Not so fast, Uganda tells Kenya over decision to end RVR concession

Saturday April 08 2017

Emerging Capital Partners has reached an agreement with Qalaa Holdings to acquire the latter’s 73.76pc stake in Rift Valley Railways. PHOTO|FILE

Uganda has differed with Kenya over the decision to terminate the management of their joint railway by Qalaa Holdings of Egypt, saying there are better alternatives to addressing the dispute on concession fee arrears.

Uganda Railways Corporation managing director Charles Kateba said the Rift Valley Railways (RVR) concession “still stands” because “there are other options,” though URC had “no clear decision at the moment.”

Kenya Railways Corporation last month pulled the plug on the troubled 25-year contract to operate the Kenya-Uganda railway but Mr Kateba said the operator was still in discussions with the Kenya regulator.

“Until all these processes are fully exhausted, URC cannot take a decision whether to also terminate,” said Mr Kateba.

READ: 25-year Kenya-Uganda railway deal terminated

However, he said, URC was concerned by RVR’s failure to meet operating targets especially the concession fees, on which it was behind schedule by nine months.


“They are not up to date and that’s worrying, because they are not supposed to go beyond even by one day. If they do we charge them at the rate of Libor,” Mr Kateba said.

In January, KRC managing director Atanas Maina put RVR on notice to terminate the concession, over unpaid fees to the tune of Ksh600 million ($6 million) and failure to meet other targets. In March, the Kenyan parastatal officials travelled to Kampala to meet their counterparts in Uganda.

Since day one when they took over the operations of the Kenya-Uganda rail line in 2006, RVR has been dogged by failure to meet targets, first failing to pay the concession fees of $3 million and $2 million for KRC and URC respectively.

The concessionaire could be handed a lifeline if the owners allow the operator to borrow or bring in new investors as provided in the contract.
A government official in Kampala says a decision whether to terminate, allow refinancing or bring on board more investors “will be made by this time next week.”

Lenders and suppliers are among those looking for a quick resolution as they are also owed $164 million.

KRC cited defaults on various parameters of the concession agreement.

RVR managed two weeks ago to get a 30-day relief after the High Court put an injunction on the execution of the termination notice but the company was still inundated with enquiries because KRC had copied the termination notice to all the lenders.

“KRC has ignited a panic and now everyone is calling to know the status of their contract with RVR,” said a source.

Among the lenders to which RVR owes millions of dollars are the International Finance Corporation ($22 million), the Dutch Development Bank ($20 million) and Belgian Investment Company for Developing Countries ($10 million).

Others are German Development Bank ($32 million), Infrastructure Crisis Facility ($20 million), African Development Bank ($40 million) and Equity Bank ($20 million).

Operations at RVR may grind  to a halt, as suppliers, particularly of fuel and spare parts, have started demanding upfront  payments at a time when it is experiencing significant financial constraints.

The move by KRC to end the 25-year concession now puts in jeopardy takeover negotiations between RVR majority shareholder Qalaa Holdings of Egypt and Washington-based Emerging Capital Partners (ECP).

READ:Troubled RVR still attractive to investors, gets new shareholder
Key RVR customers were also expressing fears over the company’s ability to keep the engines and wagons on the tracks to guarantee that their cargo is delivered. 

“RVR is facing challenging times but these are of short term nature. We believe there is light at the end of the tunnel when new investors come on board,” RVR chief executive Isaiah Okoth told The EastAfrican.

He added that until new investors come on board and inject at least $500 million in the business, RVR cannot honour obligations being demanded by KRC from the revenues that it is currently generating.

“We have decided to prioritise the continuity of the business because investors want to invest in a company that is running. Concession fees can be settled when money comes in,” he said.

RVR won and was picked as the Kenya-Uganda railway concessionaire in 2006, to operate freight and passenger rail services in the two countries on an exclusive basis for 25 years over the more than 2000 kilometre track from Mombasa and terminating in Kampala.

The RVR shareholders in 2006 included Sheltam Pty with a majority stake, Prime Fuels (15 per cent), Mirambo Holdings (10 per cent), Comzar (10 per cent) and CDIO Institute for Africa Development Trust (4 per cent).

In 2010, the shareholding structure changed to Citadel Capital (51 per cent), TransCentury (34 per cent) and Bomi Holdings (15 per cent). In March 2014, TransCentury sold its entire stake to Africa Railways Limited subsidiary Qalaa Holdings (formerly Citadel).