Tanzania Railways Ltd Recapitalization

A recent report by The East African has indicated that, in addition to its goal of injecting more than USD 39.3 million into a project to overhaul the Tanzania-Zambia Railway Authority, the government of Tanzania is also currently looking for ways to recapitalize that Tanzania Railways Ltd.

Originally, the Tanzania Railways was leased for 25 years to an Indian government enterprise, Rail India Technical and Economic Services (Rites) Ltd, for 25 years, who, according to the lease agreement, also took a 51 percent share in the operations of the railway.

However, this concession is currently being re-examined by the government with the possibility of shortening the lease period due, in part, to the fact that the Indian investor failed to pay over USD 6 million in concession fees to the Tanzania government in 2008.
 
According to the East African report, the government has explained that the concession agreement with Rites is currently under review after having realized various anomalies within the agreement on their part.

The contract, which was signed last October, is said to have misled Rites officials by indicating that the Railway Assets Holding Company (Rahco) was in possession of 92 working locomotives when, in actuality, only 55 existed which, according to Rites officials, resulted in the failure to acquire a USD 20 million loan from the International Finance Corporation for the purpose of purchasing new locomotives as well as for general office expenses.

In a statement to The East African, the Minister for Infrastructure Development, Dr. Shukuru Kwambwa, said that a collaborative group between the government and Rites is currently looking to recapitalize the railway in an effort to improve its overall long-term performance.

According to Dr. Kwambwa, Rahco will continue to maintain both the railway line and its infrastructure in addition to ensuring the rehabilitation of the current locomotives and wagons as well as the purchase of new ones.

To date, the government has released a USD 3.6 million loan to Tanzania Railways Ltd in order to assist them in the payment of their employees until funding from the IFC loan comes through.

In addition, the government has also announced that approximately USD 33 million has been secured in order to rehabilitate and modernize the central railway line.

Dr. Kwambwa also went on to explain that the government is planning to inject the USD 39.3 million loan from the Chinese government, which was secured for the 2009/2010 budget, into the ailing Tanzania and Zambia Railways Authority.

According to The East African report, after having considered the role that China has taken in building and sustaining of the railway line, Tanzania and Zambia have agreed to hand over the primary control of the line to a Chinese firm.

To this end, the loan from the Chinese government is expected to be used for the purchasing of new locomotives and wagons for TAZARA as well as for the provision of additional training to employees in preparation for the transition of the line to the control of the Chinese investor.

“The two countries, Tanzania and Zambia, have, after lengthy discussions on the fate of Tazara, agreed to concession it to a Chinese firm with the capacity to run the 1,860-kilometre railway profitably,” said Dr. Kwambwa, “the firm will be identified by the Chinese government.”