Egyptians’ bid to control Kenya-Uganda railways

[John Ashworth]

Egyptians’ bid to control Kenya-Uganda railways sparks off regional power play

By NICK WACHIRA
Posted Monday, January 25 2010 at 22:00
Daily Nation

In Summary

* With their population bursting at the seams and their arable land shrinking by the day, the northerners must do their best to secure their food reserves. But this may stoke nationalistic fires

On January 11 this year, Uganda’s Prime Minister Apolo Nsibambi sat down to break bread with his Egyptian President Hosni Mubarak.

Mr Nsibambi had been invited by his Egpytian counterpart, Dr Ahmed Nazif, in what was billed as a five-day working trip in Cairo to smooth out bilateral issues, after a three-month period that saw a remarkable thawing of the historical tensions between Kampala and Cairo.

In November 2009, Uganda’s Daily Vision newspaper reported that Egypt’s assistant foreign minister Mona Omar, on a visit Uganda, denied that her country had denied Uganda from starting development projects on River Nile.

Two days later after the meeting with Mubarak, the two premiers announced that Uganda would allow Egypt to grow wheat on its fertile land. This was a far reaching deal in which Egypt would loan Uganda Sh350 million ($4.5 million) to build water dams.

Why would a nation built on patched land — and that survives on a mighty river that cuts through 6,700 kilometres, fed from tributaries and lakes shared among five nations — want to sign a deal to grow its most valued staple food with a country 3,000 kilometres away, and which has historically viewed it with suspicion?

It turns out that there was a lot at stake in the two months that relations between Cairo and Kampala were growing closer.

As the political track to strengthen the economic relations between the two countries was advanced, an even deeper and sophisticated corporate battle had been going on during this period, played out in Nairobi, Cairo, and London by two of the big private equity funds that focus on Africa, and a fast-rising investment group in Kenya.

The two PE shops are Citadel Capital, a powerful and tough talking firm based out of Cairo that is whispered to count among its investors sons of the most powerful politicians and political elite in that country, and Helios Investment Partners, a high-flying firm co-founded by one-time Texas Pacific Group executive Temitope Lawani, a Nigerian who counts among his many investors the once powerful US foreign secretary, Madeleine Albright; once the world’s most powerful hedge fund manager, George Soros; and a scion of perhaps once the world’s most powerful banking dynasty, Jacob Rothschild. The Kenyan investment group is Transcentury.

On December 17 last year, Citadel announced victory in the race to buy out the majority shareholding of Mr Roy Puffet in Rift Valley Railways International, the man who won the concession to run the Kenya-Uganda railways for 25 years.

“Over the past 16 months, RVRI has been amidst a highly abortive restructuring process with many false starts and structures envisaged,” wrote Citadel’s managing director Karim Sadek to Deputy Prime Minister and Finance Minister Uhuru Kenyatta.

The firm said it had figured out what to do with the deal and would invest $150 million to turn around the railway over the remaining two decades. Citadel had also negotiated to buy out all the other shareholders with the exception of Transcentury, with which it was locked in a very bitter battle.

Three days earlier, Mr Babatunde Soyoye, the managing partner of Helios, had written to the two governments and everyone involved that they were willing to invest $50 million in a combination of a loan and warrants.

Helios claimed to have convinced the IFC and KfW to release some $54 million in funds that the two institutions did not want to release to Mr Puffet’s management.

They were to work with America Latina Logistica, a Brazilian railway operator with $1 billion in revenues. This offer even included a promise to pay the governments a guaranteed insurance of Sh1.5 billion if they failed to meet targets. Transcentury had been negotiating with Mr Puffet since October, and he was asking for Sh750 million ($10 million) for his 35 per cent shareholding.

While the boardroom intrigues surrounding this fight for control of the concession have providing the narrative arch behind this saga, the entry of the Egyptians has stocked nationalistic passions in Kenya, and outlined the cleavage that defines how the country and Uganda define their strategic interests.

The boardroom conflict also underscores the shape the battle for Africa’s future will take, defined by the punishing geography of the Nile Basin countries, and access to vital resources such as water, energy, and minerals. It also highlights the leading actors that will drive the way that nations in the continent will relate to each other.

In the traditional mode, the conflict over what would define the national interests of the nine Nile Basin countries would be fuelled by politicians with expansionist ambitions, but in the current saga, corporate men in suits seated thousands of kilometres away are calling the shots from their plush private equity funds profits.

It will also be a battle in which governments will have to balance public and strategic interests against the short-term commercial objectives of corporate managers hired to extract maximum profits for their wealthy investors. In the RVR saga, we have Nigerian, American, Middle Eastern and some Kenyan capital vying for a major infrastructure opportunity.

With the kind of deals that private equity funds and African multinational corporations are taking up, the new scramble for Africa is entering a phase where private capital will be driving foreign policy on the continent.

This illustrates the positions Uganda, Kenya and Egypt may take on this deal. To the players involved, it is either the hunt for pure commercial profit or strategic interests. However, at a deeper level, whatever outcome stems from the RVR is a question of national interest.

From the pattern of deals to which Egypt has entered in Africa over the last two years, it is defining its strategic interests in terms of bolstering its food security.

Many hungry mouths

According to the UN Population Division data, Egypt’s population is likely to hit 111 million by 2050 under a low-case fertility scenario, or 156 million if it continues to grow at the current fertility rate. This means there will be many hungry, unemployed mouths living in the slum areas to feed on a land whose fertility might be falling. This could lead to population pressures and political instability in an authoritarian state.

It is therefore in Egypt’s strategic interest to manage the Nile well, and secure food and natural resources downstream. That is why Cairo would back Citadel in its bid to control the railway concession in East Africa in order to establish a logistics corridor that will not only help bring food home, but resources such as oil from Uganda and Southern Sudan.

Uganda wants much the same thing. It has historically been held hostage to the incompetence of successive Kenyan governments in running the railway that forms the gateway to their landlocked country.

The shareholding squabbles within RVR could only be of limited interest to them, compared to the need to export their oil to the world. This could be the reason that has motivated Kampala to seek a closer relationship with Cairo.

RVR controversy drags on

Thursday, 28th January, 2010
New Vision
By Emojong Osere

THE future of Rift Valley Railways Investments (RVRI), a company contracted to manage the Kenya-Uganda railway, will be known on February 8.

The decision to have the joint railway commission determine whether the troubled company should be allowed to manage the over 900km railway line in the next 12 days, was arrived at during a Wednesday meeting held in Kampala.

The meeting was expected to unveil the firm’s ownership agreement and subsequently transfer of RVRI shares to Kenya-Uganda Railways Holdings.

In a joint press statement signed by Uganda’s director of transport, James Itazi and Dr. Cyrus Njiru, Kenya’s works and transport permanent secretary, RVRI shareholders said they had not yet finalised internal negotiations and were, therefore, unable to provide the required documents to meet conditions for the transfer of shareholding to Citadel Capital, an Egyptian firm.

“JRC has no option but to consider other alternatives, which may include new proposals from RVR,” the statement released after the meeting said.

The Kenyan and Ugandan governments on January 11 gave RVRI a 14-day ultimatum to come up with a new ownership agreement or have the 25-year concession cancelled.

The ultimatum was given as differences emerged following the secret sale of 49% of its shares by Sheltam Investments of South Africa to Egypt’s Citadel Capital, a development that was rejected by Kenyan shareholder TransCentury.

RVR Investments shareholders include Sheltam Rail of South Africa (35% shares), TransCentury (20%) and Prime Fuels of Kenya (15%).

Centum Investments Kenya has 10%, Mirambo Holdings of Tanzania have 10% and another 10% is held by Australia’s Babcock and Brown.

Citadel Capital has promised to inject about $150m into the venture. The company, however, insists that it should have majority shareholding.

RVRI took over the management of the Kenya-Uganda railway line in 2006.

But since then, not much has been done since shareholders failed to inject money into the investment after differences on shareholding emerged among the partners.

Kenya plays down railway row

By WALTER MENYA
Daily Nation
Posted Thursday, January 28 2010 at 21:42

Kenya has played down differences with Uganda over Citadel Capital, an Egyptian private equity firm battling for a controlling stake in Rift Valley Railways.

Transport permanent secretary Cyrus Njiru also moved to assure RVR employees that their jobs were secure amidst the controversy generated by the failure of RVR.

Addressing the Press in his office on Thursday, Dr Njiru denied that the emergence of Citadel had driven a wedge between the neighbours as Uganda seemed to favour the Egyptian firm while Kenya favours Transcentury Ltd.

But the PS did not hide Kenya’s discomfort with the Egyptian investors, stating that their entry had “compounded” the problem generated by RVR’s failure to meet the terms of the 25-year concession.

“It has emerged that Sheltam, who were blamed for the dismal performance and who were to be diluted and removed as lead investor, are attempting to transfer their shares to another company, thus compounding the problem,” he said.

It had been suggested that differences between Kenya and Uganda over Citadel were behind last Wednesday’s postponement of the decision on the fate of the 25-year concession, under which RVR runs the 1,200-kilometre railway line between Mombasa and Kampala. The talks were held in the Ugandan capital.

The PS was hard pressed to explain that the two countries were instead waiting for RVR to complete internal negotiations. “There are no differences between Kenya and Uganda. We are reading from the same script.”

During the Wednesday meeting, the RVR board was given until February 8 to provide a feasible arrangement of turning around railway transport between Kenya and Uganda.

This was after it emerged that boardroom battles among shareholders of the troubled company for the control of the firm, pitting the politically-influential local group, Transcentury Ltd, against Citadel Capital, had not been solved.

Our role in railway concession was well meaning and devoid of politics

Daily Nation
Posted Thursday, January 28 2010 at 17:40

We would like to set the record straight on the special report published in the Daily Nation (January 25) 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 $8.3 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.

GHADA HAMMOUDA,

Head of Corporate Communications, Citadel Capital (S.A.E.)

*****

Your January 20 editorial and January 25 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 $10 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.

JEAN PHILIPPE PROSPER,

Director, Southern and Eastern Africa.