RVR’s 25-year deal to run rail line is terminated

The Kenya Railways Corporation has terminated Rift Valley Railways’ (RVR) 25-year contract to run the Kenya-Uganda railway, casting dark clouds over the future of the private operator. 

The Business Daily has learnt that Kenya Railways terminated the contract last Thursday citing RVR’s failure to meet set operating targets, including payment of concession fees.

RVR, whose ownership is controlled by Egyptian private equity firm Qalaa Holding, was informed of the decision through a letter delivered to its bosses on Thursday morning — a day after the operator moved to court seeking orders to stop it.

The termination process was set in motion in January when Kenya Railways managing director Atanas Maina issued RVR with a notice over unpaid fees amounting to Sh600 million and a string of misses in cargo haulage targets.

RVR’s chief executive, Isaiah Okoth, declined to comment.

The journey to termination picked pace in mid-March when Kenyan officials travelled to Kampala for a meeting with their Ugandan counterparts to assess RVR’s performance.

Qalaa’s head of transportation division, Karim Sadek, who was expected to attend the meeting failed to show up, instead choosing to send a junior officer.

Infuriated govt officials

The snub infuriated the top government officials, who left the meeting having passed a resolution to terminate the contract at the end of the 90-day notice they had issued in January.

Mr Sadek is reported to have got wind of the looming termination and rushed to court for an injunction to stop it.

But the court declined to issue the order and instead asked the rail firm to return to court the next day (March 30) with the defendants for an inter-partes hearing. 

Kenya Railways, which was expected in court on Thursday morning, however made a pre-emptive strike by serving RVR with the termination letter that effectively made the impending court appearance irrelevant.

The termination of the contract leaves RVR shareholders, including Qalaa, Uganda’s Bomi Holding, the Kenyan government and the international finance institutions (IFIs) that invested millions of dollars in the rail firm with 180 days to sell it to a strategic investor or return it to Kenya Railways.

Out-of-court settlement

On Friday March 31, RVR obtained an order asking parties to the dispute to seek an out-of-court settlement. 

“It is hereby noted that the parties will have 30 days within which to negotiate the matter with a view to settle it out of court,” the court ruled, adding that the validity of the notice to end the contract would be looked into later.

Mr Maina in February told Parliament that he had issued a termination notice to RVR for failing to remit concession fees for the year to December 2016.

In the contract, RVR was to pay concession or leasing fees to the Ugandan and Kenyan governments through Kenya Railways on a quarterly basis.

“Unfortunately, since January last year the concessionaire seems to have experienced financial difficulty and has not paid us fees amounting to Sh600 million for the last one year,” Mr Maina told the National Assembly’s Public Investment Committee.

“We have issued notices to the RVR to terminate concession. The Ministry of Transport of Kenya and that of Uganda are in discussions over this matter.”

Railway transport has continued to lose a share of the cargo business as importers opt for roads.

The firm was gearing up for fresh pressure this year with the start of operations on the new Sh450 billion standard gauge railway from Mombasa to Nairobi, which will ferry heavier and bigger containers faster and relieve pressure on Kenya’s congested roads.

Mr Maina told MPs in February that RVR had informed the government of its need to restructure the concession, bring in new shareholders and inject new capital.

“However, that discussion with the shareholders, lenders and the government on the proposed restructuring of the concession agreement has not started,” he said.