East Africa - Power games derail railway deal

[John Ashworth]

Power games derail railway deal

By JAINDI KISERO
Sunday Nation
Posted Saturday, February 28 2009 at 20:33

In summary: Transport ministry and Treasury take different positions on RVR takeover

A crucial meeting between Uganda and Kenya to discuss the fate of the Kenya Uganda Railway concession was cancelled at the last minute on Friday.

The Kenyan delegation in Kampala led by Transport minister Chirau Mwakwere left in a hurry to return to Nairobi.

Analysts attributed the development to a power play and muscle-flexing between the ministry of Transport and the Treasury over the fate of the concession of the 900-kilometre railway between Mombasa and Kampala.

Kenya and Uganda handed over all rail operations to Rift Valley Railways Ltd (RVR), led by South African company Sheltham Ltd, in 2006 through a 25-year concession. Hardly a year later, the South Africans left for non-performance.

But several months after the exit of the South African investors, private equity fund, Trans Century Ltd group came in but has yet to take full control because the ministry of Transport has been reluctant to consent to the change in the shareholding structure.

Indeed, RVR and the ministry of Transport have been exchanging acrimonious letters on the fate of the concession. At one point, the ministry demanded that the new shareholders engage foreign experts with experience in running railways.

RVR has engaged America Latina Logistica of Brazil, which operates railways in Brazil and Argentina, as technical partners.

With the delay in approval of a new shareholding structure, Trans Century and its partners have been unable to put any new money into the company. The upshot has been inordinate delays in injecting $50 million (Sh4 billion) which Trans Century and its partners have pledged to do under a restructuring plan in August last year.

Under the agreement, $10 million has to be injected into the company within 14 days of the consent and approvals by Kenya and Uganda. And $40 million must be injected into the company within 24 months at agreed intervals and all arrears of fees left behind by Sheltham cleared in 30 days.

In the middle of negotiations with the Trans Century group and its partners, the ministry of transport has been holding consultations with a number of big users of the railway on an “open access” system – an arrangement where operators with their own locomotives are allowed to operate cargo services on the railway line on the same terms as RVR.

The campaign for construction of a standard gauge railway line – whose main champion has been the ministry of Transport – is yet another example that the mindset of the ministry has been to look beyond the RVR concession.

Against this backdrop, it did not surprise that a perception grew within the transport industry in both countries that Kenya’s ministry of Transport was in favour of the cancellation of the RVR concession.

On the other hand, Treasury was convinced that the concession was worth a chance. These differences were expected to play out openly at the aborted Kampala meeting.

Who exactly asked Mwakwere and his team to return to Nairobi? The details are scanty, but informed sources attribute the development to an intervention by Finance minister Uhuru Kenyatta.

Fearing that Kenya was going to the Kampala meeting without a common position, Mr Kenyatta is said to have sought the intervention of State House on the matter.

The aborted meeting was a follow-up to another one convened by Prime Minister Raila Odinga in January that teams from both Uganda and Kenya attended.

Three options were agreed on at that meeting. First, that the concession be terminated; second, that it be restructured and new shareholders be allowed to assume the position of lead investor; and third, that a new arrangement be negotiated with the existing shareholders of RVR.

At a subsequent meeting in Kampala on January 9, positions changed. It was agreed, first, that Uganda and Kenya should go ahead and sign the approvals to allow RVR to take the leadership of the concession only if IFC and KFW agree that they will disburse loans they have committed to the concession.

Alternatively, it was also agreed that in the event that the takeover of the concession by the new investors doesn’t come through quickly and the lenders refuse to play ball, the concession be terminated.

Agreed with proposal

Uganda had come up with a position which it communicated to Kenya in a letter by Public Works minister John Nasasira.

Among other things, Uganda agreed with the proposal by RVR that the shares of Sheltham be transferred to Kenya Uganda Railway Holdings Ltd, in which Uganda will have shareholding and which will be the new lead investor.

Kampala also proposed that the idea of constructing a standard gauge railway line be included in the new concessioning agreement. Thirdly, that the performance of the concession and fees be paid quarterly instead of annually.

And, finally, that some of the compliance timelines for the concession be relaxed and made more realistic.

How events will unfold in the coming weeks remains unclear.

But with Uganda seeming agreeable to the proposals by the Trans Century group and its partners, and considering the circumstances which forced the postponement of the meeting planned for Kampala last week -- all indications are that the RVR concession is here to stay.