Last week the finance ministry announced the cancellation of the Rift Valley Railways (RVR) concession and took back the management and operations of the railway services.
The governments of Kenya and Uganda had privatised the running of the railway line from Mombasa to Kampala more than a decade ago, as a way to increase its efficiency and move more cargo onto rail and off the roads.
In correspondence The New Vision has seen between government and the concessionaire last year, government alleged nine breaches of the concession contract among which were default on concession fees, failure to meet volume targets, failure to rehabilitate and operate the Pakwach line and failure to rehabilitate rolling stock.
In addition investment minster Evelyn Anite said the country had lost $700m (sh2.5trillion) in the course of the deal without elaborating further.
RVR responded to the claims showing proof of how they had met the requirements, which letter was summarily rejected and met with a letter announcing the cancellation of the concession in April this year.
A letter from RVR’s lawyers MMAKS advocates pointing out that the attorney general had issues an interim order prohibiting the termination of the concession until today, 16th October 2017 was clearly ignored by the finance ministry. The interim order was to allow for an arbitration to proceed as stipulated in the contract.
Uganda’s action comes not very long after Kenya decided to cancel the concession on their side under similarly unclear circumstances.
"Understandably the whole affair has left a bad taste in the mouth of Qalaa Holdings. The Egyptian investment group was the main partner in the concession, which they salvaged from the previous operator South African Sheltham Rail Corporation....
Karim Sadek, Qalaa Holdings’ managing director of their Transportation Division says his company has invested $320m in the whole concession since 2010, he maintains that they have lived up to their side of the agreement and still thinks the Uganda side of the concession can still be salvaged.
“We have reputation and good working relations with the partners on this investment, which we would not like to see lost,” Sadek told the Business Vision.
Sadek says the concession was frustrated at every turn by the Kenyan bureaucracy, which made no effort to hold up their end of the Public Private Partnership (PPP) agreement, taxed them to support the road infrastructure and made financial demands on the operators that made the concession unviable.
“Uganda has been very helpful on many fronts we think going to arbitration can help us iron out any outstanding issues, paving way for the continuation of the partnership in Uganda,” he said.
He believes that an arrangement where they operate the Uganda leg, with right of passage to operate between Mombasa and Malaba would ensure that the efficiency gains that have been made so far would not be lost.
In hindsight Sadek now sees that the environment would have made it hard to operate under the best of circumstances.
“On the Kenyan side there has been great hostility from the management and total indifference from the policy makers, no attempt at all to make this deal work. We were aware that there were challenges in making the concession work but we had bought into the narrative that it was Sheltham’s lack of capacity that had failed the earlier attempt. We didn’t see the ecosystem failing us the way it did.”
He says despite the circumstances they managed to reduce transit times for good to Kampala from Nairobi to 15 days from the prior 21 days, while offloading wagons had been reduced to three hours from 21 days.
However government officials with intimate details of the process warn that government is taking too much for granted and could stand to lose not only money but international good will.
“The biggest issue was that we did not put in place an independent regulator who would independently monitor the concession and two, someone to who either party Qalaa or government, could refer any disagreements. The works ministry undertook to do this but they never got around to it.”
As a result Uganda Railways Corporation became the de facto regulator, which constituted a conflict of interest as they were also owners of the assets and there was always a sense that the old URC wanted to take back the service.
That being said he advised that, “Government needs to allow for prearranged mechanisms to dissolve the deal to take their course. The lenders for instance, we don’t hear anything from them and yet they have a first right to take over and even find another operator.”
"It is déjà vu all over again. We have seen this inability to work harmoniously with investment partners before...
We make the mistake of seeing investors as individual entities who we can mishandle as we please. But we forget – because we must know, that there is a whole ecosystem behind the size of investors we are looking for to bridge our infrastructure deficits or build factories or open service industries.
To begin with they come with partners, as a way to share risk, and then these often have financiers behind them and all these often have the backing of governments. So when an investment goes wrong for other reasons than that the project was not viable one is stepping on more toes than they see.
This is a very real challenge because as it is if we take back the railway we will still have to go back to the same lenders to get funding for our plans.
Something has to give.
"We cannot continue running rough shod over genuine businessmen and then wonder, why we keep attracting crooks or why we are not getting enough investments coming in or why we can not create the jobs we so badly need...