Uganda plays hardball with RVR over railway lines

The stage is set for some tough negotiations in Kampala this week when the revitalised Rift Valley Railways seeks signatures to a final concession agreement.

Although the meeting — which was postponed to this week on account of Kenya’s vote on a new constitution — is expected to endorse the consortium’s new shareholding, the real issue will be the fate of some additional 847 kilometres of track (Kampala-Kasese and Tororo-Pakwach) that were left out of the initial concession agreement with Sheltam, but a section of which the new owners now want back in the package.

While the mood within RVR was upbeat, there was still a possibility that a deal may not be closed this week.

“Everything is finished. The government wanted assurances that we had the money to rehabilitate the 200 miles of track, and we have the money,” a source close to the consortium said last week.

The EastAfrican has learnt that while RVR had initially surrendered the lines back to the government because it lacked the money to develop them, buoyed by the entrance of Egypt’s Citadel Capital and with an eye on new opportunities in the Great Lakes region and the role rail could play in this, RVR now wants the 344 kilometre Kampala-Kasese line back in the concession.

But Uganda is playing hardball, apparently because it is afraid the line could end up being “hoarded” by the concessionaire to cut out potential competitors in future.

Besides requiring a demonstration of financial capacity and commitment to revive the line, Ugandan negotiators want the entire network including the 503-kilometre Tororo-Pakwach northern line included in the agreement.

Sources close to the negotiations add that, in addition, Kampala wants the vandalised 120-kilometre Busoga Loop Line also included in the plans.

“There are no fundamental differences between us and RVR because those two lines — Kampala-Kasese and Tororo Pakwach — were always part of the bigger picture in terms of RVR having the first right of refusal should the government decide to tender them out. The reason we pulled them out of the concession in the first place was because the concessionaire failed to perform,” Privatisation Unit spokesman Jim Mugunga said in response to enquiries by this newspaper.

That view was corroborated by sources close to RVR who said at the time the lines were clawed back from the concession, the initial consortium led by Sheltam lacked the financial capacity to revive the line.

“RVR is not just suddenly interested in the western line; it has always wanted it but lacked the money to support its development at some point and so it was agreed that the government take it back,” said a source close to the consortium.

Provisional estimates by the Uganda government put the cost of restoring the western line and associated infrastructure at $700 million, too tall an order for cash-strapped Sheltam.

Meanwhile, revival of the 503-kilometre northern line would require an additional $750 million.

But now informed by new opportunities in western Uganda and regional plans to extend the track to Kisangani in the Democratic Republic of Congo, Citadel Capital, RVR’s principal shareholder, is looking beyond the immediate future.

Out of use for nearly two decades, the business case for the Kampala-Kasese line became less compelling after copper mining ceased in the western Ugandan during the late 1970s while cement production flagged.

The opening of a new 0.5 million tonnes a year cement factory at Dura by Lafarge-owned Hima Cement and ongoing plans to revive copper production where some 4 million tonnes in reserves are confirmed, have radically changed the picture.

Although initial production plans appear to be leaning towards road transportation of crude from oil wells in western Uganda to Jinja for onward shipment by rail to Mombasa, ongoing exploration has confirmed reserves to the north of Kasese and good prospects close by in the Lake Edward region, which could reshape thinking.

The current railhead of the northern line is also close to confirmed oil reserves in northwestern Uganda while a planned extension of the line to Juba in Southern Sudan and Kisangani in the DRC, point to a future of exciting possibilities.

Mr Mugunga said the government is keen on development of the overall network to attain its policy objective of getting more cargo traffic back to rail to reduce wear and tear of the road infrastructure.

“Both of us are talking the same language but the question is who is best placed to take on the project. If somebody is greedy, they will want to focus only on the Uganda-Kenya sector, but if not they will look at the overall investment plan. RVR will have to provide evidence that they are not going to hoard it,” he added.

The government is keen on the northern line because it sees it as a catalyst to the revival of economic activity after decades of war in the area.

On the other hand, RVR is worried about the potential cost of insurance for the line as the region has just come out of insurgency.

The case for the 120 Jinja-Kamuli-Busembatia line is likely to be more protracted, however, as the line serves a primarily agricultural area.

Ongoing improvements to road infrastructure suggest that road could be a major competitor, making the line uneconomical to operate.

But government negotiators believe the link is still important as it runs around one of Uganda’s grain baskets and allowing RVR to cherry-pick its lines would consign it to oblivion.