In the category of: Now They Tell Us—

The Daily Nation is replete with stories and commentary on the Mombasa-Kampala railroad and the various claims and disputes among the parties to the Rift Valley Railroad concession, granted in 2005 for a term of 25 years and reporting about the original “wheeling and dealing” that set up the current failure of the operation.

Today’s installment asserts “Future of Rail Firm to be Decided Wednesday” at a meeting between the Kenyan and Ugandan governments and feuding shareholders.

When Kibera slum dwellers uprooted the railroad tracks during the 2008 post-election violence, it seemed to be taken by some from the West as confirmation of a violent and uncontrollable nature of the Opposition, as well as perhaps by some as consistent with certain ethnic stereotypes–and was said to be be a major international incident due to reduced supplies to Uganda, Rwanda and Burundi. Unfortunately, it would appear that even greater property damage has been done–albeit more genteelly and more discretely, by better dressed people with a lot more money–over a period of years in the privatization. I say nothing in defense of vandalism here, but just simply point out that some forms of property destruction get condemned while others get financed.

How plan to privatize railways became Kenya’s public sector reform nightmare; Desire to save face traunched the reality that Kenya and Uganda were handing over a national asset in a fundamentally flawed deal

The World Bank extended a Sh6 billion loan to pay off the sacked workers. But, despite all these concessions, Mr Puffet turned up with an empty pocket on November 1.

According to experts who have been involved in such deals, it would have been possible to detect that Mr Puffet did not have money right from the start if the due diligence conducted was thorough and if the Treasury had demanded for guarantees that the money is available.

To save the situation, the governments and the International Finance Corporation (IFC), which is owned by the World Bank, hastily amended the contracts by introducing two legal devices that would enable Mr Puffet to raise the money required in 30 days before he could be handed over the railway.

Mr Puffet and his financial adviser from PWC, Mr Vishal Agarwal, started by knocking on the usual doors looking for the cash at firms such as major private equity shops and investment houses, but many could not touch the deal — despite the world then being awash with excess money — because either the window to close the deal was too short, or they were put off by the political risk and the shareholding squabbles that plagued Rift Valley Railways (RVR).

With all options drying out, Mr Agarwal reached out to Transcentury, a local investment holding company that had been recently making waves to invest. Transcentury had recently made a series of good deals, starting with its investment in East African Cables, and later putting money into a private equity fund raised by Helios that would buy 25 per cent of Equity Bank for Sh11.2 billion ($150 million).

Though this was one of the biggest and most complicated deals that Transcentury had handled so far in terms of the political risks involved and scale of the asset, they came through with $9 million in the end, and saved the deal — and face — for everyone involved. Transcentury got a 20 per cent shareholding.

By hiring Mr Agarwal, Mr Puffet had made a smart move that would help feed directly into the Kenyan political and business networks. Mr Agarwal was the ultimate insider in the Kenyan corporate finance scene after handling the KenGen listing on the Nairobi Stock Exchange.

This gave him good connections with Ms Esther Koimett, the investment secretary, and Mr Eddy Njoroge, KenGen’s chief and a key investor in Transcentury.

              . . . .

[The deal was] hailed as the best emerging markets deal by the respected Euromoney magazine — this in spite of the mess that insiders knew of the process and the outstanding issues.

For IFC, it was compared to the privatisation of Kenya Airways, in terms of how an excellent deal should be done. But, to insiders within IFC, this concession left a bad taste within the World Bank Group, with some of the bankers who shepherded it turning out to be the biggest critics of themselves.

It is simply considered one of the worst deals they have done, and the World Bank has officially acknowledged as much publicly through the various studies its publishes on infrastructure.

The man who made millions from investing nothing in railways; HARD QUESTIONS: How did highly paid technocrats in Kenya and Uganda and their World Bank advisers fall for a sham railways deal?

Egyptians’ bid to control Kenya-Uganda railways sparks off regional power play; With their population bursting at the seams and their arable land shrinking by the day, the northerners must do their best to secure their food reserves. But this may stoke nationalistic fires.

Some heavy duty name dropping in the world of “political economy” and even ties to democracy promotion, not to mention Egypt, the number two recipient of US aide:

The two PE shops are Citadel Capital, a powerful and tough talking firm based out of Cairo that is whispered to count among its investors sons of the most powerful politicians and political elite in that country, and Helios Investment Partners, a high-flying firm co-founded by one-time Texas Pacific Group executive Temitope Lawani, a Nigerian who counts among his many investors the once powerful US foreign secretary, Madeleine Albright; once the world’s most powerful hedge fund manager, George Soros; and a scion of perhaps once the world’s most powerful banking dynasty, Jacob Rothschild. The Kenyan investment group is Transcentury.

              . . . .

In the traditional mode, the conflict over what would define the national interests of the nine Nile Basin countries would be fuelled by politicians with expansionist ambitions, but in the current saga, corporate men in suits seated thousands of kilometres away are calling the shots from their plush private equity funds profits.

It will also be a battle in which governments will have to balance public and strategic interests against the short-term commercial objectives of corporate managers hired to extract maximum profits for their wealthy investors. In the RVR saga, we have Nigerian, American, Middle Eastern and some Kenyan capital vying for a major infrastructure opportunity.

With the kind of deals that private equity funds and African multinational corporations are taking up, the new scramble for Africa is entering a phase where private capital will be driving foreign policy on the continent.

              . . . .

Many hungry mouths
According to the UN Population Division data, Egypt’s population is likely to hit 111 million by 2050 under a low-case fertility scenario, or 156 million if it continues to grow at the current fertility rate. This means there will be many hungry, unemployed mouths living in the slum areas to feed on a land whose fertility might be falling. This could lead to population pressures and political instability in an authoritarian state.

It is therefore in Egypt’s strategic interest to manage the Nile well, and secure food and natural resources downstream. That is why Cairo would back Citadel in its bid to control the railway concession in East Africa in order to establish a logistics corridor that will not only help bring food home, but resources such as oil from Uganda and Southern Sudan.

Uganda wants much the same thing. It has historically been held hostage to the incompetence of successive Kenyan governments in running the railway that forms the gateway to their landlocked country.

The shareholding squabbles within RVR could only be of limited interest to them, compared to the need to export their oil to the world. This could be the reason that has motivated Kampala to seek a closer relationship with Cairo.