[2008-06-30]  Centum confident of RVR turn- around
Listed private equity firm, Centum Investment Company and its stakeholders are putting pen to paper on plans to turn around Rift Valley Railways (RVR) Ltd as concerns mount over its performance.

Kenya Railways Corporation (KRC) handed over all operational assets to South African investor RVR in 2006 for 25 years for freight and five years for passenger services, after years of poor business.

But recent assessments of RVR’s performance by KRC indicate that RVR has breached nearly all the performance benchmarks set under the concession.

“We’re putting together a plan to turn around the firm and we expect that by the first review of the concession next year, considerable improvement will be witnessed in the firm,” said Mr. Peter Mwangi, Centum’s managing director.

In December 2006, Centum and another private equity firm, Transcentury Ltd, paid out $5 million (Sh325 million) for a 25-year concession to the Kenya and Uganda governments for a stake in RVR. However, failure to meet objectives highlighted in the concession has put RVR under the Kenya and Uganda government’s spotlights, with the latter said to be seriously considering cancelling the contract.

According to the weekly business newspaper, The East African, a meeting in mid May attended by Prime Minister Raila Odinga, KRC reported that the area of freight traffic had dropped in absolute terms from 1.5 billion net tonne kilometres before the South Africans took over to 1.4 billion kilometres in the first 12 months of the concession.

“The investment plan has not taken off as planned but we expect operational improvements to be evident once the plan is put in place,” said Mr. Mwangi.
Details in the concession agreement stipulated that the contracted target on this performance benchmark at year two was supposed to be 1.88 billion net tonne kilo metres. The Kenya Railways network has a capacity of 12 billion net tonne kilometres per annum.

With the Centum looking to dig deep into its coffers as it embarks on more investment activities, dividends may become more marginal as the firm extends its investment scope.

Centum declared a dividend of 45 cents per share, similar to the 2007 rates. Mr. Mwangi had projected that Centum would reap from the railways investment 5 to 10 years from now owing to its long-term nature.


“It’s a long-term investment and a lot of rehabilitation of infrastructure has to take place before we can reap returns.” points out Mr. Mwangi.

Analysts say the RVR concession still makes sense for Centum, given the long-term plans of the Kenya Government to upgrade the country’s transport systems.

Among the proposals in the Vision 2030 is to serve Nairobi with light rail stretches from the Nairobi Railway Station in the Central Business District to the outskirts of the city.

The Government projects that the new light rail services will serve at least 150,000 commuters, which is five per cent of the future public transport demand in the Nairobi metropolitan area.

“The investment is a sound investment in the long-term, but the firm should have an exit mechanism in case plans fail to materialise as expected,” says Ken Kaniu, investment manager at CFC Stanbic Bank.

One of the oldest private equity firms in the country, Centum boasts of Sh9 billion in total assets. While the Sh325 million raked out is a considerable amount of cash, it only consists of four per cent of the firm’s balance sheet.

Kenya’s rail infrastructure and rolling stock were in appalling condition at takeover, with many locomotives inoperable. Persisting unrest in the wake of the late-December elections saw kilometre- long sections of the main-line removed near Nairobi.

In the recent weeks, flood damage to ancient, ill-maintained bridgework in Uganda put everything out of action again, this time for at least two months. The first tranche of new engines and wagons that RVR ordered when it took over the operations are expected to arrive in August next year, ahead of the performance improvement target that was fixed at the end of year two.

RVR operates a single-track, metre-gauge system of around 2,351 km, with 156 crossing stations. The 25-year concession was awarded to a consortium that includes Sheltam, TransCentury Group, ICDCI (now Centum) and Australia’s Babcock and Brown.

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