KenyaUganda Rail

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On October 14, 2005, the Government of Kenya (GOK) and the Government of Uganda (GOU) jointly tendered, via an international, competitive bid process, two substantially identical 25 year concessions for the rehabilitation, operation and maintenance of the railways currently run by Kenya Railways Corporation (KRC) and the Uganda Railways Corporation (URC). The tenders were awarded to two special purpose concession companies (each a “Concessionaire”) to be set up by the Rift Valley Railways Consortium (RVRC), which would be a holding company with 100% ownership of the two concessionaires. The tender process was coordinated on behalf of the Governments of Kenya and Uganda by their respective financial advisers, the Corporate Advisory Services (CAS) of IFC (for GOK) and CANARAIL (for GOU). The transaction is the first concession-based privatization in Kenya.The objective of the Concessions is to improve the management, operation and financial performance of the two railway networks in a coordinated manner by granting exclusive rights to the Concessionaire for the provision of freight services in both Kenya and Uganda for the duration of the concession. In Kenya, the Concessionaire will also be obliged to operate the passenger services as designated in the concession agreement for a minimum period of five years. There is no existing passenger service in Uganda.Though legally separate, the two concessions will be operated seamlessly as one railway system. This is particularly important for Uganda, which as a landlocked country, depends upon the Kenyan port of Mombasa for sea access. Currently, the system comprises a total track length of 2350 km (1920 km in Kenya and 431 km in Uganda), with 219 locomotives (175 in Kenya and 44 in Uganda) and approximately 7500 wagons and three water ferries (approx. 6000 wagons and one ferry in Kenya and 1433 wagons and two ferries in Uganda). However, only 41% of KRC’s wagons and 20% of KRC’s locomotives are presently operational (the corresponding figures for URC are 89% and 73% respectively). The project is an IFC corporate loan to RVRC to support its first five year investment program for the rehabilitation, operation and maintenance of the railways currently run by KRC and URC. RVRC is led by Sheltam Rail Company (Pty) Limited, a South African rail and marine services firm. The investment program will include rehabilitation of track to allow safe passage of trains at an average of 30 km/hour; upgrading and modernization of the locomotive fleet; wheel and brake replacement and other rehabilitation of the wagon fleet; rehabilitation of passenger coaches; purchase of new locomotives and wagons; renovations of buildings, workshops, depots and machinery; and installation of new information technology (IT) systems. In addition to IFC, RVR is also seeking a parallel loan from KfW, the German bilateral development finance institution.