Friends of the Rail Forum

KENYA’S RAIL PLAN “TIMELY”

Posted on 12 December 2009 by Railways Africa Editor

Kenya’s existing railway network, “undercapitalised and run down for so long, may be out of tune with the technology and needs of today, and revamping it may not offer intelligent solutions for tomorrow,” consultant George Wachira writes in Nairobi’s Business Daily. He is impressed with the master plan drawn up by Kenya Railways Corporation (KRC), which took a full page press advertisement early in November to
explain what it has in mind.

“Their ambitious and brave decision to radically change the shape of the railway system to the standard gauge warrants to be given a chance and supported. A mega project like this one is destined to make a long term difference in the economic destiny of a number of EAC [East African Community] nations. It is the brave and ambitious decisions that were made in the seventies to construct the JKIA, the Oil Pipeline, the KICC, the Nyali Bridge and others that sustain the economic growth of today,” Wachira observes.

“The justifying vision should be to achieve express block trains from Mombasa to Nairobi and destinations in Uganda with minimum Malaba border transit time. It can happen because we saw it happen during the old EAC days, when all regional haulage was by rail, and EAC countries were virtually borderless.

“The basics of the project justification and design must have faith in a functional future EAC. The ultimate efficiency and unit costs should be such that road haulage will willingly transfer to rail without requiring regulatory intervention by governments. However, we should not underestimate the strength of the road transport lobby and vested interests, as these will certainly push back.

“At the end of it we should see a payback for EAC countries in haulage efficiency, reduced unit transport costs, extended life for our roads, and increased road safety. A good business and investment model will emerge if Kenya and Uganda work together to form a joint venture financed by the private and public entities of the two countries. In the meantime Kenya should polish up its political demeanour and assure regional neighbours that Kibera-type rail disruptions will be a thing of the past.”

KENYA’S OTHER PLANS

Posted on 12 December 2009 by Railways Africa Editor

Consultant George Wachira, writing in Nairobi’s Business Daily, commends plans for a new railway from Mombasa to Uganda, but strongly questions other ambitious ideas:

“A line from Lamu to Southern Sudan is questionable and premature at this moment in time, since the political set-up of Southern Sudan is yet to crystallise. It is more prudent to initially target the Southern Sudan transit business from Mombasa through Uganda, and thus augment the economics of the main Kenya-Uganda rail system. None at this moment can explicitly tell what political shape and orientation Southern Sudan will take. South may even decide to make the good political sense of cooperating with the North and make the Red Sea their preferred trade route. Good economics always prevail over bad politics eventually.

“Justification for the line from Nairobi to Moyale (intended to serve Ethiopia) is again misplaced and precarious. The natural and logical ports to serve Ethiopia are Asmara and Massawa in Eritrea, and it is only because the two countries are in a state of war that Ethiopia is using the longer and more expensive route via the port of Djibouti. For Ethiopia to turn to Mombasa, it will be even more expensive.

“Eritrea and Ethiopia will one day (sooner than later) decide to do what is politically and economically sensible and they will be back to using Asmara and Massawa as transit ports for Ethiopia. That is why we should not be in a hurry to contemplate a project via Moyale justified purely on bad politics between Ethiopia and Eritrea.

“I see a case where the new railway system has terminals at Jinja and Kampala and possibly extends to Kabale for Rwanda and Kivu region, while another terminal is at Kasese or Fort Portal for the emerging oil fields and the upper part of Eastern DRC.

“A terminal at Arua or Gulu will provide easy access to Southern Sudan.

“To provide integrated support for the new-look rail line initiative [across Kenya from Mombasa], attention should not be immediately diverted from Mombasa Port to a new proposed port at Lamu. The full potential for Mombasa Port is not exhausted as capacity for development exists to the furthest end of the harbour. Modernisation and expansion of Mombasa Port should go hand in hand with the design and development of the high-capacity rail line to Uganda.

“A business and financial model for the project should invariably have private sector content in it, with probably a 49/51% government/private shareholding. The venture may not even need to concession if it can professionally operated as a business. The two governments can raise cash from their bond markets to supplement their cash input, in addition to getting long term guaranteed finance from international lenders.”

NEW KENYAN RAILWAY “ON COURSE”

Posted on 22 January 2010 by Railways Africa Editor

Kenya’s planned new standard gauge railway is “on course”, transport minister Chirau Ali Mwakwere says. Evelyn Njoroge of Nairobi-based Butterfly News quotes him explaining that the agreement with Rift Valley Railways (RVR) initially blocked the proposed development. It stipulated that the two governments could not construct a line within 35km on either side of the existing railway. Eventually agreement was reached that a new line may be constructed without restrictions.

It had been hoped to start building the new line in June 2009, “after the government pledged to fast-track the signing of the bilateral agreement with Uganda to ensure that it becomes operational in the next two to three years,” Njoroge writes. Mwakwere, she added, is confident that the project is “on schedule”. Some three months ago, advertisements had been placed, inviting companies to submit expressions of interest, and bids are currently being evaluated. evaluating the bids,” he said. Certain firms, the minister said, “had volunteered to conduct the feasibility study and design at their own cost.”

According to Njoroge, the government is seeking “a private partner to help it raise the Sh196 billion (about $US2.5bn) it requires to fund the new railway whose total construction costs are estimated at Sh300 billion (about $US4bn). Mwakwere said that the line will initially be diesel-electric powered but this would be switched to a fully electric line once the country’s energy capacity and supply is reliable.

“The line will also extend from Kampala to the north past Gulu and into Southern Sudan and to Kigali, Rwanda and Bujumbura to the west.”

RIFT VALLEY DEVELOPMENTS

Posted on 22 January 2010 by Railways Africa Editor

On 15 January, according to Jaindi Kisero in the Saturday Nation (published in Nairobi), a new shareholders agreement was discussed at a lively board meeting of Rift Valley Railways (RVR).

In the previous week, the governments of Kenya and Uganda reportedly directed the company “to get its house in order” following reports that Egyptian-based Citadel Capital had bought 49% of South African-based Sheltam’s 35% interest in RVR.

In terms of timelines set down by the two governments, shareholders are required to recapitalise the company by putting in at least $US10 million by 25 January. It is understood that a meeting to decide whether to cancel RVR’s concession has been scheduled for 27 January in Kampala.

In the event of the concession being cancelled, Kisero writes, the Transcentury group risks losing an estimated $9 million it spent on acquiring its 20% stake in RVR as well as shareholder loans it has extended to the consortium in the last two years.

Kisero continues: “According to the government directive, the shareholders must sort out their differences within 14 days or face termination of the problematic railway deal. They must migrate all their shares to a new special-purpose vehicle known as the Kenya Uganda Railway Holdings (KURH) registered in Mauritius. In addition, they have to recapitalise the company to a level that will give two international lending institutions, the International Finance Corporation (IFC) and KFW of the Netherlands the comfort to release some $100 million they committed to the concession several years ago.

“According to the legal document that has been prepared to make it possible for the migration to KURH — so called ‘deeds of amendment’ — all six shareholders must raise capital in KURH in proportion to their shareholding in RVR.” The other shareholders of RVR are Centum of Kenya (10%), Mirambo Ltd of Tanzania (15%), and Prime Fuels Ltd of Kenya (15%).

“The Egyptians have said they are ready to inject the required $50 million in the concession. Transcentury has also said it is ready to fork out the needed cash.

“Last month, the London-based private equity fund Helios Capital also jumped into the fray saying it was ready to pump $50 million into the concession. In a letter by its managing director, Helios said it – together with its technical partners, America Latina Logistica of Brazil – had successfully conducted a commercial and financial due diligence and developed a detailed turnaround plan for RVR. Helios also said that it had engaged with both the IFC and KFW and that it was prepared to invest the money.