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IFC Successfully Concludes Mandate to Advise the Government of Kenya on the Joint Concession of Kenya Railways & Uganda Railways


In Washington, DC:
Ludi Joseph

Phone: + (202) 473-7700

E-mail:
ljoseph@ifc.org


Washington, D.C./Nairobi, October 14, 2005—The International Finance Corporation, the private sector arm of the World Bank Group, has successfully concluded a mandate advising the government of Kenya on the joint selection of a concessionaire to operate and manage the national railway systems of Kenya and Uganda for the next 25 years.

The winning bidder, announced today, was the Rift Valley Railways Consortium led by Sheltam Rail Company (Pty) Limited of South Africa. The winning bidder will pay initial fees of $3 million for Kenya and $2 million for Uganda for the opportunity to operate these railway services, annual concession fees of 11.1percent of their gross revenues in each country, and $1 million per year for the passenger services concession in Kenya. The annual concession fees equate to about $9.5 million per year based on the current revenues of the two national railway companies.

The Rift Valley Consortium’s winning proposal includes a turnaround and development program for the two railway systems, expected to lead to a significant increase in freight traffic volumes within the first five years. RVRC will provide an efficient, reliable, and integrated rail system in Kenya and Uganda, and is expected to invest $280 million in rehabilitating existing assets and a further $42 million investment in new rolling stock and operating equipment over the term of the concession. Of this total investment of $322 million, $80 million is anticipated within the first five years. It is expected that the railway will recover market share, both in absolute and in relative terms, through a concentrated focus on identification and meeting of customer needs.

This transaction represents a number of significant achievements for both Kenya and Uganda. In Kenya, this transaction is the first privatization where a concession structure has been used. While concessions have been used previously in Uganda to facilitate investment in infrastructure, the conclusion of this transaction marks a major step in the development process of the land-locked country. The joint concession, which is also expected to benefit other land-locked neighbouring countries through increased efficiency and lower transportation costs, has set the stage for future regional cooperation in the East African region.

In addition to the successful collaboration by the governments of Kenya and Uganda and their respective advisors, IFC and Canarail, the transaction also involved collaboration with the World Bank. Through the East Africa Trade & Transport Facilitation Project, the World Bank will be financing the retrenchment of surplus staff of Kenya Railways not taken up by the concessionaire, the relocation of traders from railway lands to create a safe operating zone, a partial risk guarantee to be made available to potential lenders, and a capacity-building component for the new asset authority and safety regulator that will be created. In addition, both the governments and the winning bidder have agreed to work together to actively promote small business linkage opportunities. Sustainability has been an integral part of the transaction design.

Kenya’s assistant minister of transport, the Honourable Andrew Ligale, emphasized the high technical quality of the proposals. In particular, he noted that the joint concession would have a substantial positive impact on the national accounts, with the replacement of outflows in the form of government subsidies with inflows in the form of concession fees. He noted that in the most recent national budget, the government had allocated a subsidy of about $13 million for Kenya Railways that could now be redeployed to other strategic objectives.

Bernard Sheahan, director of IFC’s Advisory Services Department, said, “IFC is pleased to be a part of this process which will lead to sustainable investment in Kenya and Uganda and make significant contributions toward economic development in the region. The project will also contribute to capacity building and technology transfer to the two countries.”

Richard Ranken, IFC director for Africa, noted, "IFC's participation in this highly successful transaction is part of our commitment to work more with governments on cross-border initiatives, bringing in the private sector to improve the quality of infrastructure services."

In concluding this transaction, IFC benefited from the donor support of DevCo, a multi-donor affiliate program, Private Infrastructure Development Group – supported by the U.K.'s Department for International Development, the Dutch Ministry of Foreign Affairs, and the Swedish International Development Agency. The project was also supported by technical assistance grants from Swedish and Danish Trust Funds at IFC and by a bilateral grant provided by the United States Agency for International Development.

IFC’s Advisory Services Department provides advisory assistance, primarily to governments, on private sector participation in the provision of infrastructure services. The Kenya and Uganda Railways concession represents the tenth successful transaction IFC has advised on in Sub-Saharan Africa since 1995. Other transactions include Kenya Airways, Uganda Telecommunications, Moatize Coal in Mozambique, and Gabon Water and Electricity. For more information on
IFC’s Advisory Services department, visit
http://www.ifc.org/Advisory.

The International Finance Corporation, the private sector arm of the World Bank Group, promotes sustainable private sector investment in developing and transition countries, helping to reduce poverty and improve people’s lives. IFC finances private sector investments, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. Its 178 member countries provide its share capital and collectively determine its policies.

From its founding in 1956 through FY05, IFC has committed more than $49 billion of its own funds and arranged $24 billion in syndications for 3,319 companies in 140 developing countries. IFC’s worldwide committed portfolio as of FY05 was $19.3 billion for its own account and $5.3 billion held for participants in loan syndications.  For more information, visit
www.ifc.org.