Sunday, May 13, 2007

Is Rift Valley Railways Scared of Magadi Soda?

A commercial battle is brewing between the newly formed Rift Valley Railways (RVR) and Magadi Soda Company. RVR wants Magadi to pay more for the use of Konza-Mombasa railway track. But Magadi will hear none of that; it argues that a 1997 contract with KR gave it exclusive rights to use the railway line until 2023. The rail operator has retaliated by holding Magadi’s fuel hostage until it agrees to pay higher rates.

I am persuaded that this epic controversy has less to do with rates. It's all about supremacy in Kenya’s railway transport sub-sector. There exists bitter commercial blood since both companies competed for the control of Kenya Railways.

RVR (K) Ltd—which won the contract—knows that Magadi is interested in rail freight business. Magadi has done little to hide its plans. Just months after loosing KR bid to RVR, Magadi bought five brand new locomotives, and returned five old ones it had leased from the defunct state owned rail operator.

Bottom Line
: “Did Magadi buy FIVE engines just for its own private use?” I doubt it. A company that built a 144-km railway line, from Konza to Magadi, has more than Soda ash on its long-range business plans.


mmnjug said...

Thats the South African tendency to think that they can box Kenyan companies into a corner. Granted, RVR has an obligation to honour all past and future agreements between the Kenya Railways and any other parties. Failure to that means that they will expose themselves to legal mine-fields. I wonder where their brains are. With Magadi purchasing additional locomotives, that is neither here nor there. They have the right to do that and if they have the financial muscle, they may just build another line to Mombasa Port for their Soda Ash and when idle, have a passenger train running. What will RVR do? They had better wake up and smell the coffee. The Indian Company that has purchased Magadi has enough cash reserves to go right ahead and do exactly that! They had better re-read the KBL vs Castle Breweries manual and see that the cards are stacked against them.

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Kenyanomics said...

Mmnjug--I completely agree with you.

It was a mistake to grant control of the entire railway infrastructure (tracks, locomotives and other property) to one company. This mistake has resulted to sireous conflict of interest issues, and will hamper competition in the transport sub sector.

Anonymous said...

To bring up a counterpoint... One company will probably have more incentive to make good tracks work for its business. Since RVR is investing a lot in its infrastructure (including the shared route), I think Magadi Soda should pay more for better quality service.

That said, I also think competition is healthy. Magadi Soda should challenge RVR, no questions.

RVR's tactics are deplorable. But I think we might be seeing better service all around in the next few years.