Tanzania Railways

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In June 2005, a consortium led by Railway Technical and Economic Services (RITES) of India was awarded a contract to manage Tanzania Railways Corporation (TRC) operations for 25 years. The award followed a competitive bidding process. The three final bidders were RITES, Great Lakes Railways Consortium and the NLPI/Spoornet Consortium of South Africa. RITES won the bid after offering to pay the Kenya and Uganda governments US$3 million and US$2 million respectively in entry fees and annual passenger fees of US$1 million each (which represents a total Net Present Value of US$23 million with a 10% discount rate). However, the Indian firm was unable to take over TRC operations because of a legal objection by a rival bidder. After the case had been settled, Rites was expected to take up its concession in September 2006. A further delay came from India, where the agreement of the Indian government was required, and later on from the Tanzanian government when it called for further negotiations over the concession on the grounds of national interests. In May 2007, Rites and the government of Tanzania finally signed a shareholding agreement to accelerate the concession process of the Tanzania Railways Corporation (TRC). The final agreement was signed on September 3, 2007. The Presidential Parastatal Sector Reform Commission of the Government of Tanzania officially granted a 25 year concession contract to rehabilitate, develop and operate the approximately 2,700 route-km Tanzanian Railway Corporation network, to a consortium led by RITES through a new company, Tanzania Railways Limited (TRL). Rites was given 51% of the shares of TRL, while the Government of Tanzania owned the remaining 49%. Under the terms of the contract, TRL was free to determine the technical and commercial organization, including employment requirements. TRL was also free to establish and revise tariffs, with the exception of 3rd class passenger fares. However, TRL was required to meet base passenger service requirements as specified in the Concession Agreement in terms of the frequency of services offered for certain routes. The 25 year concession was extendable by mutual agreement. The total project cost for the first five years was estimated at US$111 million, of which US$34 million was contributed by sponsors in the form of direct equity (US$16 million) and internal cash generation (US$18 million). The balance of US$77 million was funded in the form of a US$33 million World Bank IDA Credit and US$44 million IFC A-loan. The present value of investment in government assets (US$5 million entry fee + US$2 million per year) is approximated by using a 10% interest rate.