Kenya, Uganda want out of RVR deal

URC officials have confirmed that they are in talks with a German concessionaire whom they are lining up, first, to start with the Gulu-Juba line between northern Uganda and Southern Sudan. CHARLES KAZOOBA reports

Uganda and Kenya are said to be looking for an exit route from the joint concession with Rift Valley Railways Ltd, just a year after handing over the management of their railway networks and assets to the South African consortium.
The EastAfrican has learnt that authorities in the two countries are taking issue with what they describe as RVR’s continued underperformance, wastage of concession assets and infrastructure and failure to remit revenue to the two governments.

Reliable sources say that technocrats from the Uganda Railways Corporation, Kenya Railway Corporation and Uganda’s Finance Ministry and its Kenyan counterpart met in Nairobi from Tuesday, May 13, to Thursday, May 15 to come up with a common position on RVR and to find a way forward. The meeting, according to one of the senior Ugandan officials who attended, was one of the “diplomatic avenues” aimed at ending the troubled marriage between the concessionaire and the two countries.

However, Uganda’s State Minister for Works and Transport John Byabagambi has confirmed the position, saying, “It is no longer a viable venture.”
Mr Byabagambi added, “We are saying that if the situation does not change, we shall terminate the agreement soon. We are very serious.”
Kenya’s Transport Minister Chirau Ali Mwakwere confirmed that in-house consultations had taken place between the parties to look into the performance of the concessionaire. The minister, however, said that while no decision has been made yet, the performance percentage of goods and speed of trains was below expectations, as was the injection of inputs to improve the system.
Mr Mwakwere added that, for any drastic measures to be taken, every clause of the agreement would have to be assessed. A full evaluation meeting, the minister said, is scheduled for June next year, but that does not stop the parties from carrying out routine consultations to evaluate performance, which so far has proved disappointing.
In 2005, the Rift Valley Railways consortium, in which South Africa’s Sheltam Rail Pty has a controlling interest, won the bid to manage some 900 kilometres of line from Kenya’s Indian Ocean port of Mombasa through Nairobi and across the Rift Valley to Kisumu on the shores of Lake Victoria.

“RVR is not performing to the standards demanded of them. The concession agreement states that 30 per cent of capacity must go to cargo, but they are carrying less than 10 per cent,” said Mr Byabagambi.
Uganda has apparently already moved to identify other concessionaires. Both the minister and URC officials have confirmed that they are in talks with a German concessionaire whom they are lining up, first, to start with the Gulu-Juba line between northern Uganda and Southern Sudan.
The chairman of the Parliamentary Committee on Physical Infrastructure, Nathan Byanyima, had at the close of April urged Uganda’s Finance and Works and Transport Ministries to evaluate RVR’s operations.

Mr Byanyima said Uganda’s transport minister had intimated that Kenya was equally disappointed with RVR.
Said the MP, “The same scenario has played out in Kenya. Our minister told us that the Kenyans had expressed similar concern over underperformance.”
According to an assessment last year by the Kenya Railways Corporation, done in the first three months after RVR took over, the company transported 405,170 tonnes of goods compared with 433,509 tonnes transported by the Kenya Railways Corporation in the three months preceding the concession — a 6. 5 per cent drop. Revenues for the first three months after the takeover amounted to Ksh1.08 billion ($15.65 million).
The evaluation was based on the reports that RVR has been submitting to the residual KRC, its regulator.

Bad blood, particularly between RVR and Uganda, was sparked off after one of the country’s locomotives, managed by RVR, was damaged in an accident in Nairobi mid last year and the concessionaire failed to either repair or replace it.
The EastAfrican was informed that the badly damaged locomotive has been abandoned at the Nalukolongo premises of URC.
Acting URC chief executive officer Emmanuel Lyamulemye estimates that a new locomotive costs $2 million. But he said the Ugandan locomotive was worth $1 million before the accident due to wear and tear. Uganda owns at least 40 locomotives whereas Kenya has more than 100.
“RVR has not performed at all. They have not fulfilled their conditions. They have not improved the railway infrastructure, neither do they service the locomotives. Kenya is saying the same thing,” said Mr Byabagambi.

Under the agreement, RVR was to pay an entry fee of $3 million to Kenya and another $2 million to Uganda before taking over the running of the network. The company was also supposed to pay in $24 million in equity as proof of ability to raise money from its own sources to the run the railway. RVR-Uganda was supposed to provide the government a performance bond of 10 per cent of $300 million, the value of the conceded assets.

On November 1, 2007, the South African firm could neither raise the money for the entry fee nor the equity. In the end, Sheltam had to invite local shareholders Transcentury Ltd and ICDCI Investments Ltd, and an Australian company, Babcock and Brown, to buy equity in RVR.
Mr Lyamulemye corroborated the minister’s position on phone from Nairobi during the meeting with their Kenyan counterparts and RVR, saying “Their performance is very poor. They have mismanaged the locomotives, wagons and the infrastructure. They have failed to maintain them. They are very unco-operative.”
The URC official, however, said the damage costs could be deducted from RVR’s conceded assets account as provided for by the agreement.

RVR has further not remitted revenue to the government. Mr Lyamulemye told The EastAfrican that they are supposed to remit 11 per cent of gross revenue on a quarterly basis. Said the URC chief, “They have not invested any monies, and have not remitted any revenue, yet they continue to be unco-operative.”
But when The EastAfrican talked to the RVR leadership, the concessionaire sounded upbeat about their operations. “We are very comfortable with what is going on,” RVR managing director Roy Puffet said via his cellphone.
Earlier, junior officials working with RVR-Uganda blamed their woes on the delayed approval of the partial risk guarantee (PRG) by Uganda and the failure to establish a joint railway commission between Uganda and Kenya that would monitor the railway operations.
We could be doing much better but the Uganda Parliament delayed approving the partial risk guarantee, which would have enabled us to source loans,” one of the officials, who preferred anonymity, said.

But Mr Lyamulemye dismissed the reasoning, saying “Many issues we are raising did not require the partial risk guarantee.”
The Parliamentary Committee on the National Economy, in its report to the House in February 2007, said it stayed approval of the partial risk guarantee because it was not provided for in the first agreement, which prompted the government to amend it before returning to the committee.
However, the Kenya government readily provided a PRG worth $45 million as it did not have to be approved by parliament but only by the Cabinet.
The PRG is an instrument recently introduced by the World Bank to mitigate the risk of investing in emerging Third World economies. It is designed to provide cover to private investors against termination resulting from either breach of agreement by governments or a change of national policy.

The Uganda and Kenya railways concession is one of the components of the East African Community’s Trade and Transport Facilitation Project aimed at boosting trade among the partner states. The EAC Customs Union implementation is another component. The Tanzania Railway Corporation is also in the process of concessioning its operations.
Ugandan officials say they anticipate minimal losses after terminating the concession. The URC chief said they have so far looked at three alternatives: Completely stop railway services (a worst case scenario); reconstitute URC in the interim period after doing away with RVR; or identify another concessionaire (estimated to take another two years).
“If both governments agree, we shall terminate the concession. Uganda will not lose anything, after all RVR has not invested anything,” Mr Lyamulemye said.

He said they would recover their losses by seizing the performance bond of $3 million. “The concessionaire will also pay liquidation damages. The only losses we envisage are the condition (worn out) of our assets and disruption of railway services.”

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Additional reporing by Catherine Riungu in Nairobi