RIFT VALLEY RAILWAYS: PPP A SUCCESS OR FAILURE

The Kenya and Uganda governments entered into a concession with the Rift Valley Railways
(RVR) consortium for the rehabilitation, operation and maintenance of the Kenya Uganda
railway. The Kenya- Uganda rail concession agreement was signed in December 2006
Amending Deeds in relation to this concession were signed in 2010.
The Sheltam Rail (Pty) Ltd (Sheltam), the preferred bidder for the 25 year concession was the
majority shareholder in the RVR consortium. It had management experience but lacked
technical expertise though it shared a parent company with Comazar which has been
successful in the railways business in several countries in Africa. Sheltam did not have
enough finances to run the project. This shows that the contracting authority did not carryout
due diligence on Sheltam and its directors in its procurement phase to determine whether they
had enough money to invest in the project. This led to disagreements and eventual removal of
Sheltam and Citadel Capital took over the majority shareholding of the RVR in 2010.
The main aim for the concession was for the government to transfer the railways operation to
alleviate immediate budget difficulties it was facing and transfer the financing, commercial
and traffic risk to a private investor while the government was to assume political, legal and
regulation risks. The government of Kenya is supposed to receive 11.1% concession fee for
the use of conceded assets to RVR. This according to the Cabinet Minister for Transport and
Infrastructure has not been forthcoming. The challenge being that the RVR is making losses
due to the fact that the rail transport remains to be inefficient. The Citadel argues that it has
already spent the agree amount of $40M in the improvements of the assets yet more needs to
be done.
With the view that the RVR seem to have failed in its deliverables the Cabinet Secretary for
Transport and Infrastructure has indicated that there is need to monitor the performance of the
RVR on a monthly basis.
The government introduced the Railway Development Levy on all imports for the
construction of the Standard Gauge Railway. This is viewed by the RVR as a disadvantage to
them as this poses as an advantage to its competitor. This is because RVR imports spares for
locomotives and rolling stock making their operations expensive.
Though the concession seems not to have been successful so far, the government has an
option of terminating the concession or closely monitor RVR to ensure better performance in
the near future. The legal and policy changes that would affect the operations of the RVR
must be thought through and the government to honour its part of the risk it poses.