RVR loses deal to run standard gauge railway to a Chinese contractor

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By Titus Mbithi
The Rift Valley Railways lost the priority to run the newly built standard gauge railway after regional presidents meeting at the recent Northern Corridor summit decided to give the deal to a Chinese firm to operate the business.
“The presidents directed that the contractors for the Mombasa-Kampala section undertake operations in the interim as the two partner states build their local capacities,” said the communication that followed the summit.
The decision means that Kenya could end up paying RVR for lost business due to the operationalization of the SGR line. Legal documents amending the concession agreement, signed in August 2010, provide for compensation for lost business.
This mechanism was put in place to ensure that RVR’s operations were not put at risk by the new railway, while offering it equal opportunity and a level playing ground.
In an earlier interview with a regional publication, Carlos Andrade, the former group chief executive of Rift Valley Railways, confirmed that RVR signed a revised deeds of amendment with the Kenyan and Ugandan governments, which provides for a process for the planning, construction and operation of the standard gauge railway and includes offering RVR the opportunity to operate rolling stock on the railway line.
“We negotiated for compensation in case of loss of business due to the construction and operation of the standard gauge railway. I still don’t know how this will be worked out. It could be through us getting involved with the operator who will be chosen to run the new line,” said Mr Andrade.
Kenya’s Transport and Infrastructure Cabinet Secretary James Macharia, while justifying the choice of a Chinese operator, said it makes sense to get the Chinese contractor to operate it for about five years in order to make sure there is accountability.
“The contractors are the ones building the railway, so if we allow them to test it and run it, then it will reaffirm to us that we have received the best returns on investments as opposed to their handing it over, we pay them then start having problems later with a completely different operator,” said Mr Macharia.
Business Mirror has learnt that China Communications Construction Company (CCCC) is the firm being considered to run the line on an interim basis.
RVR recently raised millions of dollars from various financiers and its shareholders in a bid to modernise its operations, railway network and wagons as it seeks to gain more cargo traffic from the Mombasa port.
Mr Macharia said the RVR concession clause was made with the best of intentions but a lot has happened since the 2010 amendments.
“In terms of capacity for running the SGR, which is different from running the metre gauge, we will most likely go with a Chinese operator,” said Mr Macharia, adding, “We have decided that we shall be hiring a technical consultant to advise us on the best way forward in terms of operationalizing this railway.
“This kind of investment is complex. It has elements of electronic controls, signalling of the train, so we need expert advice. Whereas we shall be going the Chinese route, we still need a consultant to advise us on the technical specifications of such an engagement with a view to getting an operator for the concession.”
In March, Kenya Railways advertised for transaction advisors to recommend the appropriate operating model for the railway.
“The transaction adviser will recommend the appropriate operating model for the railway, which will then inform the procurement of the operator,” said Kenya Railways, adding that the advisors had up to late last month to submit their bids.
RVR will also continue paying the 1.5 per cent railway development levy on its imports, which include plant and machinery. This means that it will be contributing indirectly to the running of its competitor’s operations.
Since July 2014, RVR has imported plant and equipment worth $279 million, translating into $4.19 million paid to the Kenya Revenue Authority as the railway development levy, which is money that goes towards financing the construction of the SGR.

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