RIFT Valley Railways (RVR) has struggled to run Kenya’s metre-gauge network profitably since it was awarded a concession to operate and maintain the railway in 2005, while Kenya’s new standard-gauge railway (SGR), which parallels RVR between the port of Mombasa and the capital Nairobi, is due to open in June and become fully operational by the end of the year.

RVR is in a very difficult financial situation as it has to pay a fee to the government for its concession to operate the railway which leaves it with insufficient funds to maintain the assets adequately. “The choice is very clear: do I send 2000-3000 staff home or do I pay Kenya Railways (KR)?” says Mr Isaiah Okoth, RVR’s group CEO. “We are talking to KR for it to take over responsibility for the track.”

“There has been minimal investment in the track for the last 20-30 years so we have a lot of speed restrictions and our rolling stock is old,” Okoth says. “We need to improve our tracks so that we can build confidence with our clients.”

Isaiah OkothOkoth says government policy has been anti-rail for the last 20 years, but he hopes that the government’s announcement last month that it will provide the SGR with a Shillings 15.5bn ($US 150m) operating subsidy indicates a softening of its attitude to rail. However, he says the government must be “pro-rail not just pro-SGR.”

RVR’s main shareholder is currently Citadel Capital, Egypt, but it is looking to dilute its holding to become a minority stakeholder. Okoth says discussions with future investors in RVR are at an advanced stage, which hopefully will lead to an injection of capital into RVR to fund much-needed investment.

Implementation of these changes would clearly put RVR on a much sounder footing, allowing RVR to play a greater role in the Kenyan freight market. Both RVR and the SGR will have access to the port of Mombasa, but the SGR will not extend beyond Nairobi to Uganda until the second phase of the project is completed in four to five years. “Transit freight will be crucial for us in the next five years and there is enough demand to allow us to grow,” Okoth says. “We want to sign long-term contracts with customers to lock them into RVR.”

RVR carries just 5% of the freight that arrives in Mombasa and traffic has been fairly static for several years fluctuating between 1.2 and 1.5 million tonnes per year. “When I joined RVR last year the focus was on grain, containers and a little vegetable oil, and we were ignoring some of the growth business,” Okoth says. He points to the considerable steel and cement traffic which goes by road to support East African infrastructure projects. RVR currently carries 20,000-30,000 tonnes of steel per month, but Okoth estimates the total market at around 50,000-60,000 tonnes per month. He says about 500,000 tonnes of fertiliser traffic is available to rail annually while up 2 million tonnes of clinker a year is going by road. “We are now working towards capturing this traffic,” Okoth says.

Far from being a competitor, Okoth believes the SGR represents an opportunity for RVR. First, RVR’s loss-making long passenger service will switch to SGR, while RVR can act as a distributor for SGR for both passenger and freight traffic, especially as the road network in Nairobi already struggles to cope with existing levels of traffic. SGR’s passenger station is located several kilometres outside Nairobi so RVR is proposing a rail connection to its city-centre station. RVR has a lot of private sidings in Nairobi and several branch lines in northwestern Kenya which would help to extend SGR’s reach. “We are strategic to SGR and we are already talking to them about how to transfer freight between the two railways,” Okoth says.

Okoth also believes that RVR’s right-of-way, which extends 30m either side of the track, plus its large number of stations and freight terminals, could be a cost-effective way of extending the SGR in the future rather than trying to find new alignments.

Finally, RVR plans to improve its Nairobi commuter rail services in July or August. It currently carries around 16,000 passengers into the city during the morning peak on four routes, and wants to increase this to 50,000 passengers by extending the services beyond their current termini.

Far from seeing the opening of the SGR as the death knell for Kenya’s metre-gauge rail network, Okoth regards the SGR as a catalyst for its rebirth.