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Rail firm faces losing deal over unpaid Sh600m concession fees

The operator of the Kenya-Uganda railway risks closure after the government issued the Egyptian-controlled firm a termination notice over unpaid fees amounting to Sh600 million.

Kenya Railways Corporation (KRC) managing director Atanas Maina told Parliament that it had issued a termination notice to Rift Valley Railways (RVR) for failing to remit concession fees for the year to December 2016.

RVR, which is 80 per cent owned by Cairo-based Qalaa Holding, won a 25-year contract in November 2006 to run the 2,352km Kenya-Uganda railway for the cargo business, and a five-year contract for the passenger unit.

READ: Egyptian firm looks for buyers for 85pc stake in RVR

It was meant to pay concession or leasing fees to the government through Kenya Railways on a quarterly basis.

“Unfortunately, since January last year (2016) the concessionaire seems to have experienced financial difficulty  and has not paid us fees amounting to Sh600 million for the last one year,” Mr Maina told the National Assembly’s Public Investment Committee (PIC).

“We have issued notices to RVR to terminate concession. The ministry of Transport of Kenya and that of Uganda are in discussions over this matter,” he said.

“If after 30 days there is no action, we will issue the termination notice which will run for 90 days. If by end of this period nothing will have happened, then KRC will take over the management of the concession,” he said.

BREACH OF CONTRACT

Mr Maina said RVR is supposed to pay concession fees on a quarterly basis and the amount is due 30 days after the end of the quarter.

From January to December 2016, the RVR has not paid anything for the four quarters.

Payments for the last quarter should have come in by end of January, said Mr Maina.

He said non-payment of concession fees by RVR amounts to fundamental breach of the 25-year concession contract.

Kenya and Uganda have in recent years put pressure on RVR to increase its cargo haulage from the port of Mombasa and invest more cash in the upgrade of the Kenya-Uganda line and purchase of new wagons.

Railway transport has continued to lose the cargo business share as importers prefer roads.

The firm is set to come under fresh pressure this year, with the start of operations on the new Sh450 billion railway from Mombasa to Nairobi, which will ferry heavier and bigger containers more quickly and relieve pressure on Kenya’s congested roads.

READ: World Bank audit reveals theft of billions by top RVR managers

Mr Maina told MPs that RVR had informed the government of its need to restructure the concession, bring in new shareholders and inject new capital.

“However that discussion with the shareholders, lenders and the government on the proposed restricting of the concession agreement has not started,” Mr Maina said.

He said the Transport ministry has directed KRC to issue default notice to RVR.

emutai@ke.nationmedia.com

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