Economy

RVR signs compensation deal for losses linked to new railway

rvr

Mr Karim Sadek, the managing director at Qalaa Holdings, the parent company of Rift Valley Railways. PHOTO | SALATON NJAU

Rift Valley Railways (RVR) has signed a deal that will see firm receive compensation for loss of business arising from the new multi-billion shilling rail linking Mombasa to Nairobi.

Officials of Qalaa Holdings, the RVR parent company, said a provision for compensation was included in line with 25-year exclusive contract offered to the firm to operate the Kenya-Uganda railway line.

“There is the clause for loss of business compensation during the SGR operation and construction,” Qalaa Holdings MD Karim Sadek said in an interview last week. “I do not know how it will be applied. It could be many forms. It could be a cheque at the end of the month or it could be telling us to get involved with anyone else who is going to operate the SGR.”

Under the concession agreement, RVR’s investments are protected by clauses that stipulate that the governments of Kenya and Uganda cannot introduce changes that jeopardise the firm’s profitability during the tenure of the contract. The agreement shields RVR from competition during the tenure of the concession, prompting the compensation clause.

“Contractually, we are to be compensated for any interruption of activity and loss of business,” said Mr Sadek.

Qalaa Holdings, formerly Citadel Capital, acquired an additional 34 per cent stake in RVR from TransCentury Limited last year through its subsidiary Africa Railways. The deal raised the Egyptian firm’s total ownership to 85 per cent, with the remaining 15 per cent held by Uganda-based Bomi Holdings.

READ: TransCentury exits RVR after sell of stake to Egyptian firm

Construction of the new line China Road and Bridge Corporation was appointed to build the new railway at a cost of Sh447.5 billion including financing costs.

The railway, which will supplement RVR’s narrow-gauge track, will reduce freight costs to Sh7.20 per tonne per kilometre from the present average of Sh18, President Uhuru Kenyatta said at the launch of the new line. It will ferry heavier and bigger containers more quickly and will relieve pressure on the region’s congested roads, increasing Kenya’s competitiveness as an investment destination.

Performance in the cargo business has trailed that of trucks over the years. In 2013, trains hauled 1.2 million tonnes of cargo, 5.3 per cent of total cargo (22.3 million tonnes) that landed in Mombasa port. The rest of the freight was handled by trucks.

Currently, cargo trains take about two weeks from Mombasa to Kampala in what RVR attributes to numerous stopovers at checkpoints.

“Were the trains to move non-stop, it would take six days,” said Mr Sadek.