RVR unveils new investment plan

September 3, 2008
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, NAIROBI,September 3 – The Kenya-Uganda Railways concessionaire Rift Valley Railways (RVR) has announced a 724 per cent increase in its investment in the next five years.

Speaking at a media conference at RVR Headquarters, Executive Chairman Brown Ondego said that the concessionaire was initially going to spend US$25 million to finance the project but has now reviewed the amount to  US$206 million.

“I believe US$ 5 million annually was not feasible.  If we were to achieve any real change this figure had to change,” Ondego observed.

Ondego said the firm will require at least US$ 10 million annually for operations and would spend at least US$ 40 million by October this year.

“This business is currently running at a loss of US$ 2 million a month which you must admit is huge,” Ondego pointed out.

He added: “It’s no secret that our health is not very good financially but we have made commitment to the government on that amount, this is a situation that requires extraordinary solutions.”

Ondego said the first phase of the plan would focus on capital investment in the improvement of rail infrastructure on the Mombasa – Nairobi – Kampala main line, and refurbishment of the 93/94 class locomotives to improve their reliability.

Estimates captured in the new Investment Plan and shared with both the Kenya and Uganda governments indicates that RVR will invest more than US$43million for its capital expenditure program involving track improvement and rolling stock repairs in this financial year.

The plan also listed the purchase of six new locomotives and wagons to increase capacity, reduce accidents and improve safety as key interventions within the next two years.

Ondego confirmed that the budgeted funds would be sourced through a mix of current shareholder reserves, equity, shareholders funds and debt as part of the firm’s strategic transformation plan.

He said already, current shareholders are taking up a US$ 10 million rights issue that closes at the end of this month, explaining the funds will be used to service overdue debts.

“I should be in a position to brief you in the next to two to three weeks where we are headed with the rights issue, but I am optimistic we will raise the $10 million through the process, Ondego said.

Besides these funds, Ondego disclosed new shareholders had indicated (subject to taxation and legal due diligence) that they would take up equity to the value of US$60 million by the close of next month.

“These are some of the measures that we have urgently taken to address performance issues at RVR. The provision for line rehabilitation and upgrading funding is US$ 80.2M in the first five years and the operating expenditure/maintenance budget for this is an additional US$ 35.8Million during this period,” Ondego said.

He added that there was need to invest, maintain and then grow capacity that would underpin the improvement in business performance.

Still on the financing aspect, RVR would – subject to meeting several conditions – gain access to US $54million for capital investments from lending partners the International Finance Corporation (IFC) and German development bank KFW.

“I hope once we meet these conditions the two institutions will look at us more favourably,” Ondego said.

During the first and second years, RVR will particularly focus on staff development, infrastructure improvement and rolling stock rehabilitation.

Ondego acknowledged that the number of wagons available at present is insufficient to enable significant increases in volume capacity. The current wagon fleet, due to their age and condition, is also contributing to track degradation.

“We have opened up discussions with Magadi rail in the short and medium term to avail spare locomotives when we need them while we will reciprocate if the need arises,” Ondego explained.

He said RVR had put a benchmark to refurbish existing locomotives at a rate of approximately two per month.

“Subject to track improvements, RVR’s new management team will progressively increase the average speed from 16km/hour to 50km/hour as the track is rehabilitated and locomotive drivers are trained to operate under these conditions,” he said

Ondego is pledging turnaround of rail services in the two countries in the next one year.

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