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Uncertainty clouds East Africa’s railway project

Uncertainty clouds East Africa’s railway project

The colonial-era railway between Mombasa, Nairobi and Kampala faces an uncertain future.

The state owned Kenya Railways Corporation (KRC) has cancelled Rift Valley Railways’ (RVR) concession to operate the line and talks with a potential suitor have ended. All this comes on top of the decision in January by RVR’s main shareholder, Qalaa Holdings of Egypt, that it would sell its 73.76% indirect holding in the company. 

RVR has operated the line since 2006 under a 25 year concession but has suffered from changes of ownership; damage and losses incurred during the post-election violence of 2008; and its likely displacement by a new, much faster railway that will run along the same route.

The KRC announced in January that it had warned RVR over its failure to clear KSh600M (US$5.7M) in outstanding payments to KRC. It issued a 90 day notice to pay off the debt and when that period expired it ended the concession.

KRC managing director Atanas Maina commented: “Unfortunately, since January last year the concessionaire seems to have experienced financial difficulty and has not paid us fees…We have issued notices to the RVR to terminate concession. The Ministry of Transport of Kenya and that of Uganda are in discussions over this matter.” The government of Uganda has revealed that it is also considering ending RVR’s concession to operate on its portion of the line.

Following Qalaa’s decision to offload its equity – and under the terms of the concession – the remaining RVR shareholders have six months to sell RVR to another operator, after which time the concession will revert to the Kenyan government. However, the situation is complicated by the fact that one of the two remaining RVR shareholders, alongside Uganda’s Bomi Holding, is the Kenyan government itself.

Private equity firm Emerging Capital Partners was reported to be in talks with Qalaa over a possible deal, suggesting that there is at least the possibility of RVR surviving, but negotiations were later halted. The first section of the new railway, widely known in the region as the Standard Gauge Railway (SGR), is approaching completion.

Built by China Road and Bridge Corporation, it is also known as MoKaKi because it is anticipated that the line will eventually connect Mombasa to Kampala and Kigali. Passenger and freight trains should be running between Kenya’s main port, Mombasa, and its capital, Nairobi, in June.

The fastest passenger services will complete the 457km journey in just four hours. China Harbour Engineering Company (CHEC) has signed a contract to build the section of line between the Kenyan border and Kampala.

Road to rail

As far as the KRC is concerned, RVR’s big failing has been in not attracting more cargo from road to rail on the key Nairobi-Mombasa route. However, the line’s future always seemed in doubt once work began on the SGR. In order to make the new line a success, the Kenyan authorities are to force a large proportion of cargo travelling between Nairobi and Mombasa to be moved on the SGR.

It intends to achieve this by stipulating that a minimum of 40% of cargo travelling between Nairobi and Mombasa must be taken by the new line to Nairobi Internal Container Depot for clearance.

John Njiraini, the commissioner general of the Kenya Revenue Authority, said: “At least 40% of the cargo previously cleared in Mombasa will now find its way to Nairobi for clearance, with significant attendant benefits including speedier and cheaper cargo delivery, reduced road damage and road carnage and less pollution.” The depot is currently being expanded to handle 450,000 TEU, or standard sized containers, a year, up from 180,000 TEU at present.

The policy has understandably been criticised by some in the sector. The Shippers Council of Eastern Africa doubts whether the government is within its rights to mandate a minimum proportion of rail transport, while haulage firms stand to lose a huge chunk of business as a result of competition from the railway.

Vanessa Grant, the managing director of Rongai Transport, said: “We know government enterprises usually favour some traders while directly dealing a fatal blow to others. This must not happen when SGR starts as it should promote all businesses from industries to transporters by creating an efficient and reliable service for people and goods.”

Neil Ford

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