Future of rail firm to be decided Wednesday - Daily Nation

Future of rail firm to be decided Wednesday

Monday January 25 2010

An RVR loco-motive at the Athi River Railways Station. The fate of the company will be decided on Wednesday when representatives from Kenya and Uganda meet in Kampala. Photo/FILE

A RVR loco-motive at the Athi River Railways Station. The fate of the company will be decided on Wednesday when representatives from Kenya and Uganda meet in Kampala. Photo/FILE 

By JAINDI KISERO

The fate of the 25-year concession under which Rift Valley Railways (RVR) runs the 1,200-kilometre railway line between Mombasa and Kampala will be decided on Wednesday in the Ugandan capital.

The two governments will decide whether to cancel the concession or allow the strife-torn company to continue running the rail services, even though it has under-performed all round, failing to meet the conditions set by the two governments in the concession agreement.

Shareholders of the troubled company are currently engaged in a battle that has split the board into antagonistic camps, derailing plans to inject new money into the cash-strapped company.

The boardroom strife has been going on against the backdrop of a do-or-die battle for the control of the company, pitting the politically-influential local group, Transcentury Ltd, against a wealthy Egyptian private equity firm, Citadel Capital Ltd.

Citadel, which has been desperately fighting to gain a foothold in RVR’s  boardroom, has been hankering for control of the company having bought a 49 per cent stake in South African company, Sheltam Rail Ltd, the entity with a commanding 35 per cent stake in RVR Ltd.

Two weeks ago, Kenya and Uganda, egged into action by the protracted shareholder impasse and angry at the state of paralysis within one of East Africa’s most strategic transport corridors, gave an ultimatum to the shareholders to put their house in order or face the sack by Wednesday.

Specifically, the governments want them to migrate their interests in RVR to a new company to be known as the Kenya Uganda Railways (KURH) Ltd in which parties will have shares in proportion to what they have in Rift Valley Railways.

But the shareholders of the company have been unable to agree.

On Monday, Citadel’s spokesperson Ghada Hammouda came out strongly to deny rumours that the group had agreed to take a minority interest in KURH Ltd.

“Citadel will not take a minority stake,” she said.

Even as the threat of cancellation of the concession by the two governments was hanging in the air, a crucial meeting of RVR’s board called to discuss the stalemate failed to yield much with neither party willing to cede ground.

Board sources told the Nation that the directors will be meeting again today to seek a last-minute compromise.

However, chances for compromise are remote because both Transcentury and the Egyptians will settle for nothing less than majority control.

Private equity funds usually want control to make it easier for them to change management, or even more important, to call new capital into ailing firms.

Although all shareholders of the company with the exception of Transcentury are supporting Citadel’s bid to get into the  board of RVR, a new shareholders agreement cannot happen without approval from all stakeholders.

Concession contract

With Transcentury standing out and if the stalemate persists, the migration to the new Kenya Uganda Railways Holding Company Ltd, as directed by the government will not be possible.

The stage will have then been set for cancellation of the concession contract. Alternatively, the two governments may consider giving the shareholders of RVR more time to put their act together.

The current shareholders of RVR are Sheltam Rail (35 per cent), Transcentury (20 per cent), Babcock Brow of Australia(10 per cent, Centum (10 per cent) Mirambo Ltd of Tanzania (15 per cent) and Prime Fuels Kenya Ltd (15 per cent).

In  November, 2006, Kenya and Uganda handed over the running of their rail assets to RVR, led by South African company, Sheltam Rail Ltd, under a 25-year concession.

Mr Roy Puffet, Sheltam’s owner, assumed the position of both chairman of the board and managing director, a position that allowed him to make decisions unilaterally.

Under the pact, RVR was given specific performance benchmarks, including tonnage of goods to be  moved, safety standards, and standards of maintaining the track and the rail. The firm also undertook to retain the unprofitable passenger services on the understanding that the government would give it a subsidy.

Perhaps most important, RVR was to pay the government a monthly concession fee calculated on the basis of turnover.

One year later, during the time for first review of performance, RVR’s performance was found wanting.