State on right track with plan to terminate rail concession
An SGR locomotive with passenger coaches on the way to Nairobi on February 2 for inspection ahead of the commissioning in June. PHOTO | FILE | NATION MEDIA GROUP
What you need to know:
- RVR’s funders include deep-pocketed entities such as KFW of Germany, the Africa Development Bank, Ned Finance of the Netherlands and ICF Debt Pool LLP of the United Kingdom.
- The 20 locomotives were leased to RVR by companies in which Qala Holdings had a beneficial interest.
- RVR also owes $20.7 million to Kenya Railways for life expired assets and another $10.7 million for wagons and assets destroyed in accidents.
Let us admit it. We still don’t know what to do with the Lunatic Express, namely, the old railway line currently under a 25-year concession by the name Rift Valley Railways (RVR).
As things stand now, the government has sent a notice to terminate the concession controlled by the Egyptian private equity fund Qala Holdings.
The Egyptians, who have been busy trying to sell RVR to third parties, have interpreted the action by the government as ill-motivated and meant to scuttle their negotiations with potential buyers.
From what I gather, a consortium led by the South Africa railway operator Transnet that had originally expressed interest has pulled out, leaving the field to the Pan-African equity group, Emerging Capital Partners. But do we really want to hand over the line to another private equity fund?
From the time I read the story of Mr James Ibori, the former governor of the oil-rich Delta State of Nigeria, where reputable private international private equity funds were accused of investing in companies linked to money-laundering by the Nigerian political elite, I have not been too comfortable about the integrity of the privatisation transactions where private equity firms play a leading role.
RAISED BIGGER DOUBTS
But what raised bigger doubts about the integrity of some of these institutions was a forensic audit by the World Bank’s Integrity Vice Presidency on the circumstances under which Qala Holdings that runs RVR, purchased 20 locomotives.
This report gives you rare insights into the exploits of some of these vulture-like private equity funds that are always on hand to snap up privatised parastatals in Africa.
They have absolutely no interest in turning around the businesses. Instead, their interest and motives in large privatisations is the money that flows from development finance institutions supporting such transactions.
When you look at it closely, it is all about the rent-seeking opportunities that come with huge capital expenditure projects such as the purchase of 20 locomotives by RVR.
DEEP-POCKETED ENTITIES
Mark you, RVR’s funders include deep-pocketed entities such as KFW of Germany, the Africa Development Bank, Ned Finance of the Netherlands and ICF Debt Pool LLP of the United Kingdom.
The forensic audit by the World Bank found that RVR managers bribed public officials, manipulated accounts and created convoluted ownership and operations structures with the aim of defrauding the international lenders.
The 20 locomotives were leased to RVR by companies in which Qala Holdings had a beneficial interest. Truth be told, the RVR concession has failed dismally. Concession fees due to the government, amounting to some $4.1 million has been outstanding since December last year. Monthly rent owed to Kenya Railways runs to $1.7 million.
RVR also owes $20.7 million to Kenya Railways for life expired assets and another $10.7 million for wagons and assets destroyed in accidents.
PUMPED BILLIONS
How has the concessionaire performed in terms of new investment and the volumes freights it has moved? Dismally, to say the least, despite the fact that international financial institutions supporting the concession have pumped in billions into the business.
Worse, the Egyptians have failed to maintain the track. The engineering practice in the railway business is that when you don’t maintain a railway line, you must impose speed restrictions on the damaged sections of the track. The fact that 17.3 per cent of the track is currently under speed restrictions should tell you just how badly the state of the track has deteriorated under RVR management.
How about the rehabilitation of locomotives, rolling stock and buildings.
PURCHASED ASSETS
Under the arrangement, any new assets purchased by the concessionaire is booked in what is called the conceded assets account. There is almost nothing in that account.
The 20 locomotives purchased at billions of shillings by RVR turned out, after examination by engineers, to be life-expired. The jalopies could not be recognised as assets and have be left to rot at a location in the Nairobi Railway Station Yard.
Stopping the concession is not going to be legally easy for the government because lenders have to be sorted out. But let’s start by terminating the concession.
