Two years ago, there was hope when Kenya and Uganda kicked out Sheltam Corporation of South Africa and brought in Egyptian private equity firm Citadel, to take control of the Kenya Uganda Railway, the 25-year arrangement under which the private entity RiftValley Railways Ltd is running the 1,200-kilometre railway line connecting the port of Mombasa and landlocked Uganda.

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The Kenya Uganda Railway concession is the largest and perhaps most complex railway privatisation in Africa. New documents seen by The EastAfrican show that the experiment isn’t going too well and that RVR hasn’t made much progress.

According to the minutes of a recent meeting in Kampala of the Joint Railway Commission — the entity that monitors and oversees the operations of RVR on behalf of the governments of Kenya and Uganda — freight volumes are still way behind those stipulated in the concession agreement. The commission is now expressing doubts that RVR will meet the freight volume targets stipulated in the concession agreement, which must be met by June next year.

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Last week, there was song and dance at the Mombasa port as RVR received 6,000 tonnes of rail from China, marking the first major investment by the new operators of the concession in three years.

Although railway engineers agree that the Chinese imports are a good starting point, they will not make a significant difference. Pundits approximate that the 6,000 tonnes of imported rail will all go in strengthening the curves (of which there are far too many) in the old-fashioned railway design.

It estimated that RVR may have to import in excess of 500,000 tonnes of rail and sleepers before it can significantly increase speeds. RVR has recently presented Kenya with plans to spend $57 million in rehabilitating the track and purchasing locomotives and in mending the rolling stock.

The Joint Commission found that RVR has so far not made any major investments in maintenance both in Kenya and Uganda.

It also found that despite the high demand for services, availability and reliability of locomotives and wagons have continued to deteriorate. Neither has performance of the concession been impressive in terms of payment of concession fees. Although RVR has made good progress in paying concession fees due to Uganda, payments due to Kenya are lagging behind. As at December last year, arrears due to Uganda and Kenya stood at $1.7 million. Performance on passenger services is also below what was agreed, with the company terminating services on some lines in Kenya.

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Passenger concession

In Uganda, RVR is separately negotiating a passenger concession to allow it to operate passenger services. It has made a commitment to address the Tororo and Amco culverts, for which its has already appointed a contractor. RVR has attributed its inability to move larger volumes of freight to delays in accessing funding.

Apparently, negotiation of a $284 million loan that was committed by the financiers took time, with the first disbursement of $50 million only coming in December 2011. The concessionaire has assured the Joint Commission that it will meet all the targets set in the agreement.

The Kenya Uganda Railway network has the potential of transporting 12 billion metric tonnes of freight per annum. The defunct Kenya Railway Corporation handed all operational assets to RVR on November 1, 2006 for a period of 25 years for freight and five years for passenger services. Two years later, the concession agreement was renegotiated with Citadel coming in to replace the South African company, Sheltam Corporation , as the anchor and leader of the concession. In March, RVR received the first tranche of the $164 million loan approved by a group of lenders last year to revive the ailing rail freight business in East Africa.

Part of the disbursed $49 million was to be used to repair the main railway line from Mombasa to Kampala, which is in a deplorable state.

Despite the massive potential that rail transport has for improving the region’s economy, it has always played second fiddle to road in both cargo and passenger transport. Of all the cargo originating from the port of Mombasa, estimated at about nine million metric tonnes per annum, in the past financial year, rail transport hauled only 1.7 million metric tonnes or less than 10 per cent. The rest of the freight business was handled by trucks, which have been blamed for destroying roads in the region.

Road transport has become a nightmare. Once a ship manages to get a berth at the Mombasa port, discharging a container from the ship takes seven days, up from 3.7 days due to delays at the facility. It then takes 18 days, up from the previous 11 days, to move the container from the port to the Container Freight Services, a facility for holding containers until they are loaded onto trucks. The journey from Mombasa to Nairobi takes another two days, slowed down by numerous weighbridges and police roadblocks.

Transporting the container to Kampala takes another two days, with at least a day being spent going through Customs at Malaba border point. By the time the container gets to Kigali, a staggering 46 days have been spent from the time the ship arrived in Mombasa. This means that on average, transporters can only move one container a month from Mombasa to Kampala or Kigali, forcing them to either increase their fleet or overload their trucks to make up for lost time, with high axle loads having a devastating effect on the region’s road network.

Lack of investments

The World Bank in a 2012 report indicates by the 1980s, rail transport had dropped to 15 per cent, and today, this continues to decline, due to the absence of sustained government investment in the railways and, most recently, the lack of investment by RVR.

Regional economies have been looking for cheaper transport channels in the recent past. Early in 2008, the hinterland of East Africa found itself cut off from world markets when political upheaval in Kenya disrupted supply chains.

Last year, it seemed Uganda’s President Yoweri Museveni was determined to forge an alternative for Uganda, especially considering that Kenya’s elections are scheduled for this year or early 2013. Talks between President Museveni and Tanzania’s President Jakaya Kikwete last October seemed to breathe the new life into a proposal to build a deep water port at Mwambani Bay in Tanga, with a new 800km Uganda-dedicated railway line to link Tanga with Musoma dock on Lake Victoria, and on to Kampala.

Officials said the project is estimated to cost at least $2.7 billion, out of which $1.9 billion is for the railway, $695.5 million for the Mwambani port and $72.6 million for the development of Musoma dock.

Although the Tanga route would be slightly shorter than the Mombasa route — 1,250km versus 1,400 km — it would have to cover 350km via ferry over Lake Victoria between Musoma and Port Bell, with additional costs of loading and unloading cargo.