4 May 2014

Uganda: Rift Valley Railways Off Track?

A few months ago, Rift Valley Railways (RVR) made lots of media noise about its re-opening of Uganda's northern rail line after 20 years of no service and how this would add on the cargo to and from the corridor. However today, no train plies the northern route. What happened? RVR blames the war that broke out in South Sudan mid December 2013 as the reason why no cargo train goes to northern Uganda anymore.

Mark Rumanyika, the general manager Western, says, shipments to northern Uganda were affected by the conflict in S. Sudan and cargo hence bulk cargo belonging to large transporters such as WFP couldn't be moved. In an e-mail to The Independent, he wrote, "The situation is gradually improving and RVR is working with stakeholders in the north to explore opportunities for expanding operations in response to demand and opportunity. At the moment it is premature to predict precise numbers."

He argued that the plan was for trans-shipments of freight - mainly grain and heavy machinery - into Gulu for onward passage to South Sudan and DR. Congo. But critics say there is still a lot of Ugandan cargo that can be cheaply ferried by train from Kampala to Acholi, Lango and West Nile sub regions. This cargo is being carried by trucks and buses at a very high cost to the business community. Why is RVR not doing something about it? These are some of the hard questions that RVR officials have to grapple with.

According to the concession agreements RVR is supposed to rehabilitate, operate and maintain the Kenyan and Ugandan rail networks as one railway system so as to improve the management, operation and financial performance of the two rail networks in a coordinated manner.

RVR was to embark on an investment program that would include rehabilitation of the track to allow safe passage of trains at designed speed, upgrading and modernisation of the locomotive fleet, rehabilitation of the rolling stock, purchase of new locomotives and wagons; renovations of buildings, workshops, depots and machinery; and installation of new information technology (IT) systems.

The investment program, when implemented, was expected to create significant economic and social benefits in both Kenya and Uganda, and to contribute to regional efforts to accelerate economic growth and alleviate poverty and also ensure more effective transportation of freight and passengers. The concession was signed in 2005. About ten years into the 25-year concession, the business community in Uganda laughs when one affirms that RVR has added any value to railway transport in Uganda.

Kampala City Traders Association (KACITA) Chairman Everest Kayondo summarizes the disappointment of the Ugandan business community and even goes on to suggest that the manner in which the concession was made could have been a big mistake.

"They are not serving us as we expected when they took over from Sheltam Railways. RVR is only focusing on revenue maximization than service delivery," he says.

"We the Ugandan business people are getting minimal services from that company. The government when privatizing should have retained majority shareholding and only ceded managerial role to the company."

On April 2, 2014, the total ownership held by Africa Railways in RVR moved up to 85% from 51% after buying out Kenya's TransCentury Holdings Safari Rail Company's 34% shareholding in the venture for $37.8 million.

The buyout of Safari Railways means Uganda's private investor the Bomi Holdings with 15% shareholding in the venture is now the only remaining shareholder in the 25-year concession venture under the Kenya Uganda Railway Holdings (KURH). The buyout of Safari Railways could be both good and bad for the venture.

The good about it according to industry experts, is that Africa Railways being the majority shareholder in the venture will be obliged to meet all the conditions as stipulated under the concession agreement while the underside is that African Railways could just make out money and not fix any infrastructure because there is less national interest as they are an Egyptian company.

Rumanyika dismissed all that talk as not holding any ground. He said many railway upgrading projects have been done and some are already complete, which he says would improve on the cargo transportation and turnaround time. These include the rehabilitation of 16 locomotives to provide pulling power and the installation of Automatic Train Warranty Systems (ATW) that were completed in early 2013.

"These innovations have certainly had an impact on the Ugandan economy as RVR now hauls more cargo to Uganda than it was hauling two years back. The business community is slowly returning to using rail transport which they had abandoned because of slower turnaround time," he said.

He said contrary to KACITA's claims, during the 2012-13 period alone over 730,000 metric tons of cargo were hauled to Uganda and that figure is projected to rise during the 2013-14 period. By March 2015, due to expansion in haulage capacity, this is expected to rise to 100,000 tons/month or 1.2 million metric tonmns a year, according to Rumanyika.

The company moves an average of 1.7 million tonnes of cargo annually for the two countries Kenya and Uganda - a share of just 7% of the market. Given the projected 10% annual market growth, RVR says it plans to grow its market share to between 10%-12% to average 4.5 million tonnes of the 26 million tonnes of cargo at the port of Mombasa by 2015. However, very little information, if any, is given about Uganda's share of that cargo.

"Due to the terms of the concession which measures the Net Ton per Kilometer NTK as a key KPI, we calculate our rail freight figures in their entirety right across the line both in Kenya and Uganda as such we do not measure the volumes we move on specific sections," said Rumanyika.

However, at the Uganda Clearing and Forwarding Association (UCFA), the chairman Kasim Omar disputes Rumanyika's assessment and agrees with Kayondo. "I don't see much improvement in terms of flow of cargo to Uganda. The only improvement we see is in Kenya where Uganda railways wagons are doing work," he says. "First of all, RVR's charges are not competitive and are almost similar to road transporters with a 40 ft container being charged $3,800-4,000 (about Shs 9.5m- Shs 10m)."

He adds that road transport is actually cheaper because it delivers the cargo to an Inland Container Depot (ICD) where storage is charged at Shs15,000 per day while RVR delivers the container at its goods shed where a container is charged Shs 37,000 and this rate increases every day the container spends at the shed. "To me RVR was a raw deal to the importing community," said Kasim.

However, Rumanyika insists that the costs would reduce as more investments are made in the dilapidated railway system. Under the programme according to Rumanyika, RVR plans to add one locomotive and 50 wagons every month in the next two years in accordance with their $300 million budget.

He says the ongoing rollout would see investments in new technology, infrastructure, and cargo carrying capacity would increase with the importation of 20 General Electric locomotives from the US over next 10 months. Also, wagon fleet increase by 1,000 this year, while skilled railway management talent will be built with massive investments in training and skills upgrading.

But despite Rumanyika's assurances, most Ugandan logistics service providers don't appear to see any light at the end of the tunnel. At the Uganda Freight Forwarders Association (UFFA), the general secretary Jennifer Mwijukye did not sound any more optimistic that her KACITA counterpart.

"RVR has not been useful to us. Its services are not reliable and they prefer working in Kenya to in Uganda," she said, adding, "They have always maintained that they transport more volumes in Kenya than in Uganda and that working in Kenya is more economical because of the shorter turnaround time. We think it is time that the government asked them to account for the Ugandan equipment they are using in Kenya because it is not benefiting Uganda at all."

While Rumanyika says he understands the sentiments of the business community about the slow speed, he says the company is "very encouraged" to know that the private sector is eager to use rail services as such a move would go a long way towards reducing the pressure on the road infrastructure. "The reasons why some people believe the pace of progress is slow is because they have not grasped the full extent of the challenge we faced when we took over the railway," he said.

He said no investment had been made in the railway for over 25 years before they came in, which meant that there was a need to completely overhaul the railway infrastructure and rolling stock through rehabilitation projects and purchases of new trains. However, he added, because railway lead times tend to be rather long - 18 months plus - "solutions cannot simply be bought off the shelf." For example, he added, they are only beginning to see the arrival of the first new locomotives now despite the fact that they ordered and paid for them almost two years ago.

He added that they are optimistic that they would be on schedule with their investment and turnaround programme which is spread over five years (from January 2017) which is the rebuilding of the company and the railway system in Kenya and Uganda into an efficient and robust rail transport and logistics provider to spur growth, integration and trade in East Africa. "The programme is also reversing years of underinvestment and neglect of this strategic infrastructure asset prior to concessioning. This excludes the defunct Kampala - Kasese section of the line which does not constitute a part of our concession," he added. He said the investment in rails and sleepers would permit speeds of up to 70 km/h against the 25-30 km/h limits today. Given that this vision is still almost three years away, the business community can only wish that RVR's plan moved as fast as the new locomotives it is promising.

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