There is still value to be unlocked from RVR

Even as we celebrate the Standard Gauge Railway (SGR), it seems to me that we still don’t know what we want to do with the old Lunatic Express - the narrow gauge line currently under a 25-year concession by the name Rift Valley Railways (RVR).

The other day, the government sent a notice to terminate the concession on grounds of non-performance to the Egyptian private equity firm Qala Holdings, which is the largest shareholder in the concession.

The Egyptians also want to go and have been busy in the market looking for a party to buy the concession.

Haven’t we learnt our lessons with these vulture-like private equity firms hovering around Africa and always at hand to snap up distressed concessions and privatisation deals that have gone sour?

We have left a national asset in the hands of a vulture that has absolutely no interest in turning around the meter-gauge railway line.

Their interest in the concession is the money that flows into these concessions from international development financial institutions to fund rehabilitation and capex development.

In the RVR case, a forensic audit by the World Bank’s Integrity Vice Presidency revealed how the Egyptians utilized loans from institutions including IFC and KFW of Germany and the Africa Development Bank – to purchase locomotives that had long been written off.

They have not moved since they were imported into the country.

Kicking out the Egyptians is the easy part. What is the value of the assets as the Egyptians step aside and how much can we recover from the narrow gauge line?

I went to the archives to find out the valuation of the asset at the point we gave it to the concessionaire and came across a valuation report by an entity from the Netherlands by the name Ecorys Nederland.

They came to a finding that the value of infrastructure, rolling stock, equipment and real estate of the assets that were conceded to the concessionaire was $485 million (about Sh50 billion).

Even if you catered for depreciation and inflation, the Lunatic Express line must still be worth billions of shillings.

Perhaps the biggest source of value is in the railway wayleave and the land that could be leased to fibre-optic or even power distribution companies. The land itself is worth billions.

Perhaps this is the time we should start thinking seriously about building a mini steel mill from the scrap metal from the narrow gauge railway company.

After all, a mini steel mill is among the Vision 2030 flagship projects spelt out in that ambitious economic blueprint.

RVR has the largest storage of scrap metal in Kenya. The statistics from the Ecorys study show that at the time Lunatic Express was being handed over to the concessionaire, it owned 6,539 wagons, coaches and locomotives.

And, apart from the rolling stock, the Lunatic Express has tonnes of obsolete spares, including dilapidated sections of the track.

If you include the almost 200km track stretching from Mombasa to Malaba plus the branch lines, sleepers and track fittings, the amount of metals laid has been estimated at 500,000 tonnes of steel.

In hindsight, it should not surprise that we are behaving as if we have no plan for the meter-gauge line. It seems to me that by the time we were concessioning the narrow gauge line, the SGR idea was yet to be conceived.

If you look at the original concession agreements, you will see that RVR was supposed to be a monopoly. Which is why when the SGR idea came up in 2008, the government had to revise the concession documents to remove RVR’s monopoly status.

Let us all hail the birth of the SGR, but we should not forget that there is value to be unlocked from the old company.