Kenya demands Sh2.7b, tough conditions to Egypt's rail operator

NAIROBI: Kenya has given an Egyptian company “impossible” terms to keep operating the century-old local railway business, including clearance of a Sh2.76 billion debt by June 30.

Rift Valley Railways, owned by Qalaa Holdings of Egypt, was last Friday ordered to pay the contested debt, rehabilitate the track and significantly raise the uptake of freight from Mombasa within 90 days. Termination of the concession could have huge ramifications for thousands of RVR employees and the investors who have never reported a profit since taking over in 2006.

It would also complicate the ongoing negotiations between Qalaa Holdings and prospective investors who are expected to inject about Sh10 billion into the business. Equity Bank is among the lenders exposed as its Sh2 billion loan to the railway operator remains outstanding.

RVR, however, won a temporary injunction last week after it was granted 30 days to negotiate with Kenya Railways “with a view to settle it out of court”, ruled Lady Justice Grace Nzioka.

The firm said in a statement yesterday that the validity of the termination notice was the subject of the ongoing suit before court. “Should a valid termination notice be issued, RVR shall have six months to cure any defaults found to have occurred in the concession,” the firm said.

It is the second attempt at kicking the private operator out of the railway business, after the initial one in 2009 flopped. Kenya Railways boss Atanas Maina gave the 90-day termination notice last Friday directing, among others, that RVR pays about Sh2.1 billion being value of unusable assets arising from accidents or otherwise.

Original concession documents remain top secret, making it impossible to understand how the depreciation of the assets would be treated over the 25-year deal that ends in January 2031. Maina’s terse notification listed three grounds on which the agreement would be terminated unless the issues raised are remedied before June 30. RVR needs to figure out how it is going to increase the uptake of cargo from the port to the agreed levels, coming only months before the Standard Gauge Railway line is commissioned.

Currently, less than 5 per cent of the cargo cleared from the Mombasa Port is moved by rail, with trucks taking up the huge balance.

Maina wrote that RVR had failed to rehabilitate the track and the trains, moves less cargo than agreed and that it owed more than Sh604 million in concession fees and rent.

RVR Chief Executive Officer Isaiah Okoth acknowledged in a recent interview that the concession fees were outstanding but noted that settling the dues could not come before funding the firm’s core business. “It is a small amount that we can pay, but why should we pay them (KRC) and close shop?” Mr Okoth told The Standard in a prior interview.