Kenya’s Chinese-built railway rolls into operation, tolls the bell on limping RVR

Saturday June 3 2017

A Rift Valley Railways cargo train passes the standard gauge railway terminus in Mtito Andei. PHOTO | JEFF ANGOTE

A Rift Valley Railways cargo train passes the standard gauge railway terminus in Mtito Andei, Kenya. PHOTO | JEFF ANGOTE 

By NJIRAINI MUCHIRA

Uncertainty is hanging over the fate of Rift Valley Railways (RVR) after Kenya ushered in a new era in rail transport with the commissioning of the standard gauge railway.

By all accounts, the start of operations of the SGR marks the ultimate demise of the 118-year-old metre gauge railway operated by RVR despite the company maintaining it is still in business and determined to compete. 

But with Kenya Railways having terminated the RVR concession agreement in March and Uganda also working towards the same fate, RVR is clinging to hope of remaining in operation even when it is clear the future of rail transport in the region is standard gauge railway-based.

The EastAfrican has established that Kenya Railways (KR) has started the process of repossessing all the concessioned assets while Kampala gave RVR a notice of intent to terminate the concession which expired. A notice to terminate is awaiting the signature of the Finance minister.

“We are on the route to termination. Kampala is following on the same route as Kenya but the two countries are not at the same level as regards the notices issued to the concessionaire,” said a senior official at Uganda Railways Corporation.

End of the line...

But, according to RVR chief executive officer Isaiah Okoth, the notices of termination cannot take effect until the company exhausts all the options available to salvaging the concession.

He added that it is premature for KR to take over the assets because RVR still has options to salvage the concession if it manages to bring on board new shareholders, something that looks increasingly unlikely following the walkout of Washington-based Emerging Capital Partners (ECP). 

Kenya Railways said the notice of termination would run until the end of June.

“We are assessing the status of the conceded assets to inform GoK’s next course of action,” said KR managing director Athanas Maina.

RVR maintains it still has a significant role to play in rail transport particularly in hauling cargo from Nairobi to the western part of the country and Uganda.

But with the Kenyan government stipulating that SGR will transport at least 40 per cent of cargo arriving at the port to be cleared in Nairobi, this marks the end of RVR operations on the Mombasa-Nairobi route.

... start of another

The entry of SGR on the route is expected to bring down transport costs by as much as 37 per cent considering it will cost $500 to transport a 20-foot container from Mombasa to Nairobi compared to $760 by truck.

The new cargo train on the standard gauge railway. PHOTO | CHARLES KIMANI | DPPS

The new cargo train on the standard gauge railway. PHOTO | CHARLES KIMANI | DPPS

If it manages to save the concession, RVR will be banking on becoming a distributor of SGR freight from Nairobi to western Kenya and onwards to Uganda on the metre gauge line.

The expansion of the Inland Container Depot in Nairobi has not included creating interchanges of cargo from the SGR to the metre gauge railway line and the focus has been expanding the parking yard for trucks and building additional gates and roads connecting the depot to Mombasa Road.

Refusal by the government to factor in the metre gauge line in the expansion of the depot is seen as a clear indication the government has no plans for the line.

Besides, Kenya is set embarked on the second phase of the SGR that involves extending the line from Nairobi to Naivasha and later to Kisumu. The country has secured $1.7 billion funding from the Exim Bank of China for the 120km line.

Abandoned

Uganda, on its part, is waiting for Kenya to commit to build the Kisumu-Malaba line to enable the country commence construction of its SGR from Malaba on the Kenyan border to Kampala.

Uganda is already negotiating with China seeking $2.2 billion funding for the 273km project.

RVR is frantically trying to salvage the concession in the hope that it can attract a strategic investor to take up a majority stake and inject fresh capital.

If it fails to attract a new investor, the company will be left with the option of turning to lenders despite the fact that RVR’s ability to absorb more debt are extremely weak. The firm is already heavily indebted to the tune of $164 million.

It’s misfortunes are aggravated by the fact that the company’s majority shareholder Qalaa Holdings of Egypt continued to plunge deeper into loss making.

In its full year results for the financial year ending 2016, the company which controls a 73.76 per cent stake in RVR announced a loss of $226.5 million. RVR, which the company has classified as ‘discontinued operations’, posted losses to the tune of $26.4 million.

Qalaa is basically confirming it has abandoned its Kenya-Uganda operation and that is why it has desperately been seeking a buyer for its stake in RVR.