ECP Terminates Negotiation to buy Rift Valley Railways over Massive Corruption

By Amina Faki

Emerging Capital Partners (ECP), American private equity firm terminated negotiations to buy Rift Valley Railways from Egypt Qalaa Holdings after the World Bank signaled its intention to blacklist the rail firm over massive corruption that was revealed in an audit report last year.

This was a revelation from the Business Daily shows that the firm terminated the negotiations after it became clear that the bank had decided to punish the company instead of the directors linked with graft in the audit.

The decision of the World Bank came after a review of the rail operator unearthed a well-orchestrated corruption scheme where executives bribed government officials cooked books of all accounts, evaded taxes and created briefcase companies as corporate veils to squander a 2.2 billion shillings loan from the International Finance Corporation(IFC) a World Bank’s private sector arm.

The loan was set to buy 20 locomotives in 2014 and 2015 but RVR officials devised a scheme to lease the trains at inflated costs from a third party and share the spoils.

The decision to sanction RVR comes after the World Bank’s Integrity Vice-President’s (INT) office named six executives at the railway operator as the key architects of the corruption scheme.

Former Senior RVR official said that the report indicated that it was more likely than not that the individuals participated in criminal tax evasion and that they faced possible sanctions at a personal level.

Kenya on March 31 issued a termination notice to RVR, accusing the operator of failing to pay more than 600 million shillings concession fees for the year to December 2016, missed cargo haulage targets, and failure to maintain railway assets as agreed in the 25-year contract.

RVR is controlled 80 percent by Egyptian private equity firm Qalaa, with the remaining fifth held by Uganda’s Bomi Holdings and international finance institutions (IFIs).

An assessment by the World Bank found that the six executives inflated the cost of locomotives and bribed Kenya Revenue Authority (KRA) officials to avoid paying VAT amounting to 377.4 million shillings on the engines.

RVR bosses secretly diverted the World Bank cash to lease locomotives from the East African Rail and Handling Logistics at the rate of 3 million shillings each for the first three months and 2.5 million shillings for the next 81 months.

An amendment of the terms was made in February 2015 to a flat rate of 3 million shillings per month for the entire 84 months in the contract.

The World Bank report say that when making this request, RVR management already knew that the disbursement funds would not be used to purchase the locomotives as the contract had been transferred to ARLL on May 23, 2014.