Wednesday, July 25, 2007

Kenya Railways (now RVR)

Besides planes, I am to a lesser extent a train buff who took many trips by train from Nairobi to Mombasa as a kid. During school holidays the overnight train ride was one of my greatest treats. It used to take 12 hours going through the dark countryside, waving at people, counting train cars, and memorizing stations. Later we’d have a good dinner and go sleep when it got boring to wake up in the morning, glad to have put the man eating lions of Tsavo behind us. A full breakfast in the dining car would then set the mood for more watching – looking out for for the first coconut tree, smell the ocean (and then Changamwe) before finally getting to the Mombasa station where my uncle would be there waiting to take us to Kwale for the rest of the holidays.

Needles to say Kenya Railways corporation became a run down shell that is another story in itself. I’ve read enough stories of passengers stuck in the bush when trains break down or derail. Anyway will probably hear u from another tip so . so when the Institute of Economic Affairs invited Mr. Roy Puffet, the MD of Rift Valley Railways I was briefly there to hear what was said

Some snippets (I was late to the event) \

New start: RVR is a 25 year concession between a consortium of companies and the governments so Kenya and Uganda.

RVR got off to a start in November 2006 and suffered 61 derailments that month. They have since slowed down all their trains as a measure to contain such incidents. They now average 10 – 12 incidents a month - from a combination of equipment, railway and human failures (including sabotage)

Financial & investment: So far the consortium has invested about $18 million The shareholding is 70% foreign (Sheltam, and an Australian company) and 30% local (Transcentury – 20%, ICDCI – 10%) and some financing was sourced from the IFC.

Some attendees later asked why Kenyans were not given a chance to invest in the company (like the Kengen IPO) to which the MD replied that there were not a lot of investors rushing to build railways in Africa (only 2 groups bid for the concession) .

Equipment: RVR inherited 174 locomotives from Kenya (55 were working) and 44 from Uganda (25 operational) . also 46% of the 7,000 wagons were usable.

They have focuses n getting a working fleet going. This has entailed reducing the fleet to contain only trains in good condition and they also got back 5 locomotives from Magadi soda. Fleet repair is slow as the company faces a lead time of 8 month for locomotive spares.

Their workshops were run down, with no tools or equipment, and many of the sheds had long been taken over by other businesses. The remaining sheds had leaking roofs, and when it rained they had to stop maintenance work for fear of electrocution.

Railway: Demand from china for steel has driven steel prices through the roof. There are few companies making railway parts (and African countries have a different railway size) so it takes about 8 months to deliver (they have to order 4,000 tons at a go) which is expensive. One engineer (from the UK) at the talk said that such a railway would be shut down with all the incidents if it was in Europe - the MD replied probably true but this was the state of things. He added that new rails were be laid on the Mombasa - Nairobi line after which the older ones will be taken out and used for other upcountry lines.

They will also close some stations (there are 50+ stations between Nairobi and Mombasa) and have installed communication's and tracking systems on all trains and stations

Operations RVR have done quite well since they took over in November 2006 and move about 200,000 tons per month. While this has not changed much in volume from before the concession, they are achieving this with two differences (i) they are using a smaller fleet (ii) and they are collecting more revenue (from increased efficiency & reducued corruption in revenue collection) – about $6m a month. Their volumes dipped in December and April following flooding from the rains. The MD mentioned that they now take between 4 – 7 days to move cargo from Mombasa to Kampala – from 20+ days before, though some members of the Kenya Shippers Association disputed that there.

Other stakeholders
Employees those not retrenched by the company are all being retrained in safety and modern railway processes

customers While there have been complaints about the slow movement from the Mombasa port (including by the Kenya Ports Authority) , the MD said that 50% of the 14,000 containers at the Mombasa port don't have proper documentation.

He added that business people were contributors to this i.e. as a result of the past railway inefficiency, companies had taken to using railway train wagons at Mombasa as extra storage facilities. But when the railway movement improved, and cargo was now moved upcountry, the same businessmen took their time to offload goods, creating more congestion.

They have tried to contain prices and their charges ($0.05 per ton per km) compare well with , truck cos taken ad of rail inefficiency to jack up prices

Passengers & commuters: they will run commuter train services (in Nairobi) for 5 years, but this is one thing none of the bidders for the concession wanted to continue running – as it is a loss maker.

Kenya railways : The corporation still exists and will oversee the concession on behalf of the government of Kenya, while also maintaining a register of railway assets. The corporation still has a great burden from the past – illustrated by Kshs 31 billion of debts (about $600 million). Including a 12 billion pension deficit. They hope to use land sales to pay off their employee (and perhaps supplier) obligations while also talking with the governments to waive some debt. They have also received 1 billion shillings form the world bank to resettle some residents in Kibera who live/work too close to the railway line (but this plan/financing is already 1/ ½ years behind schedule)

The MD mentioned that there was a lot of expectations about the now concessioned railways – some of which were not close to being realistic. He also added that they had fewer customers as a result of the slow uptake by the concession, but added that RVR had no regrets and that the governments of Kenya and Uganda were very supportive.

So, a rough but promising start by the company who now say they have enough locomotives working to achieve their 5 year targets. Will they be a celebrated success like Safaricom? We'll know in a few years.


coldtusker said...

Glad to hear they are receiving support from the GOK & GOU... but I wonder what will happen if & when the governments change?

Its a pity about the sabotage. That benefits no-one except, well, the crooks!

I do hope they can improve services faster/sooner.

A pity about waiting for 8 months for spare parts. They need to partner with local firms to increase local fabrication & content.

Well, it has been less than 2 years & I think it will take another 3 years before we can get tangible results.

Have they ordered new locomotives?
Have they ordered new carriages?
Have they ordered new wagons?

Sigh... only 55 of 174 locomotive engines were working when they took over... that is crazy!!!

They should follow KQ's example & try and competitively select a single supplier thus have interchangeable spare parts between the locomotives...

gishungwa said...

My memories if the train were going to Msa and boy was it fun and oh the the ride to Naivasha that goes on weekends.
Commuters may not be profitable as cargo but am sure the experience is worthwhile for them.
ps: read your article on the business post. You now have a follower and that was some great writing.

Unknown said...

The governments should be particularly supportive since it might reduce the environmental impact of transport.

MainaT said...

Good post. Its a surprise to hear that passenger railway is a loss-maker given the state of our roads and traffic jams around and into NBI.
RVR will need to sort out ways of generating cashflows faster. I am surprised they haven't thought of leasing wagons in the short-term so they can build the customer base, reputation and cashflows which will allow them to get investing. To me, running a vastly profitable railway service in Kenya/East Africa is a no-brainer.

bankelele said...

coldtusker: The deal is tight and it means even more to Uganda than Kenya.
- On spares, they are doing quite a bit localy and the MD put up some great pics of work going on at the Kampal Yard (they also invited anyone who wants to visit the workshops to contact RVR)
- I don't think new locomotives are a priority, even old ones would be fine (if they worked & were reliable)
- we'll judge in 3 years

gishungwa: never tried the upcountry routes. I'm not sure if MD meant he (Nairo-Msa route) but he probably meant that the Naiorbi commuter trains are a loss make (that will be disco-ed)
- bpost is a great read throughout

Jean-Antoine: when the railway (and pipeline) is up & running, it will reduce the burden on roads and traffic between Mombasa and W. Kenya

MainaT: I think the problem that business people have with the railways is that you're never sure when your goods will be transported, arrive, or even know where they are at any given time. Maybe once their ICT is in place they will be able to track cargo movements

Anonymous said...

Banks i was looking for some more insight as to what srategy they are putting in place going forward. Are they just inheriting a system that has been in place for years and just making it more efficient? or do they have new plasn on other services they could roll ot? i believe commuter trains have a lot of potential if they are properly planned, and with bypasses being built then they might look into laying new tracks in areas like Kitengela where residential devekopment might pick up as Nairobi expands.maybe its time they built an electric subway system and link the towns surrounding nairobi with such a system, like Naivasha,Thika,Athi river Etc. and have park and ride systems so that we do not have to drive our cars into the CBD.Ideas are what they need to build a great company, they just need to be more creative !!

coldtusker said...

Mashatall: It might be pre-mature for them to "build" new lines before they rehabilitate the existing lines.

The most important (economically) is Msa-Nbi then Nbi-Kampala.

All the rest of the extensions are feeders. Definitely important but the Nbi-Msa line needs the most attention at the moment.

Eventually the railway needs to extended to S.Sudan which will open up a huge market for Kenyan firms.

coldtusker said...

Commuter rail has to be fast. The "slow" trains will not cut it. The only viable "rail" is either light rail (London Underground) &/or faster locomotives akin to British Rail...

I do not think we can match or afford the TGV or Japan's bullet trains...

Jobove - Reus said...

very very good blog congratulations
regard from Catalonia - Spain
thank you

Anonymous said...

Passenger/commuter services should be a cash-cow for RVR in this country. Where these guys lose their cash is in ticket pricing. They need to make it standard regardless of where you are going. Take eg I am boarding to Kibera...ticket will go for ks20/-. And if am boarding to Thika...ticket is ks40/-. Clever Kenyan will purchase for Kibera and board one for Thika. Once inside, trust me...aint no way the conductor will reach me if i am in the last carriage!


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