in Indian Ocean

William Oeri | NATION
Kenyan troops heading to Amuma border entry point to flush out al Shabaab militants. Kenya’s operation against Al Shabaab in Somalia has helped reduce ransom demands on captured ships as pirates seek to close deals before a battle between the militants and Kenyan forces at Kismayo.

Kenya’s operation against Al Shabaab in Somalia has helped reduce ransom demands on captured ships as pirates seek to close deals before a battle between the militants and Kenyan forces at Kismayo. (RELATED: Traders count losses over fears of Al-Shabaab attack)

Shipping experts said that the amount of ransom demanded by pirates for vessels had dropped by about 50 per cent and could fall further in coming days once “Operation Linda Nchi” (Defend the Country) is completed.

“Initially, the pirates holding captive the Algerian flagged MV BLIDA were demanding $6 million to release the vessel and her multi-national crew. But a package of $3.5 million was delivered on the vessel and they freed it,” said Andrew Mwangura, the Seafarers’ Assistant Programmes (SAP) coordinator.

It is believed that the militants offer protection to pirates in exchange for cash, arms and logistics in a pirate value chain estimated to be worth between $4.9 billion and $8.3 billion.

MV BLIDA with its 27 crew was hijacked on January 1 on her way to Dar-es-Salaam, Tanzania from Salalah in Oman.

The turn of events comes as a relief to shippers who are shouldering the commercial burden of piracy along the gulf of Eden.

Maritime sources privy to ransom negotiations in Mombasa said the military campaign had tilted negotiations in favour of vessel owners as pirates rush to close deals.

London and Mombasa are cited in various reports as among the towns where where negotiations for ransom are conducted.

“Pirates are keener than before to make sure that negotiations for the release of at least nine vessels held in Somali are completed,” said a manager at one of a Mombasa-based shipping agents, who wished to remain anonymous. “It is clear the trend is due to the military operation in Somalia.”

The fall of Gen Said Barre’s administration in 1992 plunged Somalia into civil strife, disintegrating its navy and coastguard services, marking the onset of piracy along its coast.

The surge in piracy led to an increase in the price of ransoms in recent years with $9.5 million for the release of Samho Dream, a South Korean oil tanker, in November last year the highest amount paid to date.

“In 2005, ransoms averaged around $150,000. By 2009, the average ransom was around $3.4 million. In 2010, ransoms averaged $5.4 million. Higher ransom demands lengthen negotiations and the duration seafarers are held hostage,” said Fredrick Wahutu, a maritime expert in Mombasa.

The Kenyan economy has borne the brunt of piracy with the Kenyan Shippers Council estimates showing that the crime increases the cost of imports by $23.8 million and exports by $9.8 million per month. These costs are then passed on to consumers.

Gilbert Langat, the Chief Executive of the shippers council, said piracy could have pushed up the price of imported goods by up to 10 per cent, fuelling inflation in the country.

The cost of insurance in the shipping sector have also been on the rise as shippers take extra covers for war risk, kidnap and ransom in addition to conventional underwriting of cargo and hull.

“The Gulf of Aden was classified as a ‘war risk area’ by Lloyds Market Association (LMA) Joint War Committee in May 2008, and is therefore subject to these specific insurance premiums,” Capt Wahutu said in an earlier interview.

The country has also lost out in cruise ship business because of the illegal activities with the number of expeditions arriving at Mombasa dropping from 40 in 2007, to 16 in 2008 and two last year.

A cruise ship earns Kenya between $200,000 and $350,000 per arrival depending on the duration its patrons stay at the Coast.

Industry sources estimate Kenya may have lost $6 million through reduced cruise ship activity over the four years.

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