Uganda Railways shs80bn locomotives deal raises concern

A proposed lease deal between the Uganda Railways Corporation (URC) and Auto Ports Freight Terminals Ltd, a Kenyan company, has raised concerns about the economics behind the deal and the potential waste of taxpayer funds.

Documents show URC plans to lease four locomotives at a cost of $22 million, approximately shs80 billion, for a period of 10 years.

The proposed lease fee is $2,500 per day per locomotive, translating to $7,500 per day for three locomotives.

The URC management has justified the lease deal, citing the need to address the current shortage of locomotives and to support the growth of cargo transport.

In a presentation to the URC board in June, the corporation's management headed by Mr. David Musoke Bulega, argued that URC currently has four mainline locomotives, of which only two are operational.

"The other two are sick; and of the sick locomotives, one has been sick for the last two years," the CEO wrote in his presentation.

The URC plans to use the leased locomotives to transport cargo, with the company proposing to pay a fixed charge of $2,500 per day per locomotive.

The proposal to acquire the locomotives came from Auto Ports Freight Terminals Ltd, which operates and owns freight terminals in Mombasa but also works as a cargo consolidator.

In its May 13, 2024 letter, the company said the current locomotives being operated by URC are not enough to help transport all the cargo by trail to and out of Uganda.

"The railway does not have enough capacity to transport and deliver cargo, which will lead to further loss of railway market share, which will ultimately result in high commodity prices in the country due to the lack of a competitive transportation option," the letter by Auto Ports Freight Terminals Ltd reads in part.

"We are aware of the Government of Uganda's investment plans through URC to acquire more locomotives. However, there is an immediate need to protect the current market share and expand the rail market share to address the economic situation relating to the stabilization of commodity prices in the country," the letter adds.

The company adds that the new locomotives will enable utilization of the existing MGR & SGR Railways in Kenya that are connected to AFTL facilities at the Mombasa Port and Nairobi to support URC and Uganda's economy.

"We propose to urgently acquire and deploy four (4) locomotives at USD 22 Million. The costs cater for the purchase of locomotives, transportation, spare parts, and support from the Original Equipment Manufacturer (OEM) in terms of training & skills transfer to the URC team," the letter adds.

The proposal is to lease locomotives to Uganda Railways Corporation under wet lease terms (provide locomotives and maintain them) for 10 years.

This is where the lessor gives a maintained locomotive to the operator.

The operator or rail road owner will source for business and operate the available assets. The provider of the locomotives will be maintaining them using his own maintenance team at URC workshops.

In their presentation to the URC board in June, the Corporation management headed by Mr David Musoke Bulega, argued that URC currently has four (4) mainline locomotives, of which only two (2) are operational.

"The other two are sick; and of the sick locomotives, one (1) has been sick for the last two (2) years," the CEO wrote in his presentation in June 2024.

Currently, he argued, URC is railing about 25,000 tons a month which is about 41% of the available tonnage and only 8% of the line or track capacity.

"The reason for this poor performance is associated with lack of enough deployable assets including but not limited to wagons and locomotives in the Ugandan network and the huge Locomotives and Wagons challenges in the Kenyan network, this coupled with the poor track infrastructure in the Kenyan network," he said.

The MD said the anticipated cargo growth in 2025 is 70,000 tons, and the anticipated Locomotive availability is three (3) Mainline Locomotive.

Six locomotives will be required to rail 70,000 tonnes in 2025, eight locomotives in 2026 to rail 80,000 tonnes for both the mainline and the Tororo-Gulu line.

"URC plans to buy 4 mainline Locomotives in the AfDB project, however, realistically, these locomotives are expected be delivered in 2028 or 2029. During this time, cargo growth is anticipated to be 120,000 tons which will require 13 Locomotives. Therefore, whether, AfDB funded Locomotives arrive in 2028 or 2029, the demand of Locomotives will still be high to cover Mainline,” he added.

He explained that even after acquiring the AfDB-funded locomotives in 2029, because of cargo growth, URC will still need five  additional locomotives.

“Because of the challenges associated with outright purchase, leasing is the best option to deliver these locomotives on time. And leasing from the owner of cargo becomes even best as the assurance of cargo for URC is guaranteed,” he said.

Mr Bulega said the market shows that the average lease rate per locomotive of about 3,000hp, is USD 3,000 on wet lease arrangement and about 2,800 for 2000HP.

“Therefore, at an availability of 70%, three (3) locomotives will be charged at USD 3,240,000 per annum and for four locomotives at the same availability rate, will be charged USD 4,939,200 annually,” he said.

In recommendation, he said that URC negotiates for a much better lease fee of about USD 2,500 per day for brand new locomotives as fuel consumption is always efficient and USD 2,200 for used Locomotives as fuel consumption tend to increase by about 20% of the used locomotives unless they are used but re-engineered.

The board recommended in principle that URC should consider leasing Locomotives from Autoports Freight Terminals Ltd and that consultations should be made with key stakeholders, including PPDA.

Indeed on July 9, 2024, Mr David Musoke Bulega, the Ag. Managing Director of Uganda Railways Corporation (URC), wrote to PPDA, seeking guidance of the plan.

“Currently URC has four (4) mainline Locomotives, however the operational ones are only two (2) and the other two are sick and non-operational. The current available Locomotives are showing a number of complications which may affect operations in the near future,” he wrote.

However, Mr Salim S. Sadru, the Executive Director of Auto Ports Freight Terminals Ltd, in response to the board recommendation, wrote back, saying now they can only lease out 3 locomotives.

“Our initial request for four (4) mainline locomotives was driven by critical operational challenges affecting our service delivery. Our inability to meet customer demands has unfortunately eroded their confidence· in Autoports Freight services. Therefore, we kindly urge you to reconsider leasing three (3) mainline locomotives to address our pressing needs,” the letter reads.

URC and the company are still in negotiations on how much to pay per tonne so as to recover and maintain the locomotives in good working condition.

On October 24, the company wrote to the Works and Transport Minister, Gen Katumba Wamala, appealing to him to expedite the deal.

“We hope that the process of finalizing this long-standing Issue on leasing of locomotives to URC will be fast-tracked, allowing us to source the required locomotives promptly in support of Uganda manufacturers through efficient railway services,” Mr Sadru wrote.