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What Kenya has learnt from the collapsed RVR rail deal

Kenya Railways Corporation MD Atanas Maina. FILE PHOTO | NMG
Kenya Railways Corporation MD Atanas Maina. FILE PHOTO | NMG 

After several years of underperformance, Kenya made good its threat to terminate the 25-year railway management contract with the Rift Valley Railways (RVR) on July 31.

The Kenya Railway Corporation (KR) will fully take back the running of the meter-gauge Mombasa-Kampala train services by the end of August.

Bonface Otieno discussed the future of the century-old railway network with KR managing director Atanas Maina.

What next after termination of the agreement with RVR?

The court ordered that we hand over assets from RVR to KR within 30 days ending August 30, 2017. We have constituted a joint team between RVR and KR management to work out the modalities of this while ensuring continued provision of services.

In the meantime, KR will operate the services as we work out a long term solution to the management and operations of the metre gauge.

Do you intend to bring in another operator to salvage the joint deal with Uganda?

RVR shareholders and lenders had tried to bring in investors before termination crystallised but this did not work out.

For now we have no plans to undertake another concession hence our intension to operate the services under KR.

Why would RVR fail to meet performance benchmarks or struggle to remit concession fees?

The most critical failures of the concession were twofold, failure to maintain assets to the required standards and failure to meet
freight volume targets.

On account of both, the company could not provide efficient and reliable services and moved low volumes of cargo. Revenues were therefore low thereby triggering their inability to achieve financial sustenance. Certain shareholder and board decisions with regard to manpower services and investments were wrong and have costed the company heavily.

The RVR inherited this concession agreement from Sheltam Rail Corporation. Why didn’t you consider renegotiating a new deal with them?

We have renegotiated the terms of the concession variously in order to accommodate the concessionaire. Regrettably, they failed to comply with most of them. No tangible proposals have been submitted for consideration by us or the government.

Is there any part of the contract where you would say RVR did well?

All concessions undertaken in Africa under the RVR model have failed. The expectation was that private sector capital and enterprise would turn around the operations. This did not work.

If you were to negotiate deal again, what would you be looking for in a concessionaire?

There is a need to relook the concession model. Apparently, the expectation by governments that a private sector partner can invest in infrastructure while maintaining the operational equipment is ill-premised since by their nature, these projects are expensive to develop and maintain and the payback period from a purely commercial perspective is longer than would make sense to an investor looking for a quick return on capital.

That is why infrastructure projects are best undertaken by governments as enablers for social and economic transformation.

Can a private sector firm really run public rail transport profitably?

It is possible to operate profitably only if the public sector bears the cost of infrastructure maintenance while the operator is left to maintain the equipment.

In areas where extra revenue is from auxiliary services, the model has worked well.

For instance in Transit Oriented Developments (TODs) where though the core service is movement of people or cargo, development of real estate for sale or rental becomes a major revenue earner which in turn cross-subsidises train operations losses.

Other situations arise where revenue from cargo subsidises passenger services.

Do you think the meter gauge line has a future given the plan to extend the standard gauge railway line from Mombasa to Malaba?

The railway still has a future but only if substantial investments are undertaken. We are making an overall assessment to see how to structure this in view of the fact that SGR is now a reality.

The railway business has accumulated debts running into billions of shillings, starting with the $164 million that RVR borrowed sometime in 2011. What happens to these loans?

These were debts to the company (RVR) and hence it remains liable for them.

What lesson have you learnt from the concession agreement with RVR?

The public private partnerships require a lot more thought than is usually assumed. The assumption that the private sector will succeed where the public sector has failed may not necessarily work.