Joho-linked logistics firm Autoports seeks deal to supply Uganda with locomotives

Industry players question the deal, noting that the Kenyan company proposes to purchase four locomotives and associated spares for $22 million, monies it expects to recover from lease rentals to URC over a 10-year period.

In a flurry of correspondence seen by The EastAfrican, URC management has submitted justification for the deal, has secured board approval, and brought up-to-speed, procurement watchdog Public Procurement and Disposal of Public Assets Authority and Works and Transport Minister Edward Katumba-Wamala.

Among the immediate concerns about the proposal is the single sourcing that Autoports Freight and URC officials are pushing through.

Observers are citing the potential for market distortion resulting in higher freight charges and hoarding of rail capacity from competing shippers.

Besides earning from leasing the engines, Autoports Freight Terminals is also seeking a rebate on what URC will be charging them, something that could confer an unfair advantage on the firm in the market.

They are also asking why URC is rushing to lease, rather than fix its own broken-down locomotives, amid parallel plans to buy a new fleet under an African Development Bank-funded project.

Industry players said even if URC must lease, there is no justification for single sourcing from Autoports Freight Terminals, which is described as a freight terminals operator and cargo consolidator, but with no background as a rail operator or supplier in the rail sector.

“By their own admission AFTL are middlemen, not legacy rail companies,” said an industry expert familiar with the firm’s proposal.

“The first logical step, in this case, would be to invite bids from firms in the railway business, not Autoports, which is neither a rail operator, railway rolling stock or power systems dealer. There is no need for URC to go through an intermediary because there are only a couple of such firms in Africa, they are well known and they are all in South Africa. Short of that, you either go to the United States or Australia.”

“Second, I read in the news recently that Kenya Railways had put back into service three re-engined locomotives, which in my estimation should be enough to meet the needs of both KRC and URC,” he said.

Read: Kenya Railways refurbished engines boost metre-gauge line

According to a May 13, 2024, letter titled ‘Request to Purchase Four Private Mainline Locomotives that will be Operated under Wet Lease by Uganda Railways Corporation’, the firm proposes to procure the engines and make the capacity available to URC under a wet-lease arrangement.

Autoports would, however, use URC locomotive drivers and workshop facilities to keep them running, all at a rate of $3,500 per day per locomotive.

In its justification, the company says that about 11 million of the 34 million metric tonnes of cargo that go through Mombasa port annually is transit cargo, with Uganda accounting for 85 per cent of that volume.

But only a miniscule 7.6 percent of this or 0.57 million tonnes is transported by rail. AFTL says it handles 1.5 million tonnes of cargo annually, 75 per cent of which is transported by rail.

The firm, which currently transports 300,000 metric tonnes of steel billets and cold rolled coils per annum for Kampala-based Roofings Group, says only 25 per cent of this volume is transported by rail and plans to increase total volumes to 540,000 metric tonnes by November 2025 hampered by capacity constraints at URC.

“This is because the railways sector does not have enough assets and lacks the necessary structures to support rail-bound cargo at first,” says Autoports executive director Salim S. Sadru.

“AFTL has invested in modern infrastructure at the Port of Mombasa for effective handling of bulk commodities, containers and provision of first-mile solutions. We have set up facilities along the railway corridor. Logistics hubs are operational at the Nairobi freight terminal and Naivasha facilitating effective handling and transportation of rail-bound cargo. Our strategy is to ensure that all logistics and transportation services are available to, reliable and cost-efficient and efficient to serve the economy of Uganda based on the rail option model,” wrote Mr Sadru.

To achieve that goal, the firm proposes that KRC and URC reinstate the open access model on the metre gauge railway from Mombasa to Kampala, rerouting of South Sudan cargo to the Tororo-Gulu line.

Read: Uganda, Kenya team up on old metre gauge rail project eyeing Congo, S. Sudan

It is also asking that Autoport’s shipments have the first call on the capacity provided by the locomotives it intends to lease. The firm would be responsible for the operation and fuelling of the locomotives, guarantee availability, and commit to minimum cargo volumes.

“AFTL will pay freight charges that will be agreed upon to URC. URC will provide AFTL with maintenance workshop space and tools to undertake the maintenance of the locomotives at a fee to be negotiated; URC will pay locomotive lease fees,” proposes the firm.

Contrary to the terms of a wet lease, which entails the provision of the equipment and crew, Autoports wants URC to provide the crew and manage the operation of the locomotives between Malaba and Kampala.

“This letter is to seek your permission to acquire locomotives and lease them to URC for operations between Malaba and Kampala. We intend to quickly buy and deploy 4 locomotives in the short term to support URC locomotives for improving the delivery of rail services.”

In a June 6, 2024, brief to the board of directors, URC chief operating officer Abuberkerer Ochaki said the firm accounts for 70 per cent of the cargo carried by URC monthly.

He said in meetings between Autoports, Roofings Group and URC, the latter agreed to increase their allocation of cargo to rail to 50,000 metric tonnes monthly.

“However, URC and KRC have not had the capacity to handle the available demand,” Mr Ochaki said, adding that whereas cargo demand is projected to grow to 70,000 metric tonnes in 2025, the corporation will have only three operational locomotives.

“Six locomotives will be required to rail 70,000 tonnes in 2025, eight locomotives in 2026 to rail 80,000 tonnes for both the main line and the Tororo-Gulu line.”

While URC plans to buy four locomotives under an ongoing AfDB-funded project, the realistic time frame for delivery is around 2028-29.

“During this time, cargo growth is anticipated to be 120,000 tonnes, which will require 13 locomotives. Therefore, whether AfDB-funded locomotives arrive in 2028 or 2029, the demand for locomotives will still be high to cover the mainline, Tororo-Gulu line and truckage (sic) requirement for the cargo that will be moved through the Central Corridor, as SGR Tanzania will be completed in the next 14 months,” he wrote.

While URC has four mainline locomotives, “two are sick are non-operational.” Furthermore, “the currently available locomotives are showing several complications which may affect operations in the near future.”

Mr Ochaki projects that, at only 70 per cent availability, URC would have an annual operating income of $11,566,800 if it leased three locomotives and $15,422,400 if four were leased. But he suggests that the lease fees be paid by the Treasury through quarterly releases.

Inquiries by The EastAfrican returned a handful of contradictions, with URC acting managing director Musoke David Bulega saying the proposal does not make economic sense in the present circumstances, while official correspondence suggests that he backs the deal.

Citing client confidentiality Mr Bulega first refused to address questions about the deal, but he acknowledged that AFTL’s was simply one of several unsolicited bids that routinely come to his office.

“It is normal for businesspeople to solicit business. What matters is that such proposals have to be evaluated and subjected to competition. If we have to lease, we have to open up,” said Mr Bulega.

“It is not automatic that that we have to lease from AFTL. If I am purchasing locomotives and they are arriving in three years’ time, I can work with KRC to run their trains on the URC network in the interim.”

Responding to the chief operating officer’s recommendation to the board, Mr Bulega said: “He can be hooked as an individual but, as the accounting officer, I have my views and he cannot just push his through.”

On the price, which has been revised to $2,500 per locomotive per day, Mr Bulega said it was on the higher side and could impose a huge burden on the corporation’s cashflows.

“We have what we call market sounding. It is something I am supposed to do as accounting officer. But I think Ush310 million per month is on the higher side in terms of operating costs. But evaluations are ongoing and we shall arrive at figure that is more in line with market norms.”

This is contradicted by correspondence between URC, AFTCL, PPDA and the ministry suggesting a focus on single -sourcing.

For instance, in a July 9 letter to the executive director of the PPDA, titled “Leasing four locomotives from Autoports Freight Terminals Ltd under direct procurement method,” Mr Bulega provides a background to the deal and its justification. He then concludes by communicating the Board’s decision to proceed with AFTL’s proposal.

“At its 82nd meeting, the Board deliberated on the matter and recommended in principal that URC should consider leasing of locomotives from Autoports Freight Terminals Limited and that consultations should be made with key stakeholders including PPDA. The purpose of this letter is therefore to seek your guidance on the above-captioned matter,” Bulega says in the letter whose details appear to be similar to what he had written to minister Katumba Wamala.

On October 24, Sadru wrote to Mr Wamala providing a proposal for revenue contribution cost recovery but, short of an outline, it lacks detailed projections.