Tuesday February 9 2010

RVR pays off Uganda and Kenya Shs6 billion debt

Uganda-Kenya railway network

LUCRATIVE: Revamping the Uganda-Kenya railway network will strengthen the two countries’ competitiveness in the global market. PHOTO BY STEPHEN WANDERA. 

After years of false starts and a series of dead negotiations, the Uganda-Kenya railway is finally beginning to creak following plans by the East African Community to raise capital to upgrade and expand the existing railway network to boost the region’s competitiveness in the world.

But the icing on the cake came last Tuesday as Rift Valley Railways (RVR), the company operating the Uganda-Kenya railway, wired about $3 million (about Shs6b) in outstanding fees owed to the government of the two nations for giving it exclusive rights to operate the ailing transport facility.

“Uganda received about $1 million (appx Shs1.9b) while Kenya was given $2 million (Shs4 billion),” a well placed source in the Uganda government told Business Power last week, but declined to be named as a condition to provide the information.

Privatisation Unit spokesperson confirmed the transaction had taken place. “It is true that some fees have been paid to the government of Uganda,” Mr Jim Mugunga said in a phone interview. However, he preferred not to reveal any outstanding fees because of on-going negotiations between the governments and RVR. “The money that has been paid, has been in fulfilment of the obligations under the concession agreement,” he said.

A concession is a business operated under a contract or license associated with a degree of exclusivity in business within a certain geographical area. Kenya and Uganda handed the RVR a 25-year concession in 2005 to revamp the railway transport system in the two countries but there have been no signs of improvements in the service.

Mr Mugunga said the recent payment was a result of ongoing restructuring efforts by the two governments “to move hand-in-hand with the concession.”

The Kenya and Uganda governments through a Joint Railway Commission (JRC) were set to meet RVR officials in Nairobi to discuss the future of the railway concession yesterday. The meeting will follow the January 27 meeting, where shareholders of RVR failed to provide information to merit the transfer of some of RVR shares to Egyptian investment company Citadel Capital.

According to well-placed sources that asked not to be named because of their interest in the deal, RVR has only been able to pay up after receiving financial help from Sheltam Rail of South Africa – the majority shareholder (35 per cent) in RVR. The source said Citadel Capital, an Egyptian private equity firm, bought 49 percent into Sheltam’s mother company hence enabling the later to refinance its debt obligations to RVR.

Last month, Daily Monitor reported that Uganda would be a beneficiary of a Citadel planned Shs764 billion fund investments in Africa.
The $8.3 billion firm last November listed on Egypt’s stock exchange to raise funds for its planned expansion into Algeria, Sudan, East Africa and the Middle East.

According to Dr Ahmed Heikal, Citadel Capital’s chairman and founder said the firm’s plan for East Africa follows its successful investment activities in Sudan where it has invested in sectors such as oil and gas, transportation, logistics, financial services, cement, mining, and agriculture.

Investment fund experts however believe that with the all the capital in its control, Citadel is unlikely to sit back as an observer rather it might move for a major stake in RVR from its current shareholders who have proved, since winning the concession in 2005, to have no financial muscle for the business.

Payment of outstanding fees owed to Uganda and Kenya by RVR now allows the railway body to negotiate possible transfer of shareholding to other interested parties.

Shareholders in RVR include; Sheltam Rail of South Africa with a majority stake in the venture (35 per cent), Trans Century (20 per cent) Prime Fuels of Kenya (15 per cent), Centum Investments Kenya (10 per cent), Mirambo holdings of Tanzania (10 per cent) and Australia’s Babcock and Brown (10 per cent).

Daily Monitor reported last week that shareholders of Rift Valley Railway Investments said they had not yet finalised internal negotiations among themselves and were, therefore, not in a position to provide the required documents to meet all conditions for the transfer of shareholding to Citadel. However, it is apparent that the Egyptian company has paid the $150 million asking price into Sheltam. Sheltam is the majority shareholder of RVR and acquiring such a stake enables Citadel to appoint its representatives to the RVR board, to give it an upper hand to push for its interests.

Even as Citadel positions for a possible takeover, delegates from the East African Community states are meeting next month to discuss the creation of a fund for the implementation of the East African Railway master plan.

Mr Alloys Mutabingwa, the deputy secretary general Planning and Infrastructures, said master plan needs about Shs57 trillion ($29 billion) – cash twice as much as the total value of all goods and services in Uganda in 2008. The master plan, which was carried out and completed by Canadian consulting firm, CPCS Transcom International last year, will be the main focus of discussion by East African delegates who will gather in Nairobi, Kenya between March 11 and 12.

At an earlier press conference, he said the money needed can be raised by a single investor but it has to be discussed. “While the investment is high, the returns to investment are equally high and it’s for the long term,” he told journalists at the Uganda Media Centre.

The money is needed to upgrade the line to a standard gauge facility with the ability to move up to 120 kilometres per hour compared the current 25 kilometres per hour, activate the inactive railway lines, and extend the existing lines to reach the borders of the five East African nations.

Once improved, the monthly tonnage of goods carried will climb to between 4,000 - 5,000 compared to the current 900 tonnes per month. The benefits are expected to boost regional and international business by increasing efficiency, while lowering the cost of transportation of cargo and passengers.

In a related development, Aston Kajara, the State Minister for Investments announced that Uganda will host The 3rd East Africa Community Investment Conference in Kampala as the region positions itself to attract more investors.

The conference will be held between April 26 and 29 and is expected to gather at least 1000 delegates from the region’s public and private sectors. Mr Kajara said participants at the meeting will address the challenges that hinder investment in the region, point out the region’s investment opportunities, and find ways of improving the business environment of the EAC.

Mr Mutabingwa added that it will be a platform for executives in both the private sector and public, within and outside the region to discuss, and exhibit new products and services in the region and those lined up.
The investment conference will also inaugurate the East Africa Community Investor of the Year Awards. “The awards will recognize and encourage cross-border investors and strengthen the bonds of integration,” said Mr Kajara.

The partner states are this week scheduled to discuss the formation of an East Africa Community Development Fund that will partly finance cross-border transport and energy infrastructure. Mr Mutabingwa said the fund will have an overall objective of shielding partner states against losses arising from the integration process like reduction in revenue collection. “There’s a process to have it up and running, we are still working on the modus operandi of what we can use the resources for,” he said. The fund will be discussed in Entebbe, Uganda.