How Kenya Railways was duped into putting the noose around its own neck

SGR Cargo train loaded with exclusive Maersk containers leaves the port of Mombasa on Friday 18th March, 2018. These cargo being destined for ICD Nairobi are among those being handled by the Port of Mombasa. [Photo: Maarufu Mohamed, Standard]

Kenya Railways started the search for a Transaction Advisor (TA), whose job was to advice on the procurement of a competent operator for the operation of the Standard Gauge Railway, in March 2016.

The advisor was to recommend the appropriate operating model for the line which would inform the procurement of the operator.

However, during the 13th Summit of the Northern Corridor Integration Projects of April 23, 2016 held in Kampala, Uganda, the Summit directed that the EPC Contractor that was engaged to design and construct the SGR also undertake the operations of the SGR in the interim as partner states built capacity. 

This was after State-owned China Exim Bank told Uganda that they would only get funding to build their section on condition that it agrees with Kenya to hire the Chinese contractor to run the line from Mombasa to Kampala.

Key concerns

The key concern on the above directive was whether the builder, China Road and Bridge Company (CRBC), had the capacity and experience to undertake the operations.

On their part, CRBC asserted that the operations would be undertaken by John Holland of Australia, which by then had become a subsidiary of China Communications Construction Company (CCCC) following an acquisition deal finalised in 2015. 

CCCC is related to CRBC, which is also in charge of construction of SGR from Nairobi to Naivasha.

John Holland was said to have 65 years of experience in engineering servicing, contracting and managing rail projects

On June 11, 2016 a team comprising officials from Kenya Railways, Kenya Ports Authority (KPA), Treasury, Office of the Attorney-General and the Ministry of Transport was sent to China and Australia to conduct due diligence on John Holland, the firm that would jointly manage SGR with the CRBC.

The team was satisfied that with the presence of John Holland in the venture, CRBC had the capacity to operate SGR.

With insistence from Exim Bank, the Corporation and the parties entered into an agreement (the “Framework Agreement”) on December 9, 2016 in which KR committed to procure CRBC as the operator subject to the Public Procurement and Assets Disposal Act, 2015.

The process of appointment of transaction advisor continued and Aarvee of India in consortium with Wanjohi & Mutonyi Consulting Engineers (technical), Equity Investment Bank (financial) and Amolo & Gacoka Advocates (legal) were appointed as TA for procurement of CRBC and John Holland to operate SGR.

Part of the responsibilities of the TA was to assist the corporation in coming up with Request For Proposal document, a guide in the negotiations with CRBC and to drawing up a contract document.

The TA completed the RFP document in February 2017 and was in accordance with the requirements of the Public Procurement and Asset Disposal Act issued to CRBC on March 2, 2017. CRBC submitted a response to the RFP on March 14, 2017.

“After CRBC returned the document and in line with Public Procurement and Asset Disposal Act, the corporation appointed a team to negotiate with CRBC and that is when theatrics started,” an insider said.

Hardline position

Kenya Railways realised that the negotiating team was actually not working with John Holland as they were not able to provide the joint venture agreement with the Australian firm.

“CRBC did not return the RFP document as presented to them but instead provided a counter document. For example, RFP document required the CRBC to provide maintenance cost per month but preferred to be paid fixed service fees for running a number of trains per month plus variable costs if the number of trains exceed agreed number,” our source said.

Because of the hardline position taken by CRBC, Kenya Railways was forced to bend to their terms given that the launch date was fast approaching.

In accordance with the requirements of the Public Procurement and Asset Disposal Act, we forwarded the Contract to the Attorney General for comments before execution.

“The AG indicated that they did not get enough time to review the contract but given that Kenya Railways relied on the advice of the transaction advisor, it could sign the contract,” the source said.