Friends of the Rail Forum

From the hard-copy Daily Nation, Friday 11th July 2008, p27

Rail firm gets two more owners

Move to take on two new companies seen as a way to inject capital into the troubled carrier

By Mwaniki Wahome

Rift Valley Railways yesterday announced the entry of two new shareholders. The pair's entry is likely to inject new capital into the company currently reeling from a workers strike over salary delays.

According to a statement from the company, Primefuels Kenya limited (sic) and Mirambo Holdings Limited will join the other four shareholders who have already approved the deal.

Total to six

The two firms join Sheltam Rail (Pty) Limited, Trans-Century Limited, Centum Investment Company Limited and Babcock & Brown Investment Holdings Pty Limited on the board bringing the total equity owners to six.

The statement did not, however, elaborate on the nature of their investment or the portion of shareholding acquired although indications are that further injection of capital could be in the offing.

"The board has been mandated by its shareholders to assess the present funding and management structure of the group, and to make appropriate recommendations in this regard to the shareholders before the end of July," the statement said.

Subsequently, it added, a steering committee comprising of (sic) shareholder representatives has been constituted by the board to drive this process. The statement said that all shareholders are committed to the success of the Joint Kenya and Uganda Railways concession and are confident that with the above measures in place, the recent difficulties experienced by the concessionaire will be overcome.

Rift Valley Railways has beenf aced with a strain on the uptake of cargo from port of Mombasa to the hinterland.

Last year, its inability to remove cargo fast enough from the port led to a waiver of charges twice on the mode of transport for goods owners to use road instead of the railway as had earlier been arranged. The volumes of cargo have increased significantly in the last few years as a result of the expansion of regional economies.

Delayed payment

And in Parliament yesterday, Transport Assistant minister, Mr Harun Mwau, said the delay in the payment of salaries was an indication that the company was not doing well financially.

He said notices for breach of certain provisions of the concession had been sent to the company.

Rift Valley Railways took up the Kenya-Uganda railway on a 25-year concessionaire arrangement in 2006 but has been bedevilled by problems, most severe being the destruction of the railway line during violence that followed a disputed presidential election result early in the year.

RVR was on national TV news last night (Friday 11th July 2008). Workers are striking over non-payment of salaries, and the Minister of Transport, H E Ali Makwere, summoned the managing director to discuss the matter.

Troubled RVR in quiet talks with investors, as it seeks an exit plan
A STAFF WRITER
The East African
July 14, 2008

Faced with a protracted strike by its unionisable employees, the tribulations of the Rift Valley Railways Ltd (RVR) appear to be worsening by the day.

RVR was contracted more than a year ago by the Kenya and Uganda governments to own and run the 900-kilometre Kenya-Uganda railway connecting the port of Mombasa with landlocked Uganda under a 25-year concession —
The EastAfrican has learnt that away from the limelight, the troubled company has been holding intense discussions with two international companies on a rescue plan that includes transfer of management and equity to these foreign investors.

The first is a consortium led by Australian company, Toll Holdings Ltd, that also includes a UK-based equity fund PME Africa Infrastructure Opportunities Plc (PME).

The second, is a consortium led by Optima Management Ltd of the United Kingdom, said to be linked to Magadi Soda.

Two weeks ago, the two groups of investors presented proposals on how the troubled company can be turned around to an inter ministerial committee headed by the Office of the Prime Minister.

Sheltam Ltd of South Africa is the largest shareholder of RVR, owning 35 per cent of the shares. Others are the Trancentury Group, Prime Fuels and Mirambo Ltd, Centum Investment Company Ltd and Babcock and Brown.

Until recently, top Kenyan government officials appeared to be leaning towards the Australian company whose proposal included a $40 million capital injection into RVR by PME.

Apparently, the local shareholders of RVR, namely Transcentury Ltd and Centum Ltd, prefer to deal with the Magadi Soda consortium while Sheltham Ltd is leaning towards the Australians.

But The EastAfrican has learnt from discussions with key government officials that the state is now more inclined towards conducting a comprehensive review of the performance of the concession with a view to terminating the contract altogether.

By the time The EastAfrican was going to press, the Office of the Prime Minister and the Ministry of Transport had released the terms of reference for the review of the performance of RVR under the concession. The review of the concession must be completed within 45 days.

Meanwhile, RVR last week announced the entry into the company of Mirambo Holding Ltd and Prime Fuels Ltd as shareholders.

The two, who were among the original shareholders of the company, have been engaged in a long-running ownership dispute with Sheltam Ltd over the company.

RVR said in the statement that the shareholders of the company had mandated the board to asses the present funding and management structure of the group, and to make appropriate recommendations by July 28, an obvious reference to the talks going on with Toll Holdings.

Under a similar situation in 2003, Toll Holdings took over management of a similar railway concession in New Zealand from Wisconsin Central which had won a long term concession to run New Zealand Rail.

In that transaction, the government of New Zealand agreed to take over the infrastructure, while the rail operation was sold to Toll Holdings who agreed to pay an access charge.

A few months later, Toll Holdings started complaining that the access fees were too high. The matter ended up in arbitration.

Although the company lost, it still refused to pay the full amount leaving the government of New Zealand to cover the difference.

The government was very unhappy at being forced to subsidise a foreign private company, and the general mood in New Zealand was turning against the privatisation of existing or former state-owned companies.

If — as expected — the review planned by the government finds that RVR has not lived up to the terms and targets of the concession, and is eventually thrown out, the circumstances may force the government to look afresh into how the concession was procured in the first place.

Already, there are murmurs from government officials involved in the discussions, at the manner in which the whole transaction was negotiated.

“How do you contract as many as 25 lawyers in such a transaction?” asked a top government official involved in the discussions, but who did not want to be named.

The Kenya Railways handed over all operational assets to RVR on November 1, 2006 for a period of 25 years for freight, and five years for passenger services.

Under the agreement, performance is to be measured in two ways: freight volume targets and minimum investment.

The freight volume target is measured annually but for the initial period, the performance targets is to be measured for the period up to June 2009.

The agreement specifies a minimum investment of $5 million per annum for the first five years.

The Kenya Railway Corporation (KRC) regulates and monitors the performance of the concession on behalf of the government.

In a recent brief to the government, KRC said that RVR’s performance had consistently remained below par.

It noted that while the railway was moving 1.5 billion net tonnes kilometres per annum when RVR took over, the concessionaire had only managed to move 1.4 billion units in the first 12 months of the concession.

According to the concession agreement, the target at the end of the second year is 1.88 billion net tonne kilometres.

The railway network in Kenya has a capacity to move 12 billion net tonnes kilometres.

The brief by the KRC also noted that the quality and quantity of passenger services had a rating of 22 per cent against the concession target of 80 per cent.

“In addition, RVR has failed to operate all passenger services as envisaged in the concession agreement,” he added.

With regard to maintenance, KRC noted that while the defunct Kenya Railways Corporation had handed over to RVR the railway when only 34 per cent of the line was on speed restriction, RVR had implemented a 100 per cent speed restriction on the mainline from Mombasa to Malaba — a clear indication of the decline in the maintenance and safety standards.

The report said that due to lack of maintenance, rolling stock availability had declined since RVR took over.

The daily average availability of locomotives — the report added — had dropped from 63 when RVR took over to 54.

Wagons in operation had dropped from 2,330 at commencement to 1,902 at the beginning of this year.

On staff matters, the brief by KRC said that RVR had so far retrenched 600 employees and dismissed over 200 of the 3,400 employees it inherited from the defunct Kenya Railways Corporation.

“Without an alternative means of undertaking operations and maintenance, RVR’s capacity to meet minimum maintenance standards is in serious doubt,” the report added.

RVR MAKE-UP CHANGES
Railways Africa
Friday, 25 July 2008

The Rift Valley Railways consortium, concessionaire of the Kenya and Uganda systems for 25 years from 2006, has new members and may be acquiring others. Mirambo Holdings Limited and Prime Fuels Kenya Limited, who were involved originally but had disagreements with Sheltam, are participants once again. Sheltam itself no longer holds more than 50%, its share being down to 35%, and talks are in progress with other potential investors in Australia and the UK.

However, as the East African (published in Nairobi) learned in mid-July “from discussions with key government officials, the state is now more inclined towards conducting a comprehensive review of the performance of the concession with a view to terminating the contract altogether. By the time The East African was going to press, the Office of the Prime Minister and the Ministry of Transport had released the terms of reference for the review of the performance of RVR under the concession. The review of the concession must be completed within 45 days.”

On 23 July, RVR employees who had been on an “illegal” 10-day strike returned to work. Their downing tools worsened the backlog of import goods clogging Mombasa harbour and resulted in the cancelling of several commuter passenger services.

RVR CONCESSION
Railways Africa
Saturday, 02 August 2008

According to the East African (published in Nairobi), quoting unnamed sources, the International Finance Corporation - the World Bank's private sector lending arm - has indicated that it will not disburse further funds to RVR until ongoing discussions on management and financial restructuring are completed.

“Another key lender to the concession - KFW of Germany - has also indicated that it will not provide money until it is satisfied that all ‘conditions precedent’ to the agreement are fulfilled, including conclusion of a partial risk guarantee and reimbursement of invoiced fees and expenses of counsel retained by KFW,” the paper writes.

“RVR is presently holding discussions with two international companies. The first is a consortium led by Australian company Toll Holdings Ltd, which also includes a UK-based equity fund PME Africa Infrastructure Opportunities Plc (PME). The second is a consortium led by Optima Management Ltd of the UK.

“The board of RVR mandated one of the consortium’s shareholders – Australia’s Babcock &Brown Ltd - to invite international operators with the capacity to bring in new equity
and management.

“Sheltam Ltd of South Africa is the largest shareholder of RVR, owning 35% of the shares. Others are the Transcentury Group, Mirambo Holdings Ltd, Prime Fuels Ltd, Centum Investment Company Ltd and Babcock and Brown.

“Apparently some of the shareholders have not fully subscribed their equity. Consequently, IFC has recommended that the best option for RVR at the moment is for the shareholders to put in the remaining amounts currently standing at $US7 million.

“RVR said in the statement that the shareholders of the company had mandated the board to assess the present funding and management structure of the group, and to make appropriate recommendations by 28 July”.

“The Office of the [Kenyan] Prime Minister, working in conjunction with the Ministry of Transport, has released the terms of reference for the review of the performance of RVR under the concession which is to be completed within 45 days.”

[Toll recently sold back its concession to operate New Zealand’s railways to the country’s government. - editor]

If the papers CAN be believed this is turning into a slight mess......