South Africa’s Sheltam wins Kenya & Uganda Railway concession

Oct 15, 2005
Author: P&S

South Africa’s Sheltam-led consortium has won the 25-year concession to operate the combined Kenya and Uganda Railway.

The result was announced in Nairobi late yesterday (Friday, 14 October 2005), which ends a long process encouraged by the World Bank for a private operator to take over the cash-strapped and insolvent national railway.

The Rift Valley Railway, as Kenya and Uganda’s railways are now likely to be known for the next quarter of a century, is made up of Sheltam Trade CC (60%), with minority shares held by Comazar Ltd, Mirambo Holdings (a Tanzania investment group), Primefuels Group (based in East Africa) and CDIO Institute for Africa. The latter company is an engineering and technology company from South Africa with Swedish connections.

Sheltam locomotives en route to Mozambique earlier in 2005 – picture Terry Hutson

Rift Valley outbid the only other finalist, a consortium led by India’s Rail India Technical & Economical Services (RITES) which linked its proposal with UK/Kenya’s Magadi Soda. The consortium received a setback weeks before the bidding closed when Maersk Sealand withdrew its support. The Danish group apparently decided that operating railways in Africa lay outside its core operation of shipping and terminal logistics.

Financial consultancy for the Sheltam bid was provided by PricewaterhouseCoopers of South Africa with technical support from Protekon, Transnet’s railway consulting and construction specialist.

Conditions set for the bidding included an upfront payment of at least K Sh 220 million for the Kenya operation and U Sh150mm for Uganda Railways. In addition the successful company would be required to pay a fee equivalent to at least 5% of gross revenue plus a fixed annual concession fee for five years for the passenger services.

On top of this the concessionaire has to upgrade the main line with heavier rail and increase traffic by at least 175% by the end of the first five years, followed by the equivalent of 60% of the GDP after five years for the balance of the concession.

In the event Rift Valley exceeded the initial requirements by a handsome margin, offering US million for the passenger services despite indications that both governments would have accepted a negative bid and provided a subsidy.

Sheltam’s bid for the freight services amounted to 11.1% of gross revenues, compared with an offer of 6% by RITES

Both Kenya and Uganda consider that the privatisation of the joint railway will provide the kickstart necessary to the recovery of their economies. Following years of mismanagement the railway is technically insolvent and quite incapable of moving freight efficiently to and from the port of Mombasa.

Both governments hope to benefit from savings in road maintenance, although past history elsewhere in Africa suggests it may not be that easy to transfer freight back to the rail once it has had a taste of road efficiencies.

Sheltam operates a fleet of locomotives along the 650-km Nacala – Malawi railway and also has locomotives operating on charter to RITES along the 300km Beira - Mutare railway. The company operates a number of mine railways in South Africa and undertakes locomotive maintenance.

Earlier in 2005 the Durban-based shipping and logistics company Grindrod Group acquired a 50% shareholding in Sheltam, enabling the Port Elizabeth-based rail company to broaden its horizons.

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