3 August 2011

East Africa: IFC, Global Lenders Finance Kenya-Uganda Railway, Supporting Regional Economic Integration

press release

IFC, a member of the World Bank Group, along with six leading international finance institutions, today extended $164
million in financing to Rift Valley Railways International (RVRI) to rehabilitate the Kenya-Uganda railway, a vital transport network for East Africa whose rehabilitation will encourage cross-border trade and investment.

The package backs a $287 million capital expenditure program to improve the operating company’s infrastructure and rolling stock. IFC becomes the largest financier to Rift Valley Railways, providing $42 million – a loan of $32 million loan, of which $10 million is already disbursed, and an additional $10 million in equity to be committed.

RVRI is a portfolio company of Citadel Capital, an Egypt-based private equity firm with $8.7 billion in investments across 14 countries in Africa. The Kenya-Uganda railway line has a track length of 2,350 kilometers, and employs 219 locomotives and 7,500 railroad cars. Other key shareholders are TransCentury and Bomi, which are Kenyan and Ugandan companies, respectively.

“This financing package is the backbone for an ambitious five-year rehabilitation program that will see Rift Valley Railways International make a quantum leap in operating standards as it addresses safety issues, completes due maintenance to improve reliability and hauling capacity, improves service to passengers, and captures long-term gains through investments in information technology,” said Karim Sadek, Managing Director at Citadel Capital.

IFC has played a critical role in encouraging private investment in the Kenya-Uganda railway since the inception of the project in 2005. Following the departure of the project’s initial sponsor, IFC led the restructuring of the shareholder group that resulted in the entry of new project sponsors and investors.

“Our rehabilitation program has already delivered impressive early results,” said Brown Ondego, Group Chief Executive Officer of RVRI. “Net ton kilometers were up 9 percent in the first half of 2011, compared with the same period last year, while turnaround times — a key measure of asset utilization — on the strategic Mombasa-Kampala route dropped 27 percent in the same period. Year on year, we have also seen a 30 percent drop in accidents per train kilometer.”

Other institutions participating in the package include: African Development Bank ($40 million); Germany’s KfW Bankengruppe ($32 million); Dutch Development Bank FMO ($20 million); Kenya’s Equity Bank ($20 million); Cordiant’s Infrastructure Crisis Fund ($20 million); and the Belgian Investment Company for Developing Countries ($10 million). The balance of the funding for the $287 million capital expenditure program is being contributed by shareholders and generated through operations.

“IFC has provided leadership and dedicated significant resources to encourage the turnaround of the Kenya-Uganda rail project,” said Jean Philippe Prosper, IFC Director for East Africa. “We are committed to the success of this railway as part of a broader effort to encourage private investment in infrastructure that promotes regional integration and social and economic development in Kenya, Uganda, and the surrounding region.”

Transport prices in East Africa are among the highest in the world, largely due to heavy reliance on trucking. A lack of operating capacity has resulted in rail capturing less than 10 percent of East Africa’s transport market. An efficient rail network has the capacity to reduce East African transport costs by as much as a third due to the operational and fuel efficiency of rail shipment.

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