International Railway Journal - July 2008 - (Page 18)

News analysis East African railways edge towards privatisation East African nations are turning to the private sector to revitalise their networks, but as Alfred Sayila reports, concern remains about the level of government control over railway operations. C ONCESSIONING may not be the easy way out of the serious operational problems facing the railways of the three East African Community countries: Tanzania, Kenya and Uganda. But the political will of their governments to give away part-ownership of their railways to foreign investors on fixed-term contracts may offer a potential solution. This may not be as easy as it sounds. Tanzania has been hesitant to surrender its 51% controlling share in Tanzania Railways Corporation (TRC) to Rail India Technical and Economic Services (Rites). Last year the concession deal between Rites and TRC fell through because the two parties could not agree on a number of terms, including who should have the final say on the railway’s operations. This has forced renegotiation of the contract, although the Tanzanian government is not willing to completely abdicate its authority and control over TRC. Hence the government stance in the latest round of negotiations has been one of haggling and hedging against total relinquishment of its responsibility for the railways. Nonetheless, Rites seems to have won the 25-year concession, as some of the major stumbling blocks in the agreement seem to have been cleared. “The two parties are close to a final agreement,” a spokesman for Rites told IRJ from Dar-es-Salaam. He added that the agreement could be signed as early as next month. Mr Joseph Salim of the Ministry of Transport explained that there had never been a disagreement between Rites and the government, and the government had to examine bids from other applicants, although he could not say how many bidders there were. Salim parried suggestions of favouritism: “The Indian company was not the natural choice for the government, as some people may want to believe,” he said. A monumental task Rites will face a monumental task in transforming TRC from a struggling state railway corporation into a successful and profitable company. The cost of restoring infrastructure from its current dilapidated state may be 10 times higher than the $US 120.5 million it will pay Tanzania Railway Asset Holding Company. Indeed, analysts predict the net profit for the first five years of the concession may not exceed $US 4.5 million. Despite this, Rites is expected to add value to TRC by investing in infrastructure, and expanding the fleet of locomotives and rolling stock. The World Bank has agreed to lend the consortium $US 80 million, and the African Development Bank (ADB) has also promised financial support for the railway. Kenya and Uganda continue to experience problems in the face of the intended integration of the railway networks of the three countries under a revived East African Community. Kenya hopes to improve the flow of rail traffic from the port of Mombasa to the Kenyan and Ugandan capitals, Nairobi and Kampala. According to a source at Kenya Railway Corporation (KRC), the government would like to see the rehabilitation of the Nakuru - Lesuru - Tororo line which connects the country with Uganda, in a bid to increase rail’s market share on the Mombasa - Kampala corridor from 10-15% today to 20-25% in the next three years or so. The source said he was optimistic that concessioning of the network to the Sheltamled Rift Valley Railways (RVR) consortium will help improve rail operations in Kenya. Although the concession agreement was completed last June the political turmoil that gripped the country in the wake of December’s elections brought the handover to an abrupt halt. Now the process has been revived and the concession has been granted, RVR can start improving services and standards. Rehabilitation of the railway, and revitalisation of port facilities at Mombasa will be key to the reversal of rail’s decline in market share over the last two decades, although stabilising railway operations between Kenya and Uganda may be a lengthy process. Concessioning is widely viewed as an essential step if East Africa’s run-down railway networks are to revive their fortunes. Governments in the region should achieve more for less if they exercise patience and understanding of the industry’s needs. The problem however is that all concessions are supposed to be temporary partnerships as governments will continue to exercise control, oversight and ownership of their railway properties. Nevertheless, the three East African countries are slowly moving towards privatisation of their railway networks having realised this is the only way to improve performance and services. IRJ 18 IRJ July 2008

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International Railway Journal - July 2008 Contents This Month News Transit News Market News/Technology News News Analysis Conference Report Korean Railways Face a Bright Future Korean Exports Surge Ahead Ready to Roll in China Velaro Shows Eastern Promise Are You Sitting Comfortably? Compin Meets New Challenges The Fabric of Society Grinding Out a Result Rendezvous Full Contact List The Last Word

International Railway Journal - July 2008

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