The recent signing and groundbreaking for the construction of the standard gauge railway concession has raised many questions over the future of the old line run by Rift Valley Railways Ltd.

In the SGR contract, Kenya Railways expects to raise $41 million from the sale of wagons, railway tracks and sleepers belonging to the existing railway.

Kenya Railways as the regulator will earn $10 million from leasing SGR to two operators. The two will be competitively sought, and RVR is allowed to bid to be one of them.

Sources within the government, however, believe that the existing concession with RVR will become untenable once the new Chinese-built railway line is in use, mainly because of the profitability issues within RVR.

In May this year, the Kenyan and Ugandan governments issued a joint communique to RVR giving it nine months till February 2015 to lift its cargo haulage above 1.6 million tonnes from the current 1.2 million tonnes, to invest more cash in the upgrade of the Kenya-Uganda line and purchase new wagons.

The two states maintained that RVR had failed to live up to expectations nine years since it won the concession. RVR also had its one year window to meet the terms of its concession rejected.

READ: Kenya, Uganda issue ultimatum to RVR

Despite RVR’s claim that it has spent $120 million to upgrade the railway business over the past 26 months, which has seen its cargo haulage increase, official data shows that it has continued to lose the cargo business share to trucks as importers preferred to use roads.

Data shows that RVR ferried 1.2 million tonnes of cargo last year compared with 1.3 million tonnes in 2012 and accounted for 5.4 per cent of the cargo that landed at the Mombasa port, down from 7.3 per cent in 2011.

READ: RVR looks to bulk importers to grow cargo volumes

Last year, director of transport at Uganda’s Ministry of Transport and Public Works James Itazi complained that despite the total Uganda rail network being 1,266km, only 330km is operational under RVR, with the other lines either closed due to technical deficiencies or inadequate traffic volumes.

The current operational lines are the main line from Malaba to Kampala, Tororo-Mbale, Kampala-Port Bell, Kampala-Nalukolongo and Jinja-Kakira.

RVR operates these lines while Uganda Railways monitors performance of the concession, manages non-core assets and regulates the railway operations on behalf of the government.

READ: RVR to invest $14m in Ugandan section

Kenya’s Transport and Infrastructure Principal Secretary Nduva Muli says that it that would be cheaper in the long run to operate the standard gauge track as compared with the current track.

“The standard gauge is the globally accepted standard for railway tracks in the world. The current Kenya-Uganda railway does not perform because it is narrower than the standard gauge, at 1,000mm against standard gauge’s 1,435mm,” said Mr Muli.

Cabinet Secretary Michael Kamau said the government will establish a railway regulator .

This assurance has still not clearly settled the matter, given that when Kenya Railways signed the concession with Rift Valley Railways in 2006, the latter was allowed to have a 25-year monopoly of railway services on the Mombasa to Kampala route as well as on Nairobi commuter services, but the signing of the standard gauge railway contract has brought this into question.

According to Mr Kamau, once the construction of the standard gauge railway is complete, there will be two operators: Rift Valley Railways, which will operate the old line and Kenya Railways, who will be running the new standard gauge line through a concession.

Recently, Kenya’s Parliamentary Committee on Transport and Communications sought an explanation from Mr Kamau on the status of RVR’s concessionaire agreement after the coming of the new standard gauge railway.

The chairman of the committee, Maina Kamanda, said that Kenyans need to know what will happen to the old line once the new one is in place.

“It is important for the country to know the status and fate of RVR. We also would like to know the programmes it is undertaking to revamp the railway,” Mr Kamanda said.

A senior RVR official, who requested anonymity, said that there is no cause for alarm as both the metre and standard gauge lines will co-exist with the signed 2010 revised deeds of amendment in place.

“Many developed and emerging economies have more than one track gauge so this is not unusual. We will work alongside the new group. RVR’s significant investment now underway in locomotives, wagons and containers will double its haulage capacity by the end of this fiscal year.

"Its operational efficiency has also made dramatic recent improvements: one-way trips from Mombasa to Kampala now average 3.7 days, down from 7 days in January this year. With the growth in regional economies and resultant rise in throughput at the port there is sufficient demand for rail freight transportation for both systems to thrive,” said the official.

There are also safeguards in place that RVR is expecting from the Ugandan and Kenyan governments, with the standard gauge agreement and the RVR concessions ensuring that development of the new line won’t imperil ongoing operations of the current operator.

“There are RVR-government liaison committees in both countries and one at the Joint Railway Committee level to harmonise issues and ensure a smooth process,” he noted.

In 2010, with RVR failing to meet the concession agreement, the Kenya and Uganda governments signed a revised deeds of amendment with RVR providing a process for the planning, construction and operation of the standard gauge railway, which includes offering RVR the opportunity to operate rolling stock on the railway line.

“RVR negotiated for compensation in case of loss due to building of the standard gauge railway, and also staggered payment of unpaid concession fees,” said the official.

RVR has implemented infrastructure improvement projects in Kenya and Uganda over the past three years.

The major projects include repairing the most worn out sections of curves between Mombasa and Nairobi along with installation of GPS technology on trains, this cutting transit time between the two cities by six hours.

The company is also engaged in repairing crumbling culverts between Jinja and Busembatia allowing heavy trains to move directly to Uganda; reopening the Tororo-Pakwach line after a 20-year hiatus; and rehabilitation of 366km of railway track between Nairobi and Kampala that is now underway. 

Recently, RVR purchased second-hand locomotives, modified from standard gauge measurements to metre gauge at a cost of $26.8 million.

According to Karim Sadek, the managing director of RVR’s majority shareholder Qalaa Holdings, these locomotives have higher horsepower, are fitted with on-board computers and are GPS enabled.

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“Reliability, bulk haulage capacity and safety are the primary concerns for freight transportation by rail, not speed as these locomotives won’t be used for passenger services. Once all 20 are delivered in addition to another 11 more from refurbishments and leasing-making a total of 31, RVR’s available locomotive power will increase by 120 per cent,” Mr Sadek said.