RVR saga - "Railways Africa" view

[John Ashworth]

RVR SAGA IN KENYA

Posted on 01 February 2010 by Railways Africa Editor

Lengthy, largely uncomplimentary, stories about Rift Valley Railways (RVR) have been appearing in the East African press following original lead investor Sheltam selling 49% of the shares in its company to Citadel, an Egyptian entity. A basic reality in dealing with private enterprise of course is that the composition of a company today may change significantly tomorrow. Arguably this is an unavoidable risk – if you want to call it that – in hiring out a business (like a railway) to a private consortium.

Sinister practices are hinted at and devious motives suggested in what one paper describes “as the most messy privatisation transaction in Kenya’s history.” It goes on: “RVR owes the government millions of shillings in unpaid concession fees. Billions of shillings committed to the privatisation project by the two international lending institutions – the international Finance Corporation (IFC) and KFW of Germany, and which was supposed to be directed into both rehabilitation of the track and purchase of new locomotives have not been disbursed.”

A diatribe against Sheltam CEO Roy Puffet has not been dignified by evidence of an opportunity for him to respond. ”An investor without cash or track record” appear among the accusatory words used, with “weak management capacity – a man who had previously proved that he could not meet his end of the bargain”. The Daily Nation’s Michael Omondi writes: “Esther Koimett, the investment secretary, puts the blame firmly of Roy Puffet’s doorstep.”

Omondi does concede that: ”No forensic audit ordered by the two governments [Kenya and Uganda] has so far been carried out to examine how the deal ended with the current fiasco. The countries’ two parliaments have also not exercised oversight on this matter.”

It is recorded that Sheltam holds a 35% stake in RVR, followed by Trancentury’s 20%. The other shareholders of the company are Tanzania’s Mirambo Holdings (15%), Prime Fuels of Kenya (15%) Babcock Investments Holdings of Australia (10%) and Centum Kenya Ltd (5%).” The thrust of the papers’ concern appears to centre around Transcentury’s representation on the RVR Board vis-à-vis that of Citadel. Shareholders in Transcentury, it points out, include prominent Kenyan businessmen – and commissioner-general of the Kenya Revenue Authority Michael Waweru.

Perspective on the debacle over RVR is provided in the following two letters contributed to the Daily Nation (published in Nairobi):

1. from Ghada Hammouda, Head of Corporate Communications, Citadel Capital (Egypt):

“We would like to set the record straight on the special report published in the Daily Nation (25 January) under the headline ‘Egyptians bid to control Kenya-Uganda Railway sparks a regional power play’ by stating that the above is a misrepresentation of Citadel Capital’s investment strategy.

“Our interest in the Kenya-Uganda Railway is motivated solely by a clear investment case and is based on growing this business to cater to the growing needs of both countries. It is therefore not politically driven by the government of Egypt or any other party and has nothing to do with government policy or strategic aims.

“Our track record as investment professionals is as clear as it is well-established. Citadel Capital is a highly respected African private equity firm headquartered in Cairo and publicly listed on the Egyptian stock exchange with $US8.3 billion in investments under control across 12 nations and 15 industries.

“Citadel Capital is independently ranked by Private Equity International as the largest private equity firm on the continent and has had a long-standing interest in East Africa. The firm has already made early-stage investments across East Africa and previously disclosed its intention to open an office in the region to support its plans to deploy $200-400 million in new capital across East Africa in 2010-12.

“To date, Citadel Capital has executed some of the most compelling private equity deals in the region. Its existing portfolio of investments spans industries as diverse as energy distribution, cement, specialty real estate, mining, agribusiness, glass manufacturing, solid waste management and metallurgy.

“We are, moreover, proven infrastructure investors: Our river transportation and logistics investments span both Egypt and Sudan. In addition, Citadel Capital has a professional and experienced management team led by Dr Ahmed Heikal (chairman and founder) and Mr Hisham El-Khazindar (managing director and co-founder). Full biographies of each member of our investment professionals are available on our website www.citadelcapital.com .

“Finally, it’s noteworthy that the firm raises investment capital from many sources, including Gulf institutions and trusted global partners such as the International Finance Corporation (IFC), African Development Bank (ADB), the European Investment Bank (EIB) and the Swiss Investment Fund for Emerging Markets, as well as major global development and export credit agencies.

2. From Jean Philippe Prosper, Director, Southern and Eastern Africa, the International Finance Corporation (IFC):

“From your 20 January editorial and 25 January special report on the Kenya-Uganda Railway raises concerns about IFC’s role in the railway concession but offers a limited perspective on the situation and fails to mention IFC’s long-term commitment to helping find solutions to Kenya’s infrastructure challenges.

“Turning around a loss-making state enterprise like the Kenya-Uganda Railway was never without risk, but IFC in its various roles has approached the effort with flexibility, commitment, and no intent other than to offer the concession every chance to succeed. IFC risked its own money on a substantial loan to the winning bidder, of which $US10 million has already been disbursed. This amount is significantly greater than fees IFC received for its advisory services.

“The present situation with concession holder RVR is indeed unfortunate and IFC, in its current capacity as lender, has actively encouraged the efforts of the governments and RVR shareholders to implement an operational turnaround and financial restructuring. IFC regrets the difficulties that are preventing this restructuring from taking place more rapidly.
“IFC’s decades-long commitment to Kenya has been unwavering, particularly in
the area of private sector-led provision of vital infrastructure. IFC advised on the privatisation of Kenya Airways in 1995, and Telkom Kenya more recently. IFC will continue to work with all parties to reach a consensus and build an operationally and financially viable railway that delivers real benefits to the people of Kenya and Uganda.