12 February 2018

Uganda: Govt, RVR in Fresh Legal Battle Over Railway Deal

Photo: Daily Monitor
An RVR train wagon at the Kampala rail station.

Kampala — The government and former Uganda-Kenya railway concessionaire--Rift Valley Railway (RVR), have gone back to court following last month's cancellation and takeover of the concession by ministry of Finance.

RVR, through their lawyers, MMAKS Advocates, filed the fresh notice for arbitration at the High Court last week, seeking among others, a temporary injunction against Uganda Railway Corporations (URC) manager of the meter gauge railways assets from operating the railway line, using the available 240 wagons, handling of freight cargo, taking over of [RVR's] employees and using the three locomotives, until the main application has been disposed of.

Concession fees

RVR also contends that as per the Concession Agreement, the company has been paying concession fees to URC of 11.1 percent of gross revenues, met freight targets, between 250 metric tonnes between July 2013 to March 2015, 272 metric tonnes between July 2014 to December 2015 and 380 metric tonnes between July 2015 and September 2016, submitted all quarterly reports from 2010 to end of 2016 when they "got issues with auditors" following the first termination notice and invested significantly in the network

Terminating concession

The government first terminated the concession in October 2017, which prompted RVR to seek legal redress. However, after a series of court appearances, the government in December, agreed to withdraw its notice of termination and requested the embattled concessionaire to withdraw its arbitration proceedings to allow room for discussions.

The discussions also included revising some of RVR's key performances indicators (KPIs) for the Uganda line--from Malaba to Kampala--since the embattled concessionaire no longer operates in Kenya; which formed 80 per cent of their operational costs given the length of the line from--Malaba to Mombasa.

The railway line is 1,300km from Kampala to Mombasa; with 1,000km in Kenya and 300km in Uganda. As a result, Uganda accounts for 75 per cent of RVR revenues while Kenya accounts for 80 per cent total costs due to the distance.

However, after back and forth shuffling with influence from external actors, the ministry of Finance on January 25, wrote to RVR executives in Cairo saying: "There is an absolute failure and refusal to perform or continue with performance of your explicit and critical contractual obligations."

Finance minister Matia Kasaija also directed URC to takeover the railway assets. URC officials immediately invaded RVR offices and seized operations, barring key RVR officials from exiting with any property.

RVR, owned by Qalaa Holdings, formerly Citadel Capital SAE, an Egypt-based private equity investment firm, has had a fair share of problems--from financial and managerial.

The company's executives also say the takeover was "done in very bad faith" and has far-reaching consequences.

After taking over, URC wrote to all RVR's former customers notifying them of the development and advising them against dealing with the latter. The government cancelled the concession with 15 years left to officially end the contract which puts government in a legal minefield and may lead to huge sums of money as reparation.

In a notice dated January 29, RVR said: "It has not repudiated obligations nor its rights under the Uganda Concession Agreement" and "remains the only legal entity to operate railways inside Uganda" throwing the customers in confusion.

Finance minister Kasaija in the January 25 termination notice, said following the previous discussions that they were "repudiating the concession", the wording that Qalaa Holdings board chairman Karim Hassan Sadek in an interview with Daily Monitor in Kampala, said, "doesn't exist nor is it provided for anywhere in the clauses of the concession."

"Even Kenya after announcing the decision to terminate us gave us a full month to prepare for handover. But the manner in which Ugandan officials behaved leaves a lot to be desired," Mr Sadek said.

After agreeing to withdraw the arbitration proceedings last December, Mr Sadek said they held discussions with ministry of Finance officials. However, given the heated political discussions on constitutional amendments for the age limit, "we did not conclude."

"We only received a letter talking about 'repudiation' without anyone taking trouble to hear our side," Mr Sadek added.

Kenya terminated the RVR concession last August after a protracted legal battle, followed by Uganda on October 4.

Finance speaks

Asked how government planned to manage the railway through the handicapped and cash-strapped URC, the Finance ministry spokesperson Jim Mugunga, said a request had been tabled to the Treasury to avail "some money" to capitalise the entity.

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