RVR makes Sh1bn loss on rising costs and cut on freight charges

Rift Valley Railways (RVR) saw its losses in the year ended December rise nearly three times to $11.3 million (Sh1 billion), signalling increased expenses by the Kenya-Uganda railway operator.

The multinational disclosed that RVR was forced to reduce its charges last year due to increased capacity and competition from truckers who took advantage of lower fuel prices to lower their prices.

The railway operator cut its cents per net tonne kilometres (NTK) to 5.95 last year, a seven per cent decline compared to 2013. 

The company’s performance was disclosed by its Cairo-based parent Qalaa Holdings which said the local subsidiary’s earnings in the period had worsened from a $4.1 million (Sh385 million) loss recorded the year before.

“Notable in this respect is that our EBITDA line reflects the impact of ($11.3 million) in negative contributions from Rift Valley Railways, which is in the midst of a multi-year operational turnaround,” Qalaa said in a statement.

EBITDA refers to earnings before interest, tax, depreciation and armotisation, meaning that the net losses by RVR are larger.

It excludes the impact of financing and accounting decisions including bank borrowings of Sh19.2 billion that RVR had in its books as of December. The firm made the loss despite revenues increasing 14 per cent to Sh8 billion, indicating that costs rose faster than turnover in absolute terms.

Qalaa did not offer a breakdown of RVR’s cost structure.

The Egyptian multinational said it will continue investing in the regional railway operator –which has a 25-year concession— to turn it around. RVR had imported six locomotives from General Electric as of December. Another 14 locomotives are expected by the end of June.

“By that time, the hauling capacity of RVR should double compared to June 2014, which should enhance the company’s revenue going forward,” Qalaa said. The railway operator had hit net tonne kilometres (NTK) –a measure of operational performance— of 1.3 million last year. This represented a 12 per cent increase compared to 2013.
Qalaa said this enabled RVR to meet concession targets set by the government of Kenya for the 21-month period ended March 2015 three months earlier than the agreed deadline.

“Cents/NTK decreased … because (of) increased capacity required reducing rates and decreasing fuel prices allowed trucking companies to reduce their rates, thus putting pressure on RVR’s rates,” Qalaa said.

The average price of diesel in Nairobi, for instance, dropped steadily from a high of Sh107.3 per litre in February 2013 to a low of Sh90.8 in December last year.

This was partly driven by an oil price crash in the international markets as producers like Saudi Arabia maintained their output to protect their market share.