Friends of the Rail Forum

Kenyans rail at train firm

With workers up in arms over delayed pay, the Government says RVR has not met certain provisions in the concessionaire deal even as new investors get on board

By Mwaniki Wahome
Daily Nation (hard copy)
TUesday July 15, 2008

When Roy Puffet observed that Kenyans were an impatient lot during the 2007 review of Rift Valley Railways first year performance, the managing director did not consider the peevish feelings a serious challenge.

Barely a year later, Kenyans are still struggling to find kind words for Mr Puffet and the company he heads. And matters appeared to boil over last week when workers downed their tools to protest delayed salaries. This added to grouses that RVR, which runs the Kenya and Uganda railways on a concessioning arrangement, has failed to improve railway transport since it took over in 2006.

Nevertheless, the entry of two more shareholders, who will reportedly inject in Sh270 million, could relieve some pressure that has been building over perceived failure to meet certain benchmarks agreed in the 25-year concessionaire entered in 2006. This is expected to change the shareholding structure of the consortium. Mirambo Holdings Ltd of Tanzania and Primefuels Kenya Ltd will join Seltam (sic) Rail (pty) Ltd, Transcentury Ltd, Centum Investment Company Ltd and Babcock & Brown Investment Pty Ltd. The two new shareholders were the initial partners in the concessionaire but a protracted dispute with Sheltam set them apart.

The concessionaire has travelled a rough road since 2006, with several setbacks, amidst scepticism from the public. Initially, the concessionaire nearly flopped on the date it was to be consummated on November 1, 2006, after Sheltam failed to raise $24 million in equity and another $5 million to be shared between the governments of Kenya and Uganda. This forced Sheltam to invite more shreholders. Even then, matters did not cool off, with the reports for the first three months returning an indictment for low performance. It did not help that the concessioning coincided with the rapid increase in cargo uptake at the Mombasa port, with economic growth picking up pace in Kenya, and other neighbouring countries. It has been difficult for Mr Puffet to convince many that the concessionaire is improving services, particularly because on two occasions last year, the Kenya Ports Authority had to waive charges for cargo owners change mode of transport to road after a pile-up at the port threatened to spill over.

RVR put to task

RVR suffered another setback when it incurred losses estimated at Sh15 million every day, and a cumulative sum running into hundreds of millions, after the railway line was vandalised by rioting mobs protesting the disputed presidential results early in the year. Already, the Government has sent notices to the RVR management over breach of certain provisions of the agreement. Transport assistant minister Harun Mwan told Parliament that delay in payment of salaries was an indication that the company was not doing well financially. The RVR management held a meeting with Transport minister Chirau Mwakwere on Friday.

The management noted that the problems would be overcome. "The board has been mandated by shareholders to assess present funding and the management structure and to take appropriate recommendations in this regard to the shareholders before end of July," Mr Puffet said. According to a report by Kenya Railways Corporation, its residue regulator, in April 2007, RVR fell below perfromance benchmarks on several indicators, including revenues, derailment and track maintenance.

For example, in its first three months, they transported 405,170 tonnes of goods compared to 433,509 tonnes by its predecessor, representing a 6.5 per cent drop in throughput. KRC also accused the new owners of not investing in new locomotives. Mr Puffet last year said the full impact of their rehabilitation would be felt in five years. He said procurement of some railway materials takes long because of limited supplies.

Weirder and weirder. I wish I knew the actual truth behind all this. Certainly a lot of hype, and journalise, but that does not help to clarify the picture!

Privatising Kenya Railways was an experiment gone bad

Daily Nation (hard copy)
Wednesday July 16, 2008
Opinion by Jaindi Kisero

By now, it should be clear to everyone that privatisation of the Kenya Railways is a total failure.

In less than a year, the Rift Valley Railways (RVR) has retrenched 600 employees and dismissed more than 200 casual workers. yesterday, managing director Roy Puffet announced that the company will shortly be sending more workers to the streets.

In the last few years, and as the coproration was being prepared for privatisation, it was made to reduce its workforce by almost 50 per cent - from 7,000 to 3,400. Thus, an institution that used to be among the biggest employers in the country, with a powerful workers union and owning colossal assets - mainly buildings and land in Nairobi, Lisumu, Mombasa and Nakuru - has been made to shrink almost into nothingness.

And it is not only the workforce that is shrinking. Operations have also shrunk, according to a recent brief prepared by the agency that monitors its operations on behalf of the Government, namely the residual Kenya Railways Corporation.

RVR is transporting less freight than the Kenya Railways was transporting when it was still in the hands of the Government, while the quality and quantity of passenger services have declined.

In terms of maintenance and safety, the company has implemented a 100 per cent speed restriction on the main line from Mombasa to Malaba, a clear indication of a decline in safety standards.

It is noteworthy that by the time the Government was handing over the railway line to RVR, only 34 per cent of the line had speed restriction. The number of wagons in operation has also dropped considerably. Where did we go wrong?

Privatsiation, per se, is not a bad thing. Implemented well, it is a way to remove control and management of key public utilities such as railways from the paralysing grip of public control.

When you privatise a parastatal, you insulate it from being used as an instrument for rewarding political allies through appointment to boards, and awards of lucrative tenders.

Admittedly, the defunct Kenya Railways Corporation was grossly inefficient. By the time it was being concessioned to RVR, it had become a bottomless pit into which hundreds of millions of shillings were being poured so that it could pay salaries. However, privatisation -whether the method is a concession, outsourcing or an outright sale of State-owned shares to private parties - does not have to necessarily lead to loss of jobs at such a massive scale.

At its peak, the defunct Kenya Posts and Telecommunications (KPTC) was among the biggest employers in Kenya with a total workforce of nearly 22,000. As the parastatal was being privatised, more than 50 per cent of its employees had to be sent home.

But contrary to what has happened in the kenya Railways privatisation, these jobs were replaced by more productive jobs in companies such as Safaricom, Celtel, Econet Wireless, Communications Commission of Kenya, Flashcom, Jambonet and all the tend of Internet service providers which mushroomed in the wake of KPTC's demise.

The Kenya Power and Lighting Corporation also went through a privatisation of sorts when two separate companies were established.

New jobs were created at KenGen, the Electricity Regulatory Commission, the Rural Electrification Authority and nearly half a dozen independent power producers oeprating in the country.

Clearly, we went into a railway concession without properly interrogating the likely benefits to the country. In my view, the predicament we are faced with has come about because the objectives of the concessionaire are not aligned with the country's national interests.

RVR is in a hurry to make money for its shareholders. That is why it has sent too many people to the streets in such a short time. It has drastically reduced the scope of operations because it wants to run a lean, profitable operation.

The priority for this country is, however, different. What we want is a massive infusion of capital in the purchase of new wagons and in rehabilitating operational assets such as the track, maintenance workshops, and signalling equipment.

We have said it in this column before. One of Kenya's most prized national assets is its geographical location as the hub of economic activity in the region. It is an asset we have not exploited fully.

If we do not pour huge resources into the port of Mombasa, the rail network and on the road linking Mombasa to Busia or Malaba roads, Vision 2030 will not happen.

We have started doing the right thing with roads. For instance, the gross development budget for roads was increased from Sh17.7 billion in the financial year 2005/2006 to Sh32 billion in the 2006/2007 financial year - an increase of mroe than 85 per cent within one fiscal year.

This is the level of capital expenditure needed to modernise and rehabilitate the railway. The concession was a bad experiment.

jkisero@nation.co.ke

[Other headlines surrounding this piece were "Total jobs loss" and "We don't need expatriates to tell us how to run our railway"]