Egyptian private-equity company Qalaa Holdings SAE is investing $70 million to accelerate the movement of rail cargo carried from East Africa’s busiest port, as it faces competition from a new Chinese-backed link.

Qalaa controls Rift Valley Railways Ltd., the operator of a railway built almost a century ago running from Kenya’s Mombasa port to neighboring Uganda. It covers a portion of the same route as a new rail line under construction from Mombasa, designed to speed up freight-transit times, cut transport costs and boost mining and agricultural exports. It isn’t yet clear who will operate the second railway.

Qalaa “is investing heavily in a new subsidiary, which will complement RVR by handling cargo at the port of Mombasa in Kenya,” Karim Sadek, managing director of the company’s transportation division, said in an interview from Nairobi.

In neighboring South Sudan, Qalaa, through its Nile Logistics arm, plans to acquire additional handling equipment for its river-transport and marine-port businesses, he said. Its service, operating a fleet of barges between the north and south of the oil-producing nation, was disrupted in December 2013 when a power struggle in the ruling party sparked civil war.

Tens of thousands of people have died and almost 2 million others have been driven from their homes as the violence continues, according to the United Nations. About 1.5 million people are receiving food aid, less than a quarter of those in need, amid funding shortages and due to bad roads, which are inaccessible in the wet season, according to the UN.

Aid Movement

“We are moving cargo for the World Food Programme and International Committee of the Red Cross from Juba to the north,” Sadek said on Jan. 13. “Depending on how that goes, we may expand our fleet in South Sudan.”

Spending by Qalaa this year in South Sudan will probably reach $35 million, he said.

Qalaa, formerly known as Citadel Capital SAE, in April bought the 34 percent stake that Kenyan-based Transcentury Ltd.’s Safari Rail Co. owned in RVR, raising its shareholding to 85 percent. Citadel first acquired a minority interest in RVR in 2010. Since then, it’s led investments to upgrade hundreds of kilometers of tracks, rehabilitate rolling stock, and restore service on a rail section in Uganda that was idle for two decades.

RVR said in September it agreed to borrow $20 million from Standard Bank Group Ltd. and other lenders to buy 20 locomotives, which should all be delivered from General Electric Co. (GE) by April.
Road Cargo

Currently, more than 90 percent of cargo is ferried by road from Mombasa. Kenya is the largest economy in the five-nation East African Community, also comprising Tanzania, Uganda, Rwanda and Burundi, which formed a customs union in 2010 to strengthen intra-regional trading. South Sudan is seeking to join the EAC.

“Kenya remains the pivot state in East Africa and the route to the sea and the world markets for a lot of countries in East Africa,” Aly-Khan Satchu, chief executive officer of Nairobi-based Rich Management Ltd., said in an e-mailed response to questions. “RVR has devised a good strategy of integrating the railway with a door-to-door delivery service.”

An estimated 23.5 million metric tons of freight was expected to pass through the Mombasa port last year, up about 5 percent from 2013, according to the Kenya Ports Authority. Durban, Africa’s busiest port according to the Port Management Association of Eastern and Southern Africa, handled 44.8 million tons of cargo in 2013-14.
China Rail

Qalaa’s planned spending on RVR in the 12 months through June comes as construction gets underway on a $3.8 billion railway linking Mombasa to Kenya’s capital, Nairobi, being 90 percent financed by the Export-Import Bank of China.

It’s expected to take 42 months from October to complete, and the link will eventually continue to Uganda and the landlocked states of Rwanda, Burundi and South Sudan. The “high capacity” standard-gauge railway will enable locomotives to travel as fast as 120 kilometers (75 miles) per hour for passengers and 80 kilometers per hour for cargo, according to the government.

“Our rates should be more competitive, even when the new railway is complete because of a lesser debt burden,” Sadek said. “The agreement we signed with the governments provides for compensation for any business lost as a result of a new railway. But it has not yet been worked out how.”

Source: Bloomberg

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