Buyout of 25-year Rites lease: IFC must give the green light



JF-Expert Member
Feb 11, 2007


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Joined Feb 11, 2007
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Posted Sunday, January 31 2010 at 10:50

The International Finance Corporation will have the final word in the termination of a 25-year lease agreement with a consortium led by Rail India Technical and Economic Services Ltd (Rites) for the operations of Tanzania Railways Ltd. The termination will involve buying out the Rites’s 51 per cent share in the railway.

The EastAfrican has been informed that the fate of TRL will be determined soon, following Rites’s decision to offer for sale its 51 per cent stake in the consortium, established three-years ago to operate the country’s ailing railway network.

Rites asked the Tanzania government, its co-shareholder, to purchase its stake two months ago, but the government is yet to decide on the offer fearing potential legal battles at the international court of arbitration and problems with the funders of the aborted privatisation process.

This newspaper has also been informed that the decision to purchase the shares in Tanzania Railways is also subject to an IFC green light, upon assurances from the government as to who is responsible for carrying the debt, amounting to $7 million with interest.

The Indian firm’s 51 per cent share was used as a loan guarantee to secure $44 million from the IFC as a working capital but the World Bank finance body disbursed only $7 million of this amount.

A senior government official told The EastAfrican in Dar es Salaam last week that, after eight months of delay, the government told the IFC it did not have confidence in the railway consortium’s management, “prompting IFC to hold back the rest of the loan.”

The official said that IFC then made a feasibility study of the contract and advised the Tanzanian government that Tanzania Railways needed an injection of $100 million, more than twice the proposed loan, and needed Tanzania and Rites commitment as security to release additional funds.
Instead, Tanzania told Rites to prepare a business plan to decide the extent of the working capital needed to revamp the railway.

The two parties failed to agree on the business plan when Rites projected that Tanzania Railways would only be able to carry 1.7 million tonnes per annum by the year 2015, while the Tanzania government insisted that the railway line has the potential of ferrying 10 million tonnes, a stand-off that created doubts at IFC about the whole deal.

Hundi Lal Chaudhary, chief executive officer of Tanzania Railways Ltd, told The EastAfrican that negotiations between Rites and the Tanzania government for the sale of the 51 per cent shares were ongoing but declined to disclose further details.

However, Siraju Kaboyonga, board member of Tanzania Railways and a Member of Parliament for Tabora for Chama Cha Mapinduzi, told this newspaper that while “talks are still at the negotiation stage,” the matter will be brought up in parliament to seek a quick end of the contract.

MPs are now demanding that the government set a timeline for termination of the contract as it is a burden on the taxpayer, with the government subsidising Tanzania Railways on a monthly basis to enable it to pay the salaries of hundred of workers.

Tanzania in 2006 concessioned Tanzania Railways to the Rites consortium, with the IFC providing the working capital. The seed capital from the consortium was $20 million and IFC was to provide $44 million.

The concession was to intended to improve the management, operation and financial performance of the rail network by granting exclusive rights to Tanzania Railways Ltd for the provision of freight and passenger services and operation and maintenance of the concession assets for the 25-year duration of the concession.

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