Kenya-Uganda Railways

Distressed

In October 2005, the Kenyan and Ugandan governments awarded a 25-year concession to Rift Valley Railways Consortium (RVRC) to operate and manage the national railways systems of both Kenya and Uganda. This project covered a network of 2210 km link Mombasa and Kampala, and spur lines to Portbell, Tororo, Jinja and Lugazi Covering a total of 290km. The Rift Valley Railways Consortium won the contract through a competitive tender. There was only one other final bid for the concession, made by Rites Limited of India. According to the privatization unit, the winning proposal was selected ‘on the strength of their financial and technical proposals’. No details on the bidding criteria were known. At the end of 2006 the main shareholder was South African Sheltam Rail Company Pty, with 60%. The other shareholders were Trans-Century ltd. (20%), ICDCI (10%) and Babcock & Brown (10%). Under the concession contract, Rift Valley Railways Consortium was required to pay an initial fee of $3 million for Kenya and $1 million for Uganda to operate the railway. Additionally, Rift Valley was to pay an annual concession fee of 11.1 % of gross revenues in each country and an additional $1 million per year for the passenger services concession in Kenya, for a total of about $9.5 million per year (some $140 million in present value for the project’s 25 years). Rift Valley Consortium's winning bid included a commitment to turn around and develop the two railway systems. The program was expected to lead to a 75% increase in freight volumes by year five of the contract and a minimum 60% of GDP growth thereafter. The Rift valley Consortium was expected to invest some $400 million over the lifetime of the contract, of which $111 million in the first five years. The project reached financial closure in December 2006. Funding for the first five years’ investments was provided as follows: $47 million by the sponsors in the form of direct equity and internal cash generations; an A loan of $32 million from the International Finance Corporation; a $32 million loan from Germany’s development agency Kreditanstalt fur Wiederaubau (KfW). In addition, IDA Partial Risk Guarantees were provided by the World Bank for amounts of up to US$45 million to RVRC's Kenyan subsidiary and US$15 million for RVRC's Ugandan subsidiary. The Rift Valley consortium took over operations of the railway in November 2006, one month before the project reached financial closure. In August 2010, Citadel Captial aquired 51% of Rift Valley consortium. The new ownership structure was as follows: Citadel: 51%, Trans Century Ltd: 34%, Bomi Holdings Ltd: 15%. In August 2011, Citadel raised new debt for the project. Six different lenders contributed to the loan package, including International Finance Corporation with US$ 22 million, the African Development Bank with US$ 40 million, the German Development Bank with US$ 32 million, the Dutch Development Bank with US$ 20 million, the ICF Debt Pool with US$ 20 million, the Belgian Development Company for Developing Countries with US$ 10 million and the Kenyan Equity Bank with US$ 20 million. Shareholders Citadel, TransCentury (34%) and Bomi Holdings, will match the debt (total loan package $164 million) with a US$ 82 million equity investement. This brought the total investment to $287 over five years. In November 2011, the Kenyan and Ugandan governments told Rift Valley Railways (RVR) shareholders that they were to transfer their interests to a new entity, the Kenya-Uganda Railway Holdings (KURH), following the failure of the South African firm to get new capital to fulfil its mandated role. IFC and KfW have withheld over $60 million due a shareholding anomaly that insists on a 35% minimum for the lead investor. RVR was unperforming. The Kenyan parliament considered canceling the concession agreement in June 2013, citing non-performance. It had already moved to a yearly renewal, rather than in longer periods.