Autoports says the cost for the locomotives will be recovered from lease rentals to URC. Photo / Edgar R Batte
An unsolicited bid by Autoports Freight Terminals, a Kenya logistics firm, to buy and lease locomotives for Uganda Railways Corporation (URC), is causing disquiet.
Industry players question the deal, noting that the Kenyan company proposes to purchase four locomotives and associated spares at $22m (Shs80.9b), money it will recover from lease rentals to URC over 10 years.
Details indicate that URC has submitted justification for the deal, secured board approval, and brought up-to-speed Public Procurement and Disposal of Public Assets Authority (PPDA) and Works Minister Katumba-Wamala.
Among the concerns about the proposal is the single sourcing that Autoports and URC officials are pushing, with observers citing the potential of market distortion resulting in higher freight charges and hoarding of rail capacity from competing shippers.
Besides earning from leasing the engines, Autoports is also seeking a rebate on what URC will charge them.
Thus, observers ask why URC is rushing to lease, instead of fixing its broken-down locomotives, amid parallel plans to buy a new fleet through the African Development Bank.
They say even if URC were to lease, there is no justification for single-sourcing Autoports, which is just a freight terminals operator and cargo consolidator.
“By their admission [Autoports] are middlemen, not a legacy rail company,” says an industry expert familiar with the matter, adding “the first logical step … would be to invite bids from firms in the railway business, not Autoports, which is neither a rail operator, railway rolling stock nor power systems dealer”.
According to a May 13, 2024 letter, Autoports proposes to procure the engines and make the capacity available to URC under a wet-lease arrangement, but use URC drivers and workshop facilities to keep the locomotives running at $3,500 (12.8m) per day per locomotive.
In its justification, Autoports says about 11 million of the 34 million metric tonnes of cargo that go through Mombasa port annually is transit cargo, with Uganda accounting for 85 percent.
But only 7.6 percent of this or 0.57 million tonnes is transported by rail. Autoports says it handles 1.5 million tonnes of cargo annually, 75 percent, of which is transported by rail.
The firm, which currently transports 300,000 metric tonnes of steel billets and cold rolled coils per annum for Roofings, says only 25 percent of this is transported by rail and plans to increase the volumes to 540,000 metric tonnes by November 2025 are hampered by capacity constraints at URC.
“This is because the railways sector does not have enough assets and lacks the necessary structures to support rail-bound cargo,” says Autoports executive director Salim S. Sadru, adding: “[We have] invested in modern infrastructure at the Port of Mombasa for effective handling of bulk commodities, containers, and provision of first-mile solutions … our strategy is to ensure that all logistics and transportation services are available and cost-efficient to serve Uganda based on the rail model”.
To achieve this, Autoports says KRC and URC should reinstate the open access model on the metre-gauge railway from Mombasa to Kampala, rerouting South Sudan cargo to Tororo-Gulu.
It also notes that its shipments should have the first call on the capacity provided by the locomotives it intends to lease, for which, it will thus be responsible for operation and fuelling of the locomotives, guarantee availability, and commit to minimum cargo volumes, in addition to paying freight agreed upon charges. In return, URC will provide Autoports with maintenance workshop space and tools to undertake maintenance of the locomotives at a negotiated fee and pay locomotive lease fees.
Contrary to the terms of a wet lease, which entails the provision of the equipment and crew, Autoports wants URC to provide the crew and manage the operation of the locomotives between Malaba and Kampala.
In a June 6 brief to the board, URC chief operating officer Abuberkerer Ochaki said Autoports accounts for 70 percent of cargo carried by URC monthly and had agreed, in a meeting between URC, Roofings, and Autoports, to increase the allocation to rail to 50,000 metric tonnes monthly.
“However, URC and KRC could not handle the available demand,” he said, noting that whereas cargo demand is projected to grow to 70,000 metric tonnes in 2025, URC will only have three operational locomotives, yet six locomotives will be required by 2025 and eight in 2026 to rail 80,000 tonnes for both the main line and the Tororo-Gulu line.
While URC plans to buy four locomotives under an ongoing AfDB-funded project, the realistic time frame for delivery is around 2028-29.
Mr Ochaki noted that during this time, cargo is anticipated to grow to 120,000 tonnes, which will require 13 locomotives, noting that whether AfDB-funded locomotives arrive in 2028 or 2029, the demand for locomotives will still be high.
URC has four mainline locomotives, but “two are sick and non-operational” and “the available locomotives are showing several complications”.
Mr Ochaki projects that at only 70 percent availability, URC would have an annual operating income of $11.5m (Shs42.5b) if it leased three locomotives and $15.4m (Shs56.7b) if four are leased.
However, he said the lease fees be paid by the Treasury through quarterly releases.
Our inquiries about the planned deal returned a handful of contradictions.
URC acting managing director David Musoke Bulega said the proposal is not economically viable, yet official correspondence suggests he backs the deal.
Citing client confidentiality Mr Bulega first refused to address questions about the deal, but acknowledged that Autoports’ was simply one of several unsolicited bids that routinely come to his office.
“It is normal for businesspeople to solicit business. What matters is that such proposals have to be evaluated and subjected to competition,” he said, noting it was not automatic that URC would lease from Autoports.
Responding to Mr Ochaki’s recommendation to the board, Mr Bulega said: “He can be hooked as an individual but, as the accounting officer, I have my views and he cannot just push this through,” while on the price, which was revised to $2,500 (Shs9.2m) per locomotive per day, he said it was on the higher side and could impose a huge burden on URC.
“I think Shs310m per month is on the higher side in terms of operating costs ... but ... we shall arrive at a figure that is more in line with market norms,” he said.
This is contradicted by correspondence between URC, Autoports, PPDA, and the Ministry of Works suggesting a focus on single-sourcing.
For instance, in a July 9 letter to the executive director of the PPDA, titled “Leasing four locomotives from Autoports under direct procurement method, Mr Bulega provides background to the deal and its justification and then concludes by communicating the board’s decision to proceed with Autoports’ proposal.
“At its 82nd meeting, the board deliberated on the matter and recommended in principle that URC should consider leasing locomotives from Autoports ... the purpose of this letter is therefore to seek your guidance on the above-captioned matter,” Mr Bulega said in a letter.
