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Kenya Railways set to operate old line, terminates concession with RVR

BUSINESS
By Moses Michira | August 31st 2017
Atanas Kariuki Maina Managing Director Kenya Railways

The Kenya Railways Corporation has ruled out working with another concessionaire on the old railway, terming the arrangement as the 'worst possible'.

The State firm Thursday prematurely terminated a concession entered with Rift Valley Railways (RVR) in 2006 with 14 years remaining.

Kenya Railways Corporation (KRC) Managing Director Atanas Maina said the century-old railway line would from Friday be operated by its staff.

“I do not see if we can ever get into another concession for the line,” he said in an interview with The Standard.

KRC had sought the concession arrangement on the advice of the International Finance Corporation as a way of turning around operations that had collapsed. But RVR has failed to the point that it is struggling to pay basic expenses such as rental fee on equipment and space.

Some improvement has been made on rehabilitating the line between Nairobi and Mombasa, alongside acquisition of refurbished trains – whose quality has been questioned.

An agreement to hand back the assets to the KRC today was reached after a dispute that ended up in court. Officials of RVR have previously said the disengagement was arrived at by consensus and that no money was paid by either side.

Among the options that KRC is likely to consider is finding a third-party operator to work in a fashion similar to the standard gauge railway.

Still useful

Mr Maina said the old line is still useful to companies such as Tata Chemical and that this is informing the decision to keep it. “We are not lifting an inch off the old line, at least not until the Government makes a firm decision on the way forward,” he said.

It would be interesting to see how KRC will get back to operating the business that it could not more than a decade ago. Staff costs are bound to rise significantly, considering the termination meant all employees of RVR will be absorbed by the corporation.

RVR Chief Executive Isaiah Okoth, during a recent interview, put the number of employees at about 3,000. Taxpayers would have to chip in to foot the wage bill as the railway operations are unlikely to generate sufficient revenues.

Focus will now shift to how the loans sought by RVR, where the leased assets acted as collateral, will be repaid. The World Bank has questioned how the funds were spent in the first place, saying the firm inflated the prices paid for the assets acquired.

Agreement lapses

Equity Bank is among the lenders that are cumulatively owed over Sh20 billion as the agreement lapses. Others are the African Development Bank, IFC, and several European government-owned lenders.

Egypt’s Qalaa Holdings owns a 73.7 per cent stake in RVR, a business that has consistently reported losses. Earlier in the year it unsuccessfully sought to sell its interest in the consortium.

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