Kenya Railways seeks commuter railway operator

[John Ashworth]

KR seeks commuter railway operator

By Mugambi Mutegi
Business Daily
Posted Thursday, October 4 2012 at 19:23

IN SUMMARY
- The review, which will determine whether Rift Valley Railways (RVR) continues with the contract or a new operator will be brought on board, comes eight months ahead of the expiry of the current contract in June next year.
- Consultancy firm Deloitte East Africa is to establish, among other things, the terms of reference for the next concessionaire.
- Kenya’s passenger rail services have not recorded any significant improvement since the new contract was signed in 2008.
- The government has recently embarked on an ambitious expansion and repairs programme to revamp the rail network aiming to reduce road travel and traffic jams, especially in Nairobi.

Kenya Railways (KR) has hired a consultant to assess the performance of the rail passenger business it gave out to a private operator RVR to run for five years.

The review, which will determine whether Rift Valley Railways (RVR) continues with the contract or a new operator will be brought on board, comes eight months ahead of the expiry of the current contract in June next year.

Consultancy firm Deloitte East Africa is to establish, among other things, the terms of reference for the next concessionaire.

Rift Valley Railways won a 25-year concession to run the 2,352km Kenya-Uganda railway in November 2006 and a five year contract for the passenger business whose tenure was extended by 21 months in 2008.

“Deloitte is studying how best we can deal with passenger service and we expect a report before December,” KR managing director Nduva Muli told the Business Daily on Wednesday.

“The consultant’s recommendations will be approved by the board and government before we make a decision on whether to retain the current concessionaire or search for another one.”

Kenya’s passenger rail services have not recorded any significant improvement since the new contract was signed in 2008.

Official statistics show that the total kilometres covered by the operator dropped from 389 million kilometres in 2009 compared to last year’s 365 million kilometres.

But the government has more recently embarked on an ambitious expansion and repairs programme to revamp the rail network aiming to reduce road travel and traffic jams, especially in Nairobi.

Construction of Nairobi’s urban commuter railway network involves the building of a light railway service (tram) that will link Nairobi’s city centre to satellite towns of Kikuyu, Thika, Ruiru, Athi River, Kitengela, Machakos, Limuru and Kajiado.

It’s also building a new line that will connect the Jomo Kenyatta International Airport with Nairobi’s Central Business District.

Six years since RVR won the concession, its performance has failed to live up to the expectations of Kenya and Uganda governments.

The company’s troubles were initially attributed to the lack of financial and technical muscle on the part of the lead investor — Roy Puffet of Sheltam.

Mr Puffet was forced to sell his stake to Egytian private equity firm Citadel who came on board in 2008 providing the operator with the financial muscle it needed to get its operations going.

His exit immediately sparked a battle for control the rail firm between TransCentury and Citadel Capital forcing the Kenya and Ugandan governments to step in.

Citadel now owns 51 per cent of RVR while Bomi Holdings Limited, a Ugandan investment company and TransCentury hold 15 per cent and 34 per cent stakes respectively.

Centum Ltd, Sheltam and TransCentury were the initial shareholders in the firm.

The railway operator’s performance in the cargo business has also been less impressive with the volume of cargo transported from the Mombasa port growing only marginally from 1,060 million tonnes in 2009 to 1,135 million tonnes last year.

This is despite the cost benefits transporters stand to gain moving cargo by rail.

Rift Valley Railways posted a 13 per cent growth in revenue last year, falling short its peak performance of four years ago as its revenues grew from Sh4.6 billion in 2010 to Sh5.2 billion last year.

The firm posted a $674,000 (Sh56.6 million) net profit last year, after years of heavy losses that was in part attributable to an ownership tussle between initial shareholders — Centum Ltd, Sheltam and TransCentury.

[John Ashworth]

NAIROBI COMMUTER PROJECT

On December 5, 2012 Railways Africa

Kenya Railways Corporation (KRC), working in conjunction with InfraCo Africa, described as “a British donor-funded company”, advertised recently for expressions of interest from “consortiums of engineering, procurement and construction contractors and experienced operators” in bidding for the planned commuter rail system rebuild, extension and operation in Nairobi.

The winning consortium is expected to draw up detailed design, engineering and construction works in phase one, while the operator is expected to prove ability to run the railway system as soon as it is commissioned. The scope includes the rehabilitation of about 160km of line, plus existing stations and bridges, and the construction of new facilities, as well as maintenance and fuel depots. According to the advertisement, “The operator will be responsible for safe, reliable and efficient operation of the subsystem initially with 10 to 15 train-sets operating on four lines, one of which will be [a new construction of about 9km] to the Jomo Kenyatta International Airport from the Nairobi Central Station.”

In terms of a joint venture signed with KRC in 2009, InfraCo was to undertake a $US5 million feasibility study in preparation for a new commuter system following the 2011 expiry of the five-year passenger rail concession held by Rift Valley Railways.

Some 17 firms from around the world responded to the advert, including South Africa’s Basil Read and Aveng Grinaker. InfraCo expects a contract to be awarded early in 2013.