Treasury and World Bank shift blame on troubled concession

What motivated officials representing the Kenya, Uganda and the International Financial Corporation to enter into a troubled partnership with an man who had previously proved that he could not meet his end of the bargain?

While admitting that mistakes happened in the railway privatisation process, Esther Koimett, the investment secretary, puts the blame firmly of Roy Puffet’s door step.

“Problems started to emerge when Roy decided to run the firm himself rather than source for a competent manager,” said Ms Koimett, arguing that Mr Puffet’s failure to get along with other shareholders and his weak management capacity helped to scare way financiers.

The IFC, on its part, is placing the blame on shareholder fallout that happened after the award of the tender to the consortium-led Sheltam.

According to these people, the blame lies with Roy Puffet and his inability to live happily with his shareholders.

On the side of government officials and IFC, there is no introspection into either how the concession process was handled, the motivations of the people shepherding the deal or even the quality of advice that they relied upon in making the decision to hand over the running of the Kenya-Uganda railway system.

No forensic audit ordered by the two governments has so far been carried out to examine how the deal ended with the current fiasco. The countrys’ two Parliaments have also not excercised oversight on this matter.

Yet, a process that was supposed to screen the best firms with wide experience running railway concessions around the world ended up rewarding a firm controlled by one man and a briefcase special-purpose vehicle with no balance sheet.

Though IFC eventually provided a $10 million loan after signing a share retention deed with Mr Puffet, they refused to buy shares in RVR or release the bulk of the funds they had committed because they did not trust the deal. KfW, a German government agency, also balked at releasing funds to the group.

The World Bank, through its lending arm the International Finance Corporation (IFC), signed an agreement with the government as the lead adviser on the concessioning of the Kenya-Uganda Railways.

But the big question in the minds of many is whether the assessment that the government received from IFC was complete enough to disclose the financial and technical capacity of the consortium led by Roy Puffet to run and manage the railways.

Three years since the granting of the concession, RVR’s performance has failed to live up to the expectation of both Kenya and Uganda governments on what is attributed to the lack of financial and technical muscle on the side of the lead investor — Mr Puffet.

But before it emerged that the lead investors was short of cash needed to overhaul the railway, their were early signs—before signing of the takeover pact-- that the consortium led by Sheltam Corporation was facing an acute financing crunch.

The takeover of the railway was postponed five times following requests by the Rift Valley Railways (RVR) consortium while citing financial hitches.

This has raised questions on why the government rushed to sign the take over pact knowing very well that the consortium was not in a position to run the railway.

“It was a question of getting other investors to help the lead investors in the fund raising efforts,” said IFC last Friday, but this appears not to have gone well.

The IFC dedicated a total of eight of its own staffers, all of them touted as highly-skilled experts in the area of infrastructure privatisation.

The IFC argues that Sheltam as the lead adviser met all the conditions that were contained in the tender document including proof of having being a rail operators in South Africa and cash from his other partners and bankers.

Ms Koimett says that question of cancelling the concession after it emerged that the two governments entered into contract with a troubled partnership was difficult given the terms of the tender document.

“What we were recruiting were lead investors who need not to have had the expertise to run the railway or the money,” said Ms Koimett.

“All we required was proof that he had partners with money and technical knowledge. Again money is not issue because bankers are always ready to help a viable business,” she added.