Kenya mounts defence in Ksh.289 billion suit over railway contract

The case began when KU Railway Holdings Ltd (KURH, formerly known as the Sheltam Rail Company (PTY), and Rift Valley Railways (RVR) Investments (RVRI) Ltd instituted arbitral proceedings at the London Court of Arbitration against the Kenyan government (GoK) and the Ugandan government (GoU).

Case documents show that between 2006 and 2011, the two governments entered into various agreements with several companies for the construction and management of the railroad to transport goods and passengers.

The 1,660-kilometre railroad was set to run from Mombasa through Nairobi, Nakuru, Eldoret, Malaba, Jinja and Kampala to the western Ugandan town of Kasese.

The Kenya Railway Corporation (KRC) and Uganda Railway Corporation (URC) signed the concession documents in a deal that would see the two bodies transfer their railway assets to RVR in return for an 11.1 per cent of gross revenue during the concession period.

The concession was to take effect immediately and remain in force for 25 years for the freight services and 5 years for the passenger services.

“Soon after the commencement of the Concession, RVR failed to secure financing from its lenders which resulted in various breaches of the obligations under the Concession Agreements,” the suit reads.

Kenya and RVR, which manages the railways of Kenya and Uganda, then got into negotiations and restructuring of the concession agreement between 2008 and 2011, to provide new lenders with new timelines for achieving freight volume targets, and payment plans for the outstanding concession fees.

The plaintiffs submit that despite the restructuring, RVR still failed to meet its contractual obligation which resulted in the issuance of a notice of default in 2008, 2013 and 2017, which comprised of failure to meet the investment conditions under the concession agreements, failure to achieve the freight volume, and failure to pay concession fees to KRC.

In 2017, KRC issued a notice of intention to terminate the concession on account of unpaid concession fees, inadequate investment and failure to meet the contractual freight volume target.

The case documents say GOK subsequently issued a termination notice, which was set to take effect on June 30, 2017.

RVR sought the courts’ intervention and was granted a temporary injunction on condition that it pay Ksh.50 million before July 31, 2017. It failed to adhere to the condition and on July 31, 2017, it executed a consent order terminating the concession.

“The consent order provided that a handover exercise of the conceded assets be carried out jointly between RVR and KRC. However, RVR shut its office and disappeared. It left behind several unpaid suppliers who approached KRC seeking to be paid,” reads the suit.

Kenya was on April 2, 2020, served with an initial notice of arbitration and an amended notice of arbitration a week later, on April 9, notifying GoK and GoU of the arbitral proceedings.

KURH and RVR have sued Kenya and Uganda as joint respondents, seeking an order that Kenya and Uganda compensate them for breaches of the concession agreements for the sum of $2,005,900,000.

Hearing of the arbitration proceedings began Monday, March 4 and goes on until March 15 in London.

AG Muturi is leading a legal team comprising, among others, Kings Counsel Michael Sullivan, Githu Muigai and Albert Mumma.