Former rail firm boss on the spot over shareholding fiasco

• S. African suspected to have played major role in stakeholder impasse at the RVR

South African national and former chairman of the Rift Valley Railways (RVR) Roy Puffet remains a man on the spot as it emerges that he played a major role in fomenting the shareholder impasse now threatening to unravel the messiest privatisation scandal in Kenya’s history.

Correspondence seen by the Sunday Nation shows how Mr Puffet had, in just two months, managed to craft a complex game of deception that allowed him to play one shareholder off against another, leaving behind a boardroom composed of sworn enemies.

In the months of November and December, Mr Puffet was simultaneously negotiating to sell his shares in the shell company, Sheltam, to both Transcentury Ltd and the Egyptian private equity firm, Citadel Capital Ltd.

Just how these private equity firms allowed themselves to be manipulated in this manner is one of the most intriguing aspects of the saga.

It all started early last year when the South African readily accepted to step down from the chairmanship of RVR after running down the 900-kilometre Kenya-Uganda Railway, leaving it in a far worse state than he found it when it was managed by the governments of Kenya and Uganda.

On August 22, 2008, Mr Puffet wrote a letter formally accepting to relinquish his lead shareholder status in RVR, setting the stage for other shareholders to participate in a rights issue in which his 35 per cent shareholding in RVR would be diluted to zero.

Months later, and as the parties were set to float the rights issue to raise the money to recapitalise the company and to allow the railway to access $100 million of funds committed to the concession by leading financial institutions – the International Finance Corporation(IFC) – it emerged that under the concession agreement he had signed with the government, the man’s holdings could not be diluted.

That was how the idea of creating the new special purpose vehicle – the Kenya Uganda Railway Holding (KURH) came about. It was the only feasible way of circumventing the provision in the concession agreement that protected Mr Puffet’s shareholding in RVR from dilution.

But even as the negotiations to create KURH were going on, Mr Puffet made sure that he remained the signatory to RVR’s key documents. The employment contracts for some of its top executives still bore his signature.

He readily signed the documents committing him to stay out of KURH. According to the documents, shareholders were divided into participating and non-participating directors.

Those who decided to stay out of KURH were Sheltam, Babcock Brown and Centum. Prime Fuels, Mirambo and Transcentury became the participating directors.

Consequently, all the six shareholders mutually agreed to the KURH arrangement. What happened thereafter is difficult to tell. It is all about claims and counter claims with each party refusing to accept blame for the collapse of the discussions.

However, the following facts can not be contested.

First, Prime Fuels and Mirambo delayed signing the the KURH documents for months on end.

Second, Centum and Transcentury signed the documents.