LUNATIC EXPRESS FILES: The Kenya-Uganda railway, colloquially known as the LUNATIC EXPRESS, dates back to the colonial period when it was constructed around 1895. The railway connects the interiors of Kenya and Uganda with the Indian Ocean at the Mombasa port in Kenya. More than 4000 people died during its construction. With some of them being devoured by lions that were later to be referred to as the “man eaters of Tsavo.” Charles Miller coined the term LUNATIC EXPRESS in his book, The Lunatic Express: An Entertainment in Imperialism, that was published in 1971.
By PATRICK MAYOYO
Part of Sh 16.5 billion ($164 million) loaned to Rift Valley Railways (RVR) to improve its services by buying new locomotives was used on buying used ones that were modified at a cost of six times the value of purchase we can reveal today.
A contract signed between RVR and National Railway Equipment Company (NRE) of Illinois, USA, seen by this writer, shows that locomotives model GE B23-7 were bought from NRE at Sh17.1 million ($170,000) each and modified at a cost of Sh99 million ($985,000) each.
This case is among a series of events being investigated by the World Bank at RVR according to multiple interviews.
Rift Valley Railways (RVR) bought used standard gauge railway locomotives manufactured in 1977 which are now about 40 years old and modified them to fit on a metre gauge railway.
Data from international suppliers of used metre gauge locomotives shows that a single unit of a used locomotive costs from as little as Sh 4,490,500 or US$ 44,455 to Sh 11,291,382 or US$ 111,500 depending on the year of manufacture.
According to www.eqquippo.com a Swiss company specializing in used heavy duty equipment, a MB125N used locomotive manufactured in 1972 costs Sh 4,490,500 or US$ 44,455.
The money utilised on the purchase of the locomotives was part more than Sh 16.5 billion ($164 million) loaned to RVR to improve efficiency, standardise its operations, increase market share for rail traffic and improve competitiveness of the Northern Corridor.
The World Bank has since launched investigations following fears that the capital financing package could have been embezzled through am asset stripping scheme at the railway company.
The Sh 16.5 billion ($164 million) capital financing package was provided in form of a series of loans by European Development Financial Institutions (DFIs) arranged by World Bank Group member, the International Finance Corporation (IFC), which gave $22 million.
Development Financial Institutions (DFIs) are government controlled entities that often support private sector projects in developing countries using their tax payers’ money.
The DFIs included Dutch Development Bank (FMO), $20 million; Belgian Investment Company for Developing Countries (BIO), $10 million; KfW Entwicklungsbank (The German Development Bank) US$ 32 million.
Some of the locomotives imported by Rift Valley Railways (RVR) from National Railway Equipment Company (NRE) of Illinois, USA, after they had been off-loaded from the ship.
Other financial institutions that gave RVR loans included Infrastructure Crisis Facility (ICF) Debt Pool $20 million, African Development Bank (AfDB), $40 million and Kenya’s Equity Bank, which lent $20 million. Read more: (http://tinyurl.com/hsksoc2)
The total amount in the capital expenditure package was more than Sh 28 billion ($287 million) as the shareholders were to inject a further US$ 82 million in equity and the balance of the funding was to be contributed by free cash flow.
Qalaa Holding’s website shows that RVR secured another $20 million (Sh1.8 billion) asset financing deal with Standard Bank of South Africa and CFC Stanbic Bank towards the acquisition of the 20 new locomotives from the USA as part of a programme to enhance service delivery on the Northern Corridor. (http://tinyurl.com/jr5wglb
After getting the loans, a sister company of RVR, Rift Valley Railways Investments (Pty) Ltd (RVRI) that is registered in Mauritius signed a management and technical services agreement with a Brazilian company, América Latina Logística (ALL).
The pact assigned ALL the task of providing key support to RVRI’s five-year, three-point rehabilitation and investment programme aimed at ensuring long-term improvements in safety and efficiency along the Kenya-Uganda railway.
The plan included buying new locomotives and wagons, upgrading the railway line and investing in the right expertise that entailed substantial investment in information technology (IT) systems that included establishing a train’s monitoring computer system. (http://tinyurl.com/hphvw63)
It is not clear why RVR bought used locomotives because according to the firm’s capital expenditure (Capex) plan, the firm had budgeted for DFI’s $60 million financing to buy 20 new locomotives.
More questions arise given that RVR bought standard gauge railway locomotives and used a substantial amount of money to modify them to fit on a metre gauge railway.
The contract signed between NRE and RVR shows that the first three locomotives were to be modified at Sh99 million ($985,000) each or Sh1.1 billion ($ 1,155,000) for the three. Modifying the locomotives was thus nearly six times the buying price.
It is not clear how much the remaining 17 locomotives cost; the contract between NRE and RVR is silent on this.
However, the agreement states in part: “The modification services costs of the remainder of the 17 locomotives will to be in accordance with the scope or overhaul agreed between both parties, which scope shall form part of and be read together with this contract.”
A statement by RVR claims that three ‘new’ locomotives were delivered at the time.
(http://tinyurl.com/h2hgkn4) It said the deliveries, the latest in the $287 million (Sh28 billion), five-year turnaround programme for RVR, were part of a programme that would see the rail operator add 20 new US locomotives and six rehabilitated engines to its fleet by 20014.
IFC’s Communications Officer in charge of Sub-Saharan Africa Neha Sud confirmed the investigation. “I’d like to clarify that it (the investigation) is not being carried out by IFC, but by the World Bank’s Integrity Unit, an independent Unit that investigates issues involving World Bank Group financed projects,” she said.
However, the IFC would not comment on the investigation as that could compromise it, she said. She referred us to the bank’s Integrity Unit, where a spokesperson, who did not wish to be named, confirmed the investigation.
“The World Bank Group is committed to managing fraud and corruption risks in all projects it finances. All allegations are assessed and investigated by the World Bank Integrity Vice Presidency (INT). Findings will be then referred to the World Bank Sanctions system. ”
INT’s disclosure policy prohibits disclosing details of investigations to protect the integrity of the process and the security of witnesses, the spokesperson said.
However, our independent inquiries indicate that the World Bank investigations are led by Ms Loretta Dorman, an Investigative Analyst at the bank’s Integrity Vice-Presidency (INT) in Washington DC, and her colleague, Mr Michael Kramer.
According to details on its website, when firms or individuals are found to have engaged in fraudulent, corrupt, collusive, coercive or obstructive practices through an INT investigation, the World Bank Group may impose sanctions such as debarment. (See www.worldbank.org/integrity for details).
Interviews with RVR employees who have been interrogated by the World Bank investigators, show that the investigations are multi-faceted.
“The investigations focuses on procurement, financial reporting and the foreign companies awarded tenders by RVR,” one of them said.
By the time of publishing this story we had not received a comment from RVR and Qalaa Holdings although we had contacted on numerous occasions.
However, our investigations in Brazil confirmed that ALL had dealings with RVR. An official of ALL said they had so far not received any inquiries from World Bank officials.
Mr Carlos Correa speaking on behalf of America Latina Logistica Rail Management Ltda that is owned by ALL however, added that their company had service provision contracts with RVR which they serviced within contractual terms and conditions.
Mr Correa added that ARM did not currently have any contract in force with RVR.
America Latina Logistica Rail Management Ltda was awarded numerous contracts by RVR and drew payments running into millions of dollars in training, professional fees and consultancy services according to documents seen by this writer.
NRE Assistant Vice-President for International Sales Mike Elbaz confirmed that RVR bought used Standard Gauge Rail (SGR) locomotives, which were modified to fit on a metre gauge railway.
Some of the 20 locomotives imported by Rift Valley Railways being off-loaded at the Mombasa port
“RVR purchased 20 locomotives from NRE. The locomotives were used and a specific scope of work was dictated by the purchaser and NRE fully complied with it. Initially, these locomotives were for standard gauge application with Bo-Bo configuration. Model is GE-23,” Mr Elbaz said.
Mr Elbaz added that the locomotives were modified and lightened in NRE facilities in the US. “The price covered modifications as per scope of work, and all the 20 locomotives were delivered,” he said.
Mr Elbaz confirmed that they had been contacted by World Bank officials over the ongoing investigations against RVR. “There was a brief phone conversation with a lady and a man; I don’t remember their names. I believe they were to visit us and I’m not sure if they did as I could have been travelling.”
RVR is the operator of the Kenya-Uganda railway line, which was privatised under two largely identical 25-year concessions in 2006. It is controlled by Qalaa Holdings, a private equity house in Cairo.
The 25-year concessions agreement signed in 2006 meant that RVR was going to operate both passenger and cargo services between Kenya and Uganda.
The Government was going to own all the rail assets including the line, rolling stock (locomotives/engines), wagons, workshops, buildings and all moveable immovable assets.
RVR was to maintain the railway line, engines, wagons, workshops and cater for all workers needs that included salaries, medical cover, pension and other emoluments.
Documents show that ALL gave contracts running into millions of dollars to Brazilian companies that include América Latina Logística Rail Management Ltd, Tek-Motive Consultoria Ltda, Socii Engenharia Ltda and JFS Technologia Ltd.
According to a report released by international agency, Oxfam in April this year, 51 of the 68 companies that were lent money by the World Bank’s private lending arm International Finance Corporation’s (IFC) in 2015 to finance investments in sub-Saharan Africa use tax havens.
The RVR revelations come in the wake of the Panama Papers scandal which revealed how powerful individuals and companies are using tax havens to hide wealth and dodge taxes.
A report by the US-based international financial watchdog, Global Financial Integrity, says Kenya lost more than Sh1.1 trillion ($13 billion) through trade mis-invoicing between 2002 and 2011. (http://tinyurl.com/knb8k3d)
Trade mis-invoicing refers to the intentional misstating of the value, quantity or composition of goods on customs declaration forms and invoices, usually in order to evade taxes or to facilitate money laundering.
An official of the Kenya Revenue Authority (KRA) said they are carrying out a tax audit following claims that some multi-national companies were using questionable practices to siphon off profits from their Kenyan operations to foreign-registered entities, through transfer pricing.
This entails moving profits by multi-nationals from Kenya, considered to be a high tax country, and declaring them in low tax countries or tax havens.
Our investigations show that the fabled RVR five-year modernisation programme that has cobbled up more than Sh 28 billion in loans and equity has not resulted in improved service delivery and efficiency.
According to chief executive officer of the Kenya Ships Agents Ltd, Mr Juma Teteh, RVR is currently handling less than five percent of cargo leaving Mombasa port compared to six percent when Kenya Railways used to operate the line before privatisation.
An inspection of Qalaa Holdings financial statements show that the firm has created an offshore structure of shell companies which has extracted millions in advisory fees from RVR, despite the railway suffering losses in recent years. Read more:(Full list of offshore structure http://tinyurl.com/)
The European Network on Debt and Development (Eurodad) reveals in another report “ Going Offshore: How development finance institutions support companies using the world’s most secretive financial centres”
The report says that developing countries lose billions of dollars every year through tax avoidance and evasion.
Tax havens play a pivotal role in this by providing low or no taxation and by promising secrecy, allowing businesses to dodge taxes and remain largely unaccountable for their actions as their activities are not illegal.
It is legal to register a company in Mauritius and Kenya has signed a double taxation avoidance agreement (DTAA) with the tax haven. Most services the offshore industry provides are legal.
However, the Tax Justice Network-Africa (TJN-A) has sued the Kenya government, challenging the constitutionality of the DTAA between it and Mauritius.
The agreement, TJN-A says, undermines Kenya’s ability to raise domestic revenue to support development as it opens loopholes for multinational and super-rich tax dodgers to shift profits abroad through Mauritius.
THIS INVESTIGATIVE PROJECT WAS JOINTLY SPONSORED BY THE JOURNALISM FUND THROUGH FLANDERS CONNECT CONTINENTS GRANT PROGRAMME AND THE BRAZILIAN ASSOCIATION OF INVESTIGATIVE JOURNALISM (ABRAJ).
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