Tuesday, December 19, 2006

RVR-Competitors better watch out

Finally, the payment was made and RVR(Rift Valley Railways) Consortium took over the Kenya Railways for the next 25 years.Other members of the consortium are: ICDCI and Transcentury Group.
Lets concentrate on
Sheltam which controls 60% of RVR.The parent company of Sheltam Pty is 50% owned by GRINDROD LTD a South African Listed firm.Which curiosly pulled out at the last minute-allowing ICDCI and Transcentury to get a stake.Grindrod Ltd hasn't lost out, through Sheltam it still has interests in RVR(but INDIRECTLY not directly)

GRINDROD LTD also owns shipping service copmanies like Ocean Africa Container Lines (Pty) Limited and ISS-Voigt Shipping. A Grindrod group company has a stake in a Local shipping Logistics and freight company.Keep in mind anytime that you import or export Goods through the port you have to go through a shipping line or agency.Local examples are like;Maersk,Diamond Shipping services,Transami and Kenya National shipping Line.If you have ever imported a used car -look at the documentation one of the above names is likely to appear somewhere.

Also, Grindrod has the funds to buy into any local shipping outfit.Pardon me but lets digress further.It costs more than Ksh80,000 to transport a 40'Foot container from Mombasa to Nairobi by road.By rail its more than 45% cheaper But under KR it may take more than 3 days to get to Nairobi.By road it will in Nairobi within 24 hours.

Why have i set out all the information above?

To put it mildly ,Grindrod/sheltam are now the most significant transport and logisics group in Kenya and more so in our landlocked neighbours that depend on the port of Kilindini.Firstly,Grindrod has the ships/shipping lines and freight companies that can facilitate ocean based transport.

Secondly,It now controls the Kenya-Uganda Railway(through RVR and Sheltam).When this rail is up and running(efficiently).It will pose a significant challenge to road based transporters.i.e. rail tends to be cheaper and safer than road transport.

Thirdly,it can easily monopolise the import/export Logistics and transportation link in the country.(In 3-5 years once the Rail system is up and running)


coldtusker said...

Privatisation... will be better for all... I expect RVR to make huge profits in 3-5 years as the rot is cleaned up...

This arrangement will be criticised by many BUT the Kenyan economy will benefit...

Now let's privatise KPA.

MainaT said...

The only issue i ever had with this whole concession is the time frame. Who in their right-mind signs away an asset for 25 years?

A good turn-around strategy i.e. getting cargo off the roads and onto rail and then passengers- after that should bear fruit in 3-5 years and then beyond that its just a question of ploughing back the profit into creating new links.

I hope the govt has get-out clauses i.e. allowing to review the whole thing in like 10 years

coldtusker said...

Mainat - That is an attitude that will get us nowhere...

The primary motivation for the investors is to make money. Why would they work hard, invest, turn it around in 5 years then only run it for another 5 years?

Sure we can negotiate it for 10 years but expect a much lower price or concessions e.g. taxes.

Railways need long-term improvements/investments thus you want RVR to make sure they think long-term.

Building a new significant railway track can takes years of planning & execution. You can't cur through Tsavo or hire Indian Coolies... there are land rights (witness Tiomin's problems) as well as financial considerations.

Forget "pride"... you need to make money or forgo the project.

BTW, there are also 99 year leases in the USA. Google Chicago Skyway & Macquarie Bank.

MainaT said...

ColdTusker, in the UK, they actually give them 5-year rollover contracts. That way you as the recipient of the concession will be planning to show what you can do in that period. The only thing that they do is they pay lower concession fee.In the same way that transport policy and planning is done over 10 year cycles, one doesn't sign away rights to transport for 25 years.

mwasjd said...


The fact that Transcentury and ICDCI joined in the consortium should be good news in terms of a percentage of profitable monies remaining in the Kenyan economy, despite the 25 year lease.

I however feel that if the concession deal doesn't have room for negotiation in case of changes in profitable environment, the country stands to lose. But with the state KR was in, choice was limited...

coldtusker said...

Mainat - As mwasjd points out the infrastructure is extermely dilapidated.

If you were offered a 5-year contract to turnaround KR using your own money, would you do so?

IMHO, it will take 5 years for RVR to bring the current infrastructure to a decent condition (Railcars, Nbi-Ksm-Kampala railtracks, new routes)... The cash inflow will start after that.

Profits don't equal cashflow... RVR can make profits but will require massive cash investments.

The good news is that the assets will be turned over to GOK after 25 years.

In the UK scenario, were the assets totally rundown (not by UK standards but Kenyan standards)?

MainaT said...

It wasn't rundown to the same extent but I'd say the scale of the project was similar because we are talking of something like 50 different lines all laid out in Victorian times i.e. 1890s and never had any work done on them. Some of the lines they wanted to upgrade them so they can handle bullet trains-high speed trains regularly used in Japan.
My point,still remains valid, i.e. you don't sign away a key plank of your transport and economic policy without any caveats or get-out clauses.

pesa tu said...

I agree with CT.25 years is a long time BUT there was no other choice,Given the scope infrastructural work required and the uncertainty of a developing economy.
Remember that the first GSM licences that were given in the late 80s and early nineties in the European Union r only going to expire at the end of this decade.
Thats the nature of infrastrucure projects u must give investors a long period concesssion.

On the Agreemnt i hope we negotitated some clauses to protect our interests as kenyans.

Mathu said...

From an investor perspective, I think 25 yrs is Ok considering it might take 5yrs to have the infrastructure ready and may be another 7-10 to attain positive cashflows. My question is will RVR use this opportunity to go public in the 3 years? Investors like Transecentury will soon want to have their investment liquid..

MainaT said...

Ok, not too labour the point too much, pesa-tu, I am sure that once the EU govts learned of the goldmine that they had given over to variuos cos, they overcharged on new GSM licences. Anyway, pray we'll all young enough such that in 10 years, it will be self-evident.

On a totally different track, what do you guys make of the Kenya Re story coming just two months before the IPO? Jaindi Kisero's Wednesday column in the Nation hinted at the story, but its probably too explosice.What a PR-fiasco?

J K said...

It is annoying isn't it. As we speak, these thieving duo should be somewhere locked up, Kamiti being more like the place. And to imagine we pay some guys salaries bigger than the president's to guard our national coffers!!!!

pesa tu said...

@Mathu: There's a clause in the agmt with the Kenya +Uganda governments that allows them to go public.But i don't know after how long

@Mainat: They sure did.Most co.s wont recover what they paid for 3G phone licences in Europe.

pesa tu said...

On Kenya -Re,i'm sure those involved will be punished.Before a sale/merger or IPO accountants perform what they call-Due dilligence.In this process they go further than Audits.They check to ensure that any asssets on the balance sheet exist and that business transactions really occur they r not just fictitious events.
One area they really look at is transactions btwn the company and related parties like employees and directors.So its very difficult in such a stage to hide fraudulent transactions.

But i dont think it will affect the Kenya-Re IPO.

coldtusker said...

KenRe needs an honest strategic partner asap.

Yes, this story will ruffle some feathers & I expect the CEO & FD will be sacked but I hope they do not get a golden parachute!

There is so much more crap in KPA & KAA.

Screw ringera... we need EXPATRIATES who have NO connection to the current and past regime.

This team should be have John Githongo as a consultant.

Why expats?

Kenyans need a CLEAN BREAK with the past. At least you can't accuse them of "tribalism" which is how politicians who get investigated slow down the investigations!

All tribes have idiots who can't see the forest for the trees. It's like Chinua Achebe's "Man of the People" i.e. protect "our" Man/Woman (even if guilty) just because we are of the same tribe.

After the cleanup - needs (lacking) political will - then emphasise ETHICS. Have a code of conduct. No more self-dealing. Period.

The Civil Service was OK until klepto wa ngengi allowed civil servants to own businesses which supplied goods to the government!

Furthermore, as klepto wa ngengi stole so did his underlings! See the story by duncan ndegwa on this issue...

coldtusker said...

pesa tu - You forget that if KenRe were to WRITEOFF the "assets" then the auditors would be OK.

The auditors are there to check on "assets". Missing or untraceable assets can be written off to their "real" value.

If a bank's cash account on the books could be Shs 5mn but actually has Shs 1mn. The auditors will try & track the missing Shs 4mn BUT if the management "writes" the asset off then the audit may pass.

This is even easier to do with physical assets that were overpaid e.g. buy a used car from "cousin of CEO" for Shs 5mn but real value Shs 4mn.

Use for 2 years (now valued at Shs 3mn), just write down the value "at lower of cost or Net Realisable Value"... thus the Shs 1mn differential is hidden.

There are many examples of this chicanery. Unless auditors are held to a higher standard they hide behind the "management prepares the accounts"... Sometimes it is not the auditor's fault if the management cleverly hides enough information from them.

I hope you realise that this "confidential" info might have "unofficially" released by an auditor who was aghast at the wrongdoing!

I love photocopiers... they leave no trail but show us a what happens!

pesa tu said...

@CT:Such changes/write downs in
Asset values under IFRS(International Financial Reporting Standards) require adjustments to the Profit and Loss statement and/Or the Equty section of the Balance sheet.
A keen reader(there are a few) of Financial statements can spot them.

On the other hand, thats why Auditors insist accuracy of Financial Accounts is the Directors' responsibility.

Steve said...


I am a little lost: anyone care to point me to this KenyaRe story as I have not see it anywhere (yes, I have been under a rock for a while now.)

thanks all,