Cear to rehabilitate Limbe-Nkaya-Nayuchi line
Malawi Government has reviewed the concession agreement with Central East African Railways (Cear) due to change in the current environment and the overall risk profile, hiking the minimum concession fees to $1 million (K400 million) from $500 000 (K200 million) per year.
Consequently, the concession, whose fee remains at five percent of gross revenue, has been extended up to 2045 to be in line with the Build Operate and Transfer (BOT) contract on the construction of the Nkaya to Moatize, Mozambique, rail line.
Effective December 1 1999, Cear, a consortium which was then led by the Railroad Development Corporation won the right to operate the Malawi Railways network through the privatisation process, the first rail privatisation in Africa which did not involve a parastatal operator .
In 2011, a Brazilian mining giant Vale bought 51 percent stake of Mozambique’s Northern Corridor Development Company (SDCN), which in turn owns 51 percent of Cear.
The concession fee will be effective once coal freight business, to be undertaken by Vale, starts in 2015.
Jimmy Lipunga, chief executive officer of Public Private Partnership Commission (PPPC), a government agency that led the concession review process, said on Friday the current operating environment has changed; hence, rendering the original agreement ineffective.
“Accordingly, and following comprehensive preparations on the part of the government, a series of negotiation meetings started in June 2013,” he said at a press briefing.
During the negotiation, the Malawi Government was supported by the Ministry of Justice, Transport, the Government Contracting Out Unit in the Office of the President and Cabinet (OPC) and a team of consultants funded by the European Union (EU) and the World Bank.
Lipunga said the negotiations were held in the spirit of wanting to develop the rail infrastructure within Malawi and beyond.
After the negotiations, the parties agreed that the provision to exempt Cear’s fuel from payment of road maintenance levy be withdrawn.
“The previous provision for payment of passenger subsidy to Cear has also been dropped. The services will be provided as a social corporate responsibility,” he said.
The concessionaire is ‘contractually obliged’ to rehabilitate the Limbe to Nkaya and Nkaya to Nayuchi rail line at a cost of $135 million (K54 billion).
Lipunga said it was agreed that the Cear restructures its balance sheet to achieve a solvent financial position.
“The balance sheet did not look very good,” he said, stressing that more equity in Cear should have a stronger financial footing.
Cear has since paid the outstanding concession fees of $2.8 million (K1.1 billion) and has procured six new passenger coaches at $3 million (K1.2 billion) to improve passenger transportation. The coaches, already in the country, will be commissioned at a date to be announced.
