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Africa Economic Institute

East Africa to Remodel Rift Valley Railway

The Kenya-Uganda railway is 930 km long, running from the port city of Mombasa in Kenya to Kisumu on the eastern shore of Lake Victoria near neighboring Uganda. Construction of the railway faced many obstacles, ranging from the difficult terrain to man-eating lions. It was completed in 1901 by the…

Rift Valley Railways, the consortium that currently manages and controls the Kenya-Uganda railway, is currently seeking permission to recruit new shareholders as it tries to obtain adequate financing of their plans to upgrade and improve the costly and inefficient railway system.
The railway quickly became strategically and economically vital for Uganda and Kenya as it was the only modern means of transport from the East African coast to the African interior and plateaus. The railway served to transport tourists, locals, as well as goods for trade such as coffee and tea. Over a century later, the railway is still a vital part of the region’s economy. The port of Mombasa, where the railway begins, was estimated to have handled more than 14.5 million tons of cargo annually and is expected to handle over 27 million tons of cargo per year by 2030. This demonstrates the significance of the railway in East African trade.
But years of neglect and mismanagement have rendered the railway to be very costly, inefficient, and sometimes dangerous to use. Today, transporting a 40-unit container wagon from Mombasa to the Malaba border post costs around $100,000 by rail. Moreover, it is reported that 1,500 containers cross the Ugandan border every week even though the railway should bring at least 10,000 containers. There are also several safety-related incidents, including one in 1999 when 32 passengers died from the derailment of the train because its brakes failed.
Many different companies have tried to manage the more than century-old railway in hopes of reviving it. The Kenya Railways Corporation and the Uganda Railways Corporation previously managed their respective sections of the railway track until 2006. Since 2006, it was controlled by Rift Valley Railways Consortium (RVRC), who won the bid for private management of the railway. RVRC is led by Sheltam Rail Corporation of Sheltam Trade Close Corporation of South Africa. Other minor partners include Kenya’s Prime Fuels (15%), Mirambo Holdings of Tanzania (10%), Comazar of South Africa (10%) and the CDIO Institute for Africa Development Trust of South Africa (4%). The consortium had intended to invest in the system to upgrade it and reduce its inefficiencies. They would also generate a yearly concession fee of 11.1% in each country for 25 years.
Uganda’s Minister of State for Works, Eng. John Byabagambi recently expressed his disappointment about the state of the railway and how RVRC has been managing it. “The inefficiencies at RVR have raised the cost of doing business and that state of affairs is absurd,” he said. Moreover, according to Byabagambi, the railway was supposed to handle 85% of all incoming cargo while the rest is transported by roads. But currently the road network handles 85% of all cargo destined for the interior countries. Consequently, the road networks in Kenya and Uganda have been suffering further damage from the increased transport traffic because the railways were too costly and inefficient.
There were recent hopes to improve the railway system. In January 2009, the Kenyan and Ugandan governments have agreed to begin construction of a new standard gauge railway line. It is estimated that the new railway will cost $8 million for Kenya and $2 million for Uganda and will be completed by 2017. They hope that the new railway line will cut delays of cargo at Mombasa by 70 percent.
But on February, 2009, both the Ugandan and Kenyan governments canceled their concession deals with RVRC for failure to fulfill its mandate of facilitating business. They argued that since the creation of the RVRC, the percentage of freight being handled by rail from the port of Mombasa has not increased, with no more than 15% of the cargo being transported via the railways.
In response to the governments’ actions to cancel their concession deals, RVRC yesterday pushed to get important amendments to the concession agreements that will enable them to take new shareholders with money they require to salvage the operation. They hope that Helios, a UK-based private equity firm, and three other companies that have expressed their interest in investing in the railway operation, will provide sufficient capital to fund the upgrading of the Kenya-Uganda railway.
It is evident that the Kenya-Uganda railway is too vital to the region’s economic survival. Thus, despite the recent disappointments, it is hoped and expected that the region’s governments and private sectors will find a solution to ensure that the railway system continues to efficiently serve their economic needs.