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Published: 18 April 2017      

Rift between Mombasa and Kampala

Uganda has refused to accept Kenya's termination of Rift Valley Railways' concession to operate the established rail link between Mombasa, Nairobi and Kampala. Is the new standard gauge rail link the key to the dispute?

Earlier this year Kenya Railways Corporation (KRC) cancelled Rift Valley Railways’ (RVR) concession to operate the established railway between Mombasa, Nairobi and Kampala.

The future of the line has been in doubt since work began on the new standard gauge line, which runs along the same route. The first section of the Chinese-financed railway, running 300 miles between Mombasa and Nairobi, is almost complete, at a cost of around US$4B.

RVR had a 25 year concession to operate the colonial-era narrow gauge railway, but KRC claims that the company has failed to meet its operating targets, including the volume of cargo handled. RVR was warned in January over its failure to make KSh600M (US$5.7M) in outstanding payments to KRC. A 90 day notice to pay off the debt was issued in January and has now expired. RVR has been trying to reverse the decision through legal action.

KRC managing director Atanas Maina stated: “Unfortunately, since January 2016 the concessionaire seems to have experienced financial difficulty and has not paid us fees...We have issued notices to the RVR to terminate concession. The Ministry of Transport of Kenya and that of Uganda are in discussions over this matter.”

However, Kampala has decided that KRC should not foreclose on RVR, and should consider "pending payments for royalties and concession fees" and "pursuing an uplift increase in cargo carried."

Uganda's Bomi Holdings has a 15% stake in RVR, while Egypt’s Qalaa previously indicated that it is open to offers for its 73.76% stake, and a US-based investor is believed to be interested. (The remaining 11.24% stake is held by the Kenyan government).

Prior to Kampala's statement of support, RVR obtained a court order for a 30-day "cooling off" period. At the time of writing, this has expired, but the view in Kampala is that Nairobi wants to throw its weight behind the new and (potentially) faster standard gauge line, which will soon be operational, and hence a new buyer for RVR is seen as a threat.

To lend credence to its stance, the government of Kenya, via the Kenya Revenue Authority (KRA) has stipulated that a minimum of 40% of cargo travelling between Nairobi and Mombasa on the standard gauge line must be taken by rail to Nairobi Internal Container Depot for clearance, thus pointing up the failure of RVR to achieve such a goal. The port and inland container depot (ICD) will be directly connected to the two container terminals at the Port of Nairobi by the new railway.

The standard gauge railway (SGR), as it is generally called in Kenya, is expected to become operational as far west as Nairobi by the end of May and is designed to carry 22 Mtpa, as well as faciliate modern, high speed passenger rail travel.

The government is keen to see the new line operating on a commercial basis as soon as possible and so reduce the proportion of cargo transported by road between the main port and biggest city in the country. The ICD’s annual handling capacity is in the process of being increased from 180,000 TEU to 450,000 TEU.

KRA's Commissioner General of the Kenya Revenue Authority, John Njiraini, said: “At least 40% of the cargo previously cleared in Mombasa will now find its way to Nairobi for clearance, with significant attendant benefits including speedier and cheaper cargo delivery, reduced road damage and road carnage and less pollution.

“The ICD is therefore a key component in the overall government strategy to deliver tangible trade benefits through the SGR project. SGR’s success is therefore highly dependent on an efficient ICD, offering speedy cargo evacuation in order to avoid clog up of the cargo supply chain.”

The move has been criticised by those working in the logistics sector. The chief executive of the Shippers Council of Eastern Africa, Gilbert Lang’at, says that the new railway could reduce transport costs by a third, but argues: “The government would be opening itself up to legal battles if it forced importers to transport their cargo by rail...If the SGR operator comes up with the right strategy, it is possible for it to attract even 50% business without government support.”

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  • Africa) Kenya) Rail transport
  • Africa) Uganda) Rail transport
  • Kenya Railways Corporation
  • Kenya Revenue Authority
  • Rift Valley Railways
  • Shippers Council of Eastern Africa
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