The Treasury on Thursday said it will not absorb Rift Valley Railways’ (RVR) loans in the wake of the recent termination of the company’s 25-year concession contract in a move that may cause the railway operator to default, leaving the creditors in a quandary.
Treasury secretary Henry Rotich said RVR’s outstanding loans amounting to Sh16.1 billion were commercial, and were therefore advanced after the lenders profiled the concessionaire for risk.
“To the best of my recollection, the Treasury never guaranteed any of the loans,” said Mr Rotich.
RVR signed the long-term loans deal with a consortium of international financiers in 2012 to fund the upgrade of the Kenya-Uganda track.
The African Development Bank (AfDB) tops the list of lenders having advanced RVR Sh4 billion, the German Development Agency (Sh3.2 billion) and the World Bank’s private sector lending arm, the International Finance Corporation (Sh2.2 billion).
Also on the list of RVR’s lenders are the Dutch Development Bank (Sh2 billion), the ICF Debt Pool (Sh2 billion), the Belgian Investment Company for Developing Countries (Sh1 billion), and Equity Bank #ticker:EQTY (Sh1.7 billion).
This group – collectively referred to as ‘senior lenders’ — had by May last year issued a notice of potential default, citing RVR’s deteriorating performance.
An internal audit report prepared at the start of this year shows RVR was to pay the first principal amount of Sh800 million in January but defaulted. It had also failed to remit interest charge of Sh700 million pending on the loans.
RVR and the Kenya Railways (KR) finally agreed to end the concession contract on Monday, when they assured the stakeholders, including creditors, that the decision would not hurt their interests.
They announced the formation of a joint takeover committee to oversee the handback of assets and liabilities to Kenya Railways in 30 days.
“During this time, the joint committee will engage clients and other stakeholders and will attend to pending and emerging issues to ensure minimal disruption to their service and business operations,” they said in a joint statement.
“KR and RVR will also endeavour to ensure there is minimal adverse economic and social impact associated with the transition.”
The decision to end the 25-year concession appears to have caught most of the international financiers unawares.
“I need some time to find out the loan status. Actually, this is something that we (bank) need to discuss,” said Gabriel Negatu, AfDB’s director-general for East Africa.