Citadel Capital, the Egypt-based private equity group, has unveiled plans to become the biggest shareholder in Rift Valley Railways (RVR), which operates the train line running from Mombasa to Kampala.
Citadel said yesterday it had bought 49 per cent of Sheltam Railways, a South African company that owns 35 per cent of RVR. The purchase means that Citadel now owns 17.5 per cent of RVR.
The railway line links the Indian Ocean port of Mombasa in Kenya with the Ugandan capital Kampala, as well as the Kenyan and Ugandan interiors.
Citadel says its investment has been made with a view towards a modernisation of the line, which would help to open up trade across east Africa.
Transport prices in east Africa are among the highest in the world at present, due in part to a heavy reliance on trucking. A lack of operating capacity means that rail networks in the region have less than a tenth of the overall transport market. According to Citadel, an efficient rail network could bring transport costs down by as much as 50 per cent.
The railway currently hauls just over one million tonnes per annum from an existing market of 16 million tonnes being handled in Mombasa Port. The company hopes that new investment and a fresh approach to management could see that figure grow to five million tonnes per annum within five years.
Shareholders in the Cairo-based company have agreed to inject $150 million into the railway over the next five years.
The lives and money lost during construction of the 1,200-mile, century-old railway line by the UK government in the late 19th and early 20th centuries has earned it the nickname ÔÇ£Lunatic ExpressÔÇØ.
Kenya and Uganda awarded a 25-year concession to operate the line to RVR in 2006. But they have been disappointed by the lack of investment and failure to improve efficiency.
Following its purchase of the 49 per cent stake, Citadel said it aims ultimately to buy 100 per cent of Sheltam.
If Citadel were to succeed in acquiring 100 per cent, a change of control clause would be triggered that requires approval of the World Bank's International Finance Corporation (ICF), the biggest lender to the rail operator.
Transcentury, which is RVRÔÇÖs second-largest shareholder with 20 per cent, has been lobbying the Kenyan government and the IFC to block Citadel from taking it over.
The other shareholders of RVR are Kenyan investment firm Centum with a 10 per cent holding; TanzaniaÔÇÖs Mirambo Holdings ┬áwith 15 per cent; Prime Fuels of Kenya, also with 15 per cent; and Babcock Investments Holdings of Australia┬á with 10 per cent.
CitadelÔÇÖs other investments in AfricaÔÇÖs transportation and logistics sector include EgyptÔÇÖs National River Transportation Company and SudanÔÇÖs Keer Marine.
