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Opinion & Analysis

RVR deal was flawed from the very beginning

If we must approve change of ownership of Rift Valley Railways (RVR) to third parties, it must be to a qualified operator with demonstrable experience in running and operating a large railway system.

I say so because if you look at recent trends in Africa, you will see increased activity by vulture fund-like entities scavenging through the continent looking to buy or take over distressed concessions or privatisation projects that have failed.

Just the other day, the government allowed the private equity firm- Helios- to take over the financially- troubled Telkom Kenya from France Telecom.

The rule of the thumb has always been that any investors seeking to take over a failed privatisation deal such as was the case of the failed Telkom Kenya, privatisation would only be accepted under the terms of the RFP of the original privatisation transaction that was issued in September 2007.

As we all know, France Telecom which has just left Telkom Kenya, was the only experienced and technically qualified operator in the consortium that won the tender in 2007.  Yet the main player in the group that has taken over Telkom are mere financial investors.

The government should only approve the exit of Qalaa Holdings of Egypt as anchor investors in RVR if ownership is going to be transferred to a technically qualified and experienced operator.

 Haven’t we seen the tactics and exploits of these vulture fund-like investors before?  South African Roy Puffet came to town well aware that he knew absolutely nothing about running a railway operation of the size of RVR.

His main interest was to siphon off money from RVR through the infamous management and administrative support agreement with Sheltam of South Africa that allowed him to reap millions of shillings through management fees charged on gross revenues.

When he could not deliver and after his dealings were exposed, Mr Puffet quickly flipped the shares to another vulture fund-like entity, Citadel- which later changed its name to Qalaa Holdings.  

As the concession agreement was being amended to accommodate the Egyptian investors, the development financial institutions behind the concession insisted on the condition of an experienced technical operator to run the railway.

That is how expatriates from the Brazilian company, America Latina Logistica (ALL), were brought in as operators.  The expatriates could not make much of an impact as they took too long to learn to speak English.

Marshalling the support of the workforce behind the changes the expatriates were trying to implement also became a problem as a good number of the expatriates were perceived as too young to occupy big management positions. They were kicked out.

The findings of a recent forensic audit by the Word Bank’s Integrity Vice Presidency into allegations of fraud and corruption in the acquisition of locomotives by RVR has given us a glimpse of the real and true attraction of  these vulture fund-like investors when  they get involved in transactions such as the RVR concession.

It is all about the rent-seeking opportunities  that come with huge capital expenditure projects, especially where huge procurement projects are funded by deep-pocketed international financial institutions.

The audit found that top RVR managers bribed public officials, manipulated accounts, and created convoluted ownership and operations structures with the aim of defrauding lenders in a transaction involving the procurement of 20 locomotives financed by funds from the International Finance Corporation of the World Bank and KFW of the Netherlands.

If we have to allow new investors in RVR, let us also establish the ultimate beneficial owners of the new investors seeking to come in.

This is a pertinent issue because vulture fund-like vehicles have been linked in Nigeria to money laundering by local elites.

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