Uganda opts to terminate RVR concession
Posted: 09 May 2009, 06:57
Finally, Uganda opts to terminate RVR concession
By CHARLES KAZOOBA
The East African
Posted Saturday, May 2 2009 at 10:57
Kampala has finally put to paper its intention to terminate the contract with the Kenya and Uganda railway concessionaire Rift Valley Railways, the consortium that in 2006 took over the running of the rail transport systems in both countries.
The Uganda government has already secured Ush19 billion ($8.5 million) to cushion itself against any shocks the termination may present as part of its “Plan B†once the concession — now six months shy of its third anniversary —is terminated.
Last week, the Committee of Parliament on Physical Infrastructure gave the executive the green light to terminate the contract and promised to support the sector minister’s budget under which the package is allocated.
It is unclear whether Kenya will be taking a similar path, although Ugandan authorities claim they are constantly in touch with Kenya and that possibly Nairobi will also find funds to cushion itself.
“We still feel RVR has let us down,†State Minister for Works John Byabagambi told MPs. Uganda, according to the Minister, has already issued two termination notices but is yet to issue a final one.
“We are preparing to issue a third notice. That is the reason we have requested parliament to appropriate the Ush19 billion. This money is for a fallback position,†the minister later said in an interview with The East African.
Mr Byabagambi said cargo carriage had stagnated over the life of the concession, though he conceded that it had improved after new management took over last year.
“However, our concern is that it is failing to meet the required standards,†he said.
RVR has regularly defaulted on the contract after failing to pay up concession fees, maintain railway assets and increase cargo update.
In Kenya, a legal battle between RVR and Nairobi has prevented the latter from taking a definite decision.
Earlier, Kenya and Uganda had agreed to give RVR a final opportunity once the firm improved its performance and met the required standards.
However, the minister said they were yet to be impressed by the performance.
“The agreement lays out a proper procedure to let them (RVR) go. It is RVR that will bear the losses. They have consistently performed below average. So this time they really have to go,†a senior Ugandan official familiar with the transaction said.
On the fate of the rail service should the contract be terminated, Mr. Byabagambi said Uganda Railways Corporation would retain the management and operation of the line linking the two neighbouring countries to the sea.
He said the appropriated funds would be supplemented by proceeds from the sale of the company’s assets after termination and the daily income from operations.
“We shall sell off the non-core assets and then raise other funds to run the railway from daily income and government subsidy,†said the minister.
RVR had originally pledged to raise $28 million at the beginning of its operations in 2006. This would have enabled its financiers, the World Bank’s private sector lender International Finance Corporation and German funder KFW to provide $64 million.
The latest consensus between the two neighbouring countries is that the lenders KFW and IFC can defuse the current crisis.
It is understood that earlier KFW, the German Development Bank, had halted the disbursal of loan funds over the inefficiencies exhibited by the firm.
“We know there is a commitment to give RVR all the funds they need. In fact, we are yet to sign an agreement to that effect,†said Mr Byabagambi. “However, that does not mean that we abandon our plans to terminate the contract because the financiers could change their position any time.â€
After Sheltam was kicked out for non-performance, other investors, including Helios Investment Partners have notice to acquire interest in RVR.
Though RVR urgently needs new money to revamp the operation, it has not been able to take new investors on board because the move requires approval by the two governments.
Sheltam’s shareholding will be condensed to 10 per cent, down from 35 per cent. The remainder will be taken by equity firm Trans Century Group and its partners, including Mirambo Holdings and Prime Fuels Ltd.
Under a restructuring plan approved by the Joint Railway Commission in August last year, the shareholders were to pump $50 million into RVR’s operations.
Other details indicate that Uganda has agreed with the proposal by RVR that the shares of Sheltam be transferred to Kenya-Uganda Railway Holdings Ltd, in which Uganda would have shareholding and which would be the new lead investor.
By CHARLES KAZOOBA
The East African
Posted Saturday, May 2 2009 at 10:57
Kampala has finally put to paper its intention to terminate the contract with the Kenya and Uganda railway concessionaire Rift Valley Railways, the consortium that in 2006 took over the running of the rail transport systems in both countries.
The Uganda government has already secured Ush19 billion ($8.5 million) to cushion itself against any shocks the termination may present as part of its “Plan B†once the concession — now six months shy of its third anniversary —is terminated.
Last week, the Committee of Parliament on Physical Infrastructure gave the executive the green light to terminate the contract and promised to support the sector minister’s budget under which the package is allocated.
It is unclear whether Kenya will be taking a similar path, although Ugandan authorities claim they are constantly in touch with Kenya and that possibly Nairobi will also find funds to cushion itself.
“We still feel RVR has let us down,†State Minister for Works John Byabagambi told MPs. Uganda, according to the Minister, has already issued two termination notices but is yet to issue a final one.
“We are preparing to issue a third notice. That is the reason we have requested parliament to appropriate the Ush19 billion. This money is for a fallback position,†the minister later said in an interview with The East African.
Mr Byabagambi said cargo carriage had stagnated over the life of the concession, though he conceded that it had improved after new management took over last year.
“However, our concern is that it is failing to meet the required standards,†he said.
RVR has regularly defaulted on the contract after failing to pay up concession fees, maintain railway assets and increase cargo update.
In Kenya, a legal battle between RVR and Nairobi has prevented the latter from taking a definite decision.
Earlier, Kenya and Uganda had agreed to give RVR a final opportunity once the firm improved its performance and met the required standards.
However, the minister said they were yet to be impressed by the performance.
“The agreement lays out a proper procedure to let them (RVR) go. It is RVR that will bear the losses. They have consistently performed below average. So this time they really have to go,†a senior Ugandan official familiar with the transaction said.
On the fate of the rail service should the contract be terminated, Mr. Byabagambi said Uganda Railways Corporation would retain the management and operation of the line linking the two neighbouring countries to the sea.
He said the appropriated funds would be supplemented by proceeds from the sale of the company’s assets after termination and the daily income from operations.
“We shall sell off the non-core assets and then raise other funds to run the railway from daily income and government subsidy,†said the minister.
RVR had originally pledged to raise $28 million at the beginning of its operations in 2006. This would have enabled its financiers, the World Bank’s private sector lender International Finance Corporation and German funder KFW to provide $64 million.
The latest consensus between the two neighbouring countries is that the lenders KFW and IFC can defuse the current crisis.
It is understood that earlier KFW, the German Development Bank, had halted the disbursal of loan funds over the inefficiencies exhibited by the firm.
“We know there is a commitment to give RVR all the funds they need. In fact, we are yet to sign an agreement to that effect,†said Mr Byabagambi. “However, that does not mean that we abandon our plans to terminate the contract because the financiers could change their position any time.â€
After Sheltam was kicked out for non-performance, other investors, including Helios Investment Partners have notice to acquire interest in RVR.
Though RVR urgently needs new money to revamp the operation, it has not been able to take new investors on board because the move requires approval by the two governments.
Sheltam’s shareholding will be condensed to 10 per cent, down from 35 per cent. The remainder will be taken by equity firm Trans Century Group and its partners, including Mirambo Holdings and Prime Fuels Ltd.
Under a restructuring plan approved by the Joint Railway Commission in August last year, the shareholders were to pump $50 million into RVR’s operations.
Other details indicate that Uganda has agreed with the proposal by RVR that the shares of Sheltam be transferred to Kenya-Uganda Railway Holdings Ltd, in which Uganda would have shareholding and which would be the new lead investor.