21 May 2017

East Africa: Rift Valley Railways Running Out of Time to Salvage Concession

Photo: Nation
Nairobi commuters sit on top of a crowded an RVR passenger train (file photo).

Rift Valley Railways is running out of time to save its concession as it emerged that the company, which the Kenya government served with a termination notice in April, is on the verge of being served a similar notice by the Uganda government.

Stephen Wakasenza, chief concession officer at Uganda Railways Corporation, told The EastAfrican that the concessionaire had been served with two notices, whose timeframe has now elapsed, but RVR has not managed to address the issues raised.

"There are three notices in this process. The first notice elapsed after 30 days; on April 12, we served them the second, which is a notice of intention to terminate, also for 30 days within which they have to remedy the issues. After this, we will serve them with the final notice, which is a notice of termination," he said.

At this point, it is only the lenders of the Kenya-Uganda railway concessionaire that can step in to save the company from losing its passenger and cargo haulage business in the two countries.

The EastAfrican has learnt that none of the lenders has so far committed to pumping more money into the troubled concession even as RVR hurtle towards the final 90-day notice from URC.

In Kenya, all the three notices have been issued and the concessionaire is only awaiting the expiry of the ultimate notice of termination, which gives the company 90 days to find a solutions to its problems.

The final notice from Kenya Railways Corporation, which RVR is still serving, expires at the end of June.

"A team from Uganda has travelled to Kenya to see what is happening. If lenders are to step in, they have to formally write to us. And as of now, they haven't," Mr Wakasenza said.

Contractual obligations

When contacted three weeks ago, German lender KfW -- one of RVR's pioneer lenders, along with the International Finance Corporation -- remained cagey over its continued financing of the 25-year concession.

"Since this issue concerns the ongoing customer relationship of KfW and the concessionaire, we are bound to contractual obligations and shall respect the liability law. Therefore we cannot communicate on funding related issues in this case," said Oliver Junger, director of KfW Kampala office.

Joram Nyanzi, general manager RVR Western, remains upbeat that the concession can be salvaged because "RVR is working with both governments and the respective regulators to resolve the issues."

Mr Nyanzi said RVR remains committed to the concession in which it has invested $287 million to turn around the railway and that in spite of the notices, "We continue to operate our railway services as normal between Mombasa and all inland destinations."

However, Mr Nyanzi's optimism seems to run counter to the thinking within the Uganda government.

On May 16, for instance, Uganda's Works and Transport Minister Monica Ntege-Azuba, while giving updates on the one-year progress on implementation of the ruling party's manifesto, especially the status of the multibillion dollar standard gauge railway project, hinted that the government was ready to call up time on the RVR concession.

"We've issued a letter of intent to terminate services of RVR. They are not performing," the standard gauge railway office quoted the minister in a tweet.

The moves to end the concession started in July 2016 when URC issued a notice of default to the concessionaire in which the government agency that owns the Ugandan arm of the railway voiced its frustrations with RVR for consistently failing to meet parameters especially increase in freight traffic volumes, payment of concession fees and maintenance of the concession assets.

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