The beleaguered Kenya-Uganda railway concessionaire Rift Valley Railways (RVR) now accuses Kenya of sabotage after the latter dropped rail from the transport component of the Early Oil Pilot Scheme.

The project, in which oil will be transported in insulated tanktainers, set to start in June next year.

“Although small-scale, the scheme will mark the first major milestone in Kenya’s oil and gas industry, producing and exporting crude oil for the first time in the country’s history,” said Petroleum Principal Secretary Andrew Kamau.

In Phase I of the initial plan, Kenya was to transport 2,000 barrels of crude oil by road from Lokichar in Turkana County in the northern part of the country to Eldoret in the Rift Valley, and then by rail to Mombasa.

The government has said it will consider both road and rail in Phase II, when it increases production to 4,000 barrels a day.

READ: Experts warn Kenya against costly transport of crude oil by trucks

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Improved business

RVR group chief executive Isaiah Okoth accused officials at Tullow Oil and the Ministry of Energy’s Petroleum Department of sabotaging its business by dropping rail from the project.

“We had built a strong case for the inclusion of rail should have been included in the scheme, but a decision was made to exclude it. The reasons we have been given do not make sense,” he said.

In its projections, RVR was to make $1.14 million in revenue per month from transporting some 12,000 tonnes of crude from Eldoret to the Kenya Petroleum Refinery Ltd (KPRL) storage tanks in Changamwe in Mombasa.

RVR is yet again about to change hands. It has emerged that its Egyptian majority shareholder Qalaa Holdings is looking for a buyer for its 85 per cent. The concessionaire is continuing to sink deeper into losses.

READ: Egyptian firm looks for buyers for 85pc stake in Rift Valley Railways

According to Qalaa Holdings financial report, RVR losses stood at $7.6 million in 2015 compared with $11.3 million in 2014. If the company gets a buyer, it will be the fifth change of hands since the governments of Kenya and Uganda awarded the concession to Sheltam Railway of South Africa a decade ago.

RVR has been struggling to increase its business. It is only transporting five per cent of the cargo arriving at the Port of Mombasa — about 27 million tonnes per year.

With annual revenues of about $60 million, the company must pay $8 million concession fees to the governments of Kenya and Uganda.

“We have the ability to do more business but we are limited by the state of infrastructure and failure by the two governments to support the business,” said Mr Okoth.

Among the reasons cited for excluding rail from the project is the state of the concessionaire’s infrastructure, particularly the tracks and wagons which are dilapidated.

Another reason was that the prices RVR quoted would have made the rail transport option expensive.

Also, the government argued that the Kenya Petroleum Refineries Ltd was not in a position to receive the crude by rail because there is no railway line going directly to the refinery. For the rail option to work, the government would have been forced to invest $3 million in a rail siding to allow for unloading.

But Mr Okoth dismissed the reasons presented by the government and Tullow Oil saying that “they do not hold any base.”

“We provided details on all aspects of the scheme including quotations on tanktainers, the environment, safety to security,” he said.

As RVR comes to terms with losing the lucrative deal, experts are questioning the viability of the pilot scheme which they say will only amount to losses for Kenyan taxpayers.