Supporting the rehabilitation of a major railway corridor in Eastern African
Project title : Rift Valley Railways
Date of signing : September 2011
Country: Kenya and Uganda (Eastern Africa)
Operation type: Equity
Amount: US$ 10.7m
Partner: Citadel Capital
Cofinancing: DEG, FMO, IFC, IFC-ALAC
Rail transportation on the Mombasa-Kampala line has decreased by c. 50% since 1970 as a result of the gradual deterioration of the infrastructure due to the lack of maintenance investments. The Kenyan and Ugandan Governments concessioned out the railway transportation services in 2005 to a private partner that failed to raise the required debt and equity financing. Consequently, the infrastructure kept deteriorating and the volumes transported further decreased to an all-time low in 2009.
Citadel Capital’s objective is to regain market shares from the road and thus grow revenues beyond the natural increase in regional trade, through a combination of strategies which include: (i) improving the speed and reliability of service; (ii) modifying the cargo mix and (iii) keeping the tariffs at a competitive level vs. road costs.
Citadel Capital (the Sponsor) has successfully raised a total amount of US$164m in debt and US$ 110m in equity to finance the planned investment programme.
Based on the recommendations from renowned railway operator América Latina Logística (ALL), Citadel Capital has estimated at c. US$ 280m the capital investment needed over the next five years to restore RVR’s profitability and market shares. The Sponsor conducted a bottom-up analysis to identify key capital expenditure needed to upgrade the quality of service, as well as future expansion investments to satisfy volume growth. The first three years’ investments representing c. one third of the total project cost will be fully dedicated to revamp the existing fleet and rehabilitate the permanent way in order to increase reliability of service.
New wagons and locomotives will be purchased once all currently non operational rolling stock has been refurbished. This investment and the operation of the railway will also be supplemented by a significant upgrading programme of environmental and social standards applied by RVR.