Two key international financial institutions supporting the Kenya-Uganda Railway concession have said they would not disburse funds to Rift Valley Railways until new conditions are met.

Sources have told The EastAfrican that one of the key sponsors of the concession — the International Finance Corporation — the World Bank’s private sector-lending window, has indicated that it will not give RVR any money until RVR concludes ongoing discussions on a new management and financial restructuring.

Another key lender to the concession — KFW of Germany — has also indicated that it will not give any money to RVR until it is satisfies all “conditions precedent” to the agreement, including conclusion of a partial risk guarantee and reimbursement of invoiced fees and expenses of the counsel which the lender retained for the transaction.

RVR is presently holding discussions with two international companies on a rescue plan that includes transfer of management from the current one led by one of the shareholders — the Sheltam Group of South Africa.

The first is a consortium led by Australian company Toll Holdings Ltd, which also includes a UK-based equity fund PME Africa Infrastructure Opportunities Plc (PME).

The second, is a consortium led by Optima Management Ltd of the UK, said to be linked to Magadi Soda.

Faced with financial problems, the board of RVR gave the mandate to one of its shareholders — the Australian company, Bobcock &Brown Ltd — the mandate to invite international operators with the capacity to bring in new equity and management to the company.

It is this process that led to the invitation of two international players — first Toll Holdings Ltd and then Optima Management of the UK.

Included in Toll Holdings is PME Africa Infrastructure Opportunities.

Consequently, the RVR board allowed these two players two consortia to run due diligence on RVR in May.

Written proposals were submitted on May 30 to the RVR board. On June 3, both Toll and Optima gave presentations to RVR’s shareholders and lenders.

Sources have told The EastAfrican that the IFC has since expressed its own views about the strengths of the two companies.

It is understood that the World Bank institution has made the point that while it has no doubts about Toll’s capabilities, it was concerned that the Australians do not have any experience in Africa.

The IFC has also reportedly argued that the proposal by Toll provides for very little in terms of injection of new funds.

According to the proposal by the Australians, they are to invest only $10 million. IFC is reportedly concerned that Toll merely wants to play the role of a manager of RVR.

Then there is the issue of what the IFC sees as the incestuous relationship between PME and South African group, Sheltham, that is currently managing RVR.

Apparently, IFC believes that PME is a related party to the Sheltham group, implying that RVR was likely to support their bid to take over management as opposed to the Optima consortium.

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

The IFC has recommended the creation of an informal steering committee composed of shareholders, lenders and the governments of Uganda and Kenya to guide the process of choosing between the Australian-led consortium and Optima.

Sheltam Ltd of South Africa is the largest shareholder of RVR, owning 35 per cent of the shares. Others are the Transcentury Group, Prime Fuels and Mirambo Ltd, Centum Investment Company Ltd and Babcock and Brown.

Apparently some of the shareholders have not fully subscribed their equity. Consequently, IFC has recommended that the best option for RVR at the moment is for the shareholders to put in the remaining amounts currently standing at $7 million.

The calculation is that this amount will be enough to compensate for the disbursement that was expected from KFW.

IFC has also reportedly said that it would be willing, subject to an agreement of a new management, to disburse $2.7 million.

The assumption is that with the approximately $10 million, RVR will be able to continue operations for the next few months while a negotiated solution is being sought on the basis of the two proposals from either the Toll consortium or Optima.

Until recently, top Kenyan government officials appeared to be leaning towards the Australian company.

But the local shareholders of RVR — Transcentury Ltd and Centum Ltd — prefer to deal with the Magadi Soda consortium while Sheltham Ltd is leaning towards the Australians.

During one of the recent meetings between shareholders and lenders, eyebrows were raised when a representative of Babcock and Brown made disparaging comments about Optima.

The local shareholders of RVR believe that the two proposals on the table have strengths and should both be given consideration.

However, how events proceed will depend on how the government responds to RVR’s deteriorating performance.

Opinion is now unanimous in government that the concession has performed way below expectations.

Indeed, key elements within the government are now more inclined towards conducting a comprehensive review of the performance of the concession with a view to terminating the contract altogether.

Already, the Office of the Prime Minister, working in conjunction with the Ministry of Transport, have released the terms of reference for the review of the performance of RVR under the concession which is to be completed within 45 days.

Meanwhile, RVR has announced the entry into the company’s share register of Mirambo Holdings Ltd and Prime Fuels Ltd as shareholders.

The two, who were among the original shareholders of the company, have been engaged in a long-running ownership dispute with Sheltam Ltd over the company.

RVR said in the statement that the shareholders of the company had mandated the board to asses the present funding and management structure of the group, and to make appropriate recommendations by July 28, an obvious reference to the talks going on with Toll Holdings.

The Kenya Railways handed over all operational assets to RVR on November 1, 2006 for a period of 25 years for freight, and five years for passenger services.

Under the agreement, performance is to be measured in two ways — freight volume targets and minimum investment.

The freight volume target is measured annually, but for the initial period, the performance targets is to be measured for the period up to June 2009.

The agreement specifies a minimum investment of $5 million per annum for the first five years.

The Kenya Railway Corporation (KRC) regulates and monitors the performance of the concession on behalf of the government.

In a recent brief to the government, KRC said that RVR’s performance had consistently remained below par.

It noted that while the railway was moving 1.5 billion net tonnes kilometres per annum when RVR took over, the concessionaire had only managed to move 1.4 billion units in the first 12 months of the concession.

According to the concession agreement, the target at the end of the second year is 1.88 billion net tonne kilometres.

The railway network in Kenya has a capacity to move 12 billion net tonnes kilometres.