By: Zawya

Kenya has blocked a $2 billion claim lodged by Rift Valley Railways (RVR) in the London Court of International Arbitration (LCIA) over a collapsed 25-year concession to run the 2,350-kilometre Kenya-Uganda railway.

The concession was terminated by Nairobi and Kampala in 2017 after RVR, the consortium that managed the railway system, failed to meet the contractual obligations.

The case began when KU Railway Holdings Ltd (formerly Sheltam Rail Company Pty) and RVR Investments Ltd initiated arbitral proceedings at the London Court of Arbitration against Kenya and Uganda in 2020, seeking compensation for breach of the concession agreements for the sum of $2,005,900,000.

These agreements related to the operation, construction and management of the now-defunct Rift Valley Railways line, a joint freight and passenger transport project between the two nations.

In its ruling, the LCIA entirely dismissed the $2 billion claim, awarding costs in favour of Kenya, according to its Attorney-General.“This outcome not only upholds the integrity of Kenya’s legal and commercial commitments but also protects the Kenyan taxpayer from what would have been a staggering financial liability,” said a press statement from the AG’s office on Friday. “This win reaffirms Kenya’s resolve to uphold lawful governance, protect public resources and maintain international credibility.”Termination noticesThe dispute stemmed from a 25-year concession granted to RVR in 2006 to operate the metre gauge railway in Kenya and Uganda, following a World Bank recommendation in 1998.

RVR operated the line until its concession was terminated in 2017, just around the time Kenya unveiled its standard gauge railway (SGR) line, reflecting the challenges of public-private partnerships (PPP) in infrastructure projects in the East African region.

RVR had failed to meet contractual obligations, including payment of concession fees and achieving freight targets.

In 2017, Kenya Railways issued RVR a 90-day notice of intention to terminate the concession on account of unpaid fees amounting to Ksh600 million ($4.65 million), inadequate investment and failure to meet the contractual freight volumes. This was followed by a termination notice after RVR failed to address the issues.

Kenya was followed by Uganda in terminating the concession to run its railway line in the same year.

Uganda also cited failure by RVR to meet its obligations as set out in the concession agreement signed when the firm took over the Kenya-Uganda Railway in 2006.

Kenya was on April 2020, served with an initial notice of arbitration and an amended notice of arbitration a week later notifying the Nairobi and Kampala governments of the arbitral proceedings.

The Kenya Railway Corporation and Uganda Railway Corporation had signed the concession documents in a deal that would have seen the two bodies transfer their railway assets to RVR in return for an 11 percent of gross revenue during the concession period.