We won't compensate RVR for losing business to SGR, State insists

Kenya does not intend to compensate an Egyptian firm for a loss of business that could arise once the Standard Gauge Railway line begins operations.

This is a position that could hurt Qalaa Holdings, the firm that won a 25-year concession to run the century-old railway until 2031. The company has already claimed a right to seek compensation.

Qalaa Holdings owns 85 per cent of Rift Valley Railways (RVR), the operator of the meter-gauge line, which strides Kenya and Uganda.

Transport Principal Secretary Irungu Nyakera said RVR moves only 2.5 per cent of freight from the Port of Mombasa, and that the entry of the SGR cannot be seen as direct competition.

“How can anyone say that SGR will compete with RVR, which does a tiny proportion of the freight?” he asked, saying that the competition could only be trucks.

Official estimates attribute the uptake of freight from the Mombasa port at about 97 per cent for trucks, an opportunity that SGR was intended to exploit.

Raised the alarm

But top officials at Qalaa Holdings raised the alarm from as far back as 2015 about the potential losses its Kenyan business could suffer as a result of SGR.

Karim Sadek, the managing director of the Egyptian firm, said in a past interview that there was a clause for loss of business compensation during SGR’s operation and construction.

“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,” Mr Sadek is quoted as having told the Business Daily.

A decision has already been taken that will see John Holland — an Australian subsidiary of a major Chinese company, called CCCC — operate the new railway, effectively locking out RVR.

Mr Nyakera’s position also takes away any possibility of a monthly pay cheque as intimated by Sadek, suggesting a possible legal battle upon SGR’s commissioning.

In a possible indication that it may be cutting its losses, Qalaa has spoken in recent months of seeking a buyer for its rail business.

Among the leading investors that have expressed interest in the business are America’s Emerging Capital Markets and South Africa’s giant logistics firm Transnet.

At least one more investor had expressed interest in the ongoing discussions on the acquisition of RVR, according to its managing director, Isaiah Otieno.

Grain Bulk Handlers, the biggest grains importer and seller in the region, is also said to be associated with one of the bidders and is believed to have an interest in the rail business to complement its warehousing and transportation ventures.

These investors would be lining up to acquire a business that has consistently reported losses and absorbed billions of shillings.

One school of thought informing this interest is the likelihood for State compensation once SGR commences freight and passenger operations.

Business case

But Mr Otieno dismissed the argument about compensation, saying no investor would inject their money in the hope of receiving reimbursement.

“No one would do that with their money,” he said in an interview, adding that there actually was a solid business case for his firm.

Steel, grains and clinker are only some of the bulky freight that presented untapped opportunities for his company, he added.

“Our only problem has been capacity, which we hope the new investor will help us achieve.”

In his estimation, RVR needs a minimum of Sh10 billion in fresh capital injection to get its locomotives and wagons to take on the SGR.

The upper limit for capital requirements that RVR hopes will be brought in by a new investor is Sh15.5 billion ($150 million).

But Otieno’s firm has in recent weeks been in the news for all the wrong reasons, including a mega-fraud claim unearthed by a probe done by the World Bank, and inability to pay concession fees.

At the centre of the fraud claims, RVR is accused of inflating the price paid for used locomotives it acquired using funds provided through a loan given by the International Finance Corporation, a financial institution that is a member of the World Bank Group.

Officials of the firm were indicted, even though the rail operator has denied any claims of wrongdoing.

As for the concession fees, Otieno laughed off claims that it was unable to settle a Sh600 million debt owed to Kenya Railways Corporation (KRC) as lease fees for equipment.

He said his most urgent requirement as the head of the company was to ensure his staff were paid on time, and to pay for consumables, including diesel for the engines.

“That is a small amount that we can pay, but why should we pay them [KRC] and close shop?”