Shipping & Logistics

Firm in RVR’s Sh2.2 billion machines scam goes under

RVR locomotive in Mombasa. FILE PHOTO | NMG
RVR locomotive in Mombasa. FILE PHOTO | NMG 

East African Rail and Handling Logistics (EARHL), a firm at the centre of the Rift Valley Railways equipment leasing scam, has been put under receivership, adding a new twist to the botched concession deal.

Anthony Makenzi Muthusi, a transaction manager at Ernst & Young, took over last week as the firm’s receiver-manager.

“Notice is given that, I, Anthony Makenzi Muthusi of Ernst & Young LLP was appointed as the Receiver on October 17, 2017, of part of the property of East African Rail and Handling Logistics Limited,” he said in a gazette notice published last week.

The move effectively puts to slow death the controversial firm that the World Bank blacklisted over the misuse of Sh2.2 billion borrowed by the Rift Valley Railways in 2011 to buy new equipment.

It its assessment, the World Bank found that RVR bosses secretly diverted cash meant to lease locomotives from the EARHL at the rate of $30,000 (Sh3 million) each for the first three months and $25,000 (Sh2.5 million) for the next 81 months.

The terms, according to the bank, were later amended in 2015 to a flat rate of $30,000 (Sh3 million) per month for the entire 84 months.

Putting the EARHL under receivership also puts a cloud of uncertainty over plans to conduct forensic investigations into its activities in Kenya and Uganda. RVR, chocking under debt and inefficiency, lost its 25-year concession agreement with Kenya and Uganda to run the Mombasa-Kampala century old single-metre gauge railway.

By the time it exited the scene, RVR had outstanding loans amounting to Sh16.1 billion, including the World Bank’s cash.

The African Development Bank (AfDB) tops the list of lenders, having advanced RVR Sh4 billion, followed by the German Development Agency (Sh3.2 billion).

Other 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.

Experts have questioned the probity of the loans, saying they were advanced despite documented cases showing the rail concession model in the form that RVR inherited had failed elsewhere in Africa.

The World Bank found that six RVR directors conspired to alter its deal and have locomotives leased at inflated rates from a third party (EARHL). It also discovered that the EARHL was a wholly owned subsidiary of Qalaa Holdings, the majority stakeholder (80 per cent) in RVR.

Qalaa Holdings posted a Sh16.38 billion half-year net loss for the period ended June 30, 2017, compared to Sh1.62 billion recorded in 2016 following revocation of its Kenya RVR concession.

Qalaa founder and chairman Ahmed Heikal, however, said the ‘‘seizure’’ would free the firm to concentrate on other promising ventures.

“More importantly, in the second quarter of 2017 we took the difficult but necessary decision to fully impair Africa Railways’ assets in Kenya.

The impairment effectively caps future losses from a discontinued operation that is facing increased operational difficulty and is otherwise a drain on resources and capital that could be deployed to other, more promising growth avenues,” he said.

“Additionally, we anticipate a substantial gain on our income statement once we cede control of Africa Railways and deconsolidate its Sh32.7 billion in liabilities in the coming period.”