RVR gets 30 days to save its 25-year railway contract

Tuesday July 11 2017

Locomotive engines at an RVR yard in Mombasa in September 2014. FILE photo | nmg

Locomotive engines at an RVR yard in Mombasa in September 2014. FILE photo | nmg 

By BUSINESS DAILY
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Rift Valley Railways (RVR), the company that runs the century-old Kenya-Uganda railway, has moved to court in a last-minute effort to stop the concession manager, Kenya Railways Corporation (KRC), from terminating its 25-year contract.

RVR is seeking to revoke a notice of termination that Kenya Railways sent it seeking payment of $26.806 million (Ksh2.7 billion) concession fees, rent and damages for life expired assets on or before June 29.

Kenya Railways initially terminated the deal in March arguing that RVR had failed to meet operation targets set in the agreement, including payment of concession fees.

Kenyan judge Grace Nzioka has given RVR some reprieve after issuing of a temporary order barring Kenya Railways from terminating the contract.

RVR is majority-owned by Egyptian private equity firm Qalaa Holdings.

The temporary relief is, however, pegged on RVR depositing Ksh1.35 billion ($13 million) in court as security.

RVR has 30 days to deposit the amount or get the temporary order lifted, paving the way for termination of the contract.

Parties to the dispute are expected in court on July 31, when the judge is expected to confirm compliance with her orders.

'Unfairly issued notice'

Kenya Railways argues that RVR failed to maintain tracks leading to speed restrictions on 17 per cent of the entire line, meet the required 2.1145 billion net-tonne kilometres and remit rent and concession fees.

But RVR says it met and surpassed revised targets and wants Justice Nzioka to rule that Kenya Railways unfairly and unlawfully issued a termination notice. The railways operator ultimately wants the court to bar the Kenyan government corporation from backing out of the concession deal.

“Some of the clauses of the concession alleged to have been breached are incorrect thereby denying RVR an opportunity of not only knowing the specific allegations of breach, but also to adequately respond to them.

“KR [Kenya Railways] and the government of Kenya have not produced any evidence in support of the allegations of breach,” RVR manager, concession and government affairs, Sammy Gachuhi says.

Contract termination

The journey to termination picked pace in mid-March when Kenyan officials travelled to Kampala for a meeting with their Ugandan counterparts to assess RVR’s performance.

Qalaa’s head of transportation division, Karim Sadek, who was expected to attend the meeting, failed to show up, instead choosing to send a junior officer.

The snub infuriated the top government officials, who left the meeting having passed a resolution to terminate the contract at the end of the 90-day notice they had issued in January.

RVR, however, moved to court where Justice Grace Nzioka granted the parties 30 days to negotiate a settlement out of court.

Kenya Railways has now opposed a new application by RVR seeking to suspend the termination notice, arguing that RVR has not made any effort to refer the dispute to an arbiter.

'Underhand tactics'

Kenya Railways has also accused RVR of using underhand tactics by only furnishing it with an incomplete copy of the fresh court petition filed on June 23.

Kenya Railways adds that the incomplete application was served on a Friday at 6.30pm, which was after close of business and heading into a weekend, and that the move was aimed at gaining an unfair advantage when the parties returned to court.

“The matter was last in court on March 31, 2017 wherein the court granted the parties 30 days within which to negotiate the matter with a view to settle it out of court. RVR has to date refused to approach KR for any negotiations or discussion towards resolving the matter.

“...despite its refusal to remit the concession fees and repair the conceded assets, RVR will continue to have unlimited, unregulated and unlawful possession and use of KR assets to the detriment of KR and the government of Kenya,” Kenya Railways says in its opposition to the suit.

In the termination notice sent to RVR, Kenya Railways indicated that the Egyptian-owned firm had only managed to achieve 1.1862 billion net-tonne kilometres, short of the 2.1145 billion net-tonne kilometres freight target set by the Joint Railway Commission (JRC).

The JRC is a watchdog of the Kenya-Uganda railway, comprised of officials from the two countries.

Kenya Railways also accused RVR of failure to maintain locomotives, rolling stock, buildings and other structures as required by the concession agreement, which led to their irreparable damage.

The State corporation held that RVR must remedy the breach by furnishing an acceptable rehabilitation programme.

RVR was also in the notice asked to raise its freight volumes within the 90 days or have its 25-year concession contract terminated.