Kenya and Uganda tell RVR to inject $40m into railway by month-end

Saturday August 02 2008
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A Rift Valley Railways engine in Kampala. Photo/LEONARD MAGOMBA

Kampala and Nairobi have decided to temporarily let the Rift Valley Railways consortium continue managing the Uganda-Kenya railway line and under very tough new conditions.

The decision came — after months of tension during which the two governments threatened to terminate the concession over underperformance.

The decision, which could not have come at a more opportune time for RVR, was reached at a closed-door meeting at the Kenya Ministry of Transport headquarters in Nairobi between senior officials from the two neighbouring countries.

Apparently, the reprieve was given on the basis of a turnaround strategy sponsored by a key shareholder — the Trans- Century Group — with a 20 per cent stake in the consortium.

Uganda’s State Minister for Works and Transport John Byabagambi told The EastAfrican in Kampala that they reconsidered their position on doing away with RVR after shareholders — announced that they would inject $40 million into the regional investment by the end of August.

Under the conditions, Sheltam — the leader of the RVR consortium — has been asked to inject an additional $14 million by Monday this week.


“They have said they are putting in more money by Monday. So we cannot rush as a government to terminate the contract with the concessionaire,” Mr Byabagambi said soon after he had been briefed by the team from Nairobi.

The turnaround strategy presented to the two governments includes a commitment by RVR’s shareholders to appoint a new chairman, managing director, a new chief operating officer and a new financial controller.

Finally, the governments of Kenya and Uganda want the concessionaire to provide an assurance from the two lending institutions — IFC and KFW — that they will support the turnaround package. A meeting of all shareholders has been called for August 8.

Technocrats from the Finance and Works Ministries in Kampala met their counterparts from Kenya in Nairobi during the course of last Thursday and made last-minute resolutions that will see RVR retain the management of the concession.

The consortium, which is operating under the Rift Valley Railways trademark, has recently come under fire for failing to improve the quality of services on the 100 year-old line that runs from the port of Mombasa to the Ugandan capital.

In a ministerial policy statement to parliament last month, John Nasasira, Uganda’s Minister for Works and Transport, said, “Railway freight volumes have not increased as expected. The company has breached several important provisions of the concession agreement, including those pertaining to the payment of the concessional fees and maintenance of the conceded assets.

The quality of service is reported to be worse than before Rift Valley Railways took over. Rift Valley Railways has serious financial and management problems and is seeking an equity partner.

The Kenya and Uganda railway networks jointly entered into a 25-year concession agreement with Rift Valley Railways, a South African company, in late 2006. Under the agreement, the respective governments were required to revamp the existing railway infrastructure and assets.

Mr Byabagambi said a political decision by both Nairobi and Kampala would be taken after RVR had fulfilled its commitments.

He added: “After they have put in more money by Monday, another meeting will be held on Wednesday between technocrats before a meeting of the relevant sector ministers is conducted. It is the ministers who will take the final decision.”

The minister told The East African that stringent performance conditions would be imposed on RVR soon after the current negotiations are concluded.

At the close of last month, officials from Kampala had told The EastAfrican that they would demand from RVR a change of management and a commitment of funding from the concessionaire’s financiers to maintain the contract.

Kenya and Uganda have also been holding discussions with other international railway management firms — Toll Holdings Ltd, which includes UK-based equity fund PME Africa Infrastructure Opportunities, and another consortium led by Optima Management Ltd of the UK.

For the past few weeks, RVR has been engaged in talks with its KFW and IFC financiers, who expressed reservations on Toll Holdings’ experience in Africa.

Toll Holdings has proposed injecting about $10 million into the railway, a figure considered insufficient by the lenders.

With regard to the proposal by Optima, IFC is said to have indicated that it was impressed by the proposal by the company to come up with a management team that will mix local experience and international rail expertise, as well as by the fact that some partners have a long-established presence in Kenya.

Consequently, IFC has asked the shareholders of RVR to come up with a transparent process of selecting between the Toll consortium and Optima.

RVR-Uganda’s failure to perform to the required standards, however, comes as no surprise, according to a number of Members of Parliament who sit on the Parliamentary Committee on the National Economy. They claim that no due diligence was done on the concessionaire.

Initially, the committee had even rejected the government’s request to approve the partial risk guarantee (PRG) required by RVR to access foreign funding.

The ruling National Resistance Movement caucus also censured Privatisation Minister Lukia Chekamondo when she failed to explain the need for the $15 million partial risk guarantee for Rift Valley Railways, leading to a standoff until President Yoweri Museveni intervened.

However, after intense haggling between government officials and ruling party Members of Parliament, the PRG was approved but only after the committee chairman, MP Lubega Kaddunabi — considered the most influential critic of the entire arrangement — was sent on a foreign trip.

The meeting that approved the PRG was instead chaired by MP David Bahati, who doubles as the ruling party treasurer.

RVR’s reputation worsened when the Uganda Railways Corporation accused it of running down public assets and properties under its management.

URC chief executive officer Emmanuel Lyamulemye particularly singled out the misuse of railway wagons.