RSZ revocation: What are the next steps?

13 Sep

The Zambian Government has recently announced the revocation of the Railway Systems of Zambia (RSZ) Concession Agreement. The Agreement came into effect in February 2003 when RSZ took over assets from Zambia Railways Limited.

Under the Agreement, the effective tenure was 20 years for the freight business and 7 years for the passenger arm.

Who is RSZ?

RSZ is a company registered in Zambia that won the tender for the concessioning of Zambia Railways Limited.

The company is a subsidiary of NLPI Ltd which is an investment holding company registered in Mauritius with a focus on infrastructure development projects in Africa.

What is the Concession Agreement all about?

The stated intentions of the government when entering the agreement could be pointed to developing the railway network in the country. The network is one of the largest in the region with 900km mainline railways and 300km of branch line railway.

Key objectives of the agreement included:

– Reducing heavy cargo movement from the mines.
– Relieving the road network of cargo pressure and thus reducing deterioration.
– Reducing the cost of rail transportation.

What then becomes critical is to ascertain how the investor RSZ fared against these expectations. Information to determine this would be based on superficial observation and the government’s decision to revoke the agreement.

The Revocation: has RSZ failed?

According to the Minister of Finance, Mr Alexander Chikwanda, RSZ has mismanaged the infrastructure and destroyed railway assets during this period.

Evidence of this is given with reference to railway transportation becoming more expensive over time and high levels of derailment leading to loss of lives.

It is explicit that the government does not deem RSZ as a suitable partner to develop the railway network in the country

Therefore following the revocation, all assets were immediately passed on to Zambia Railways Limited, who took over the operations for the first time since 2003.

The government has committed to make resources available for continued daily operations and upgrading of infrastructure.

The unasked or unanswered questions

Following the announcement, several questions are inevitably raised. The fact that government resources will also be injected in operations makes it even more cardinal that clarity is provided.

What are the numbers saying?

First and foremost, from what we have read and heard, RSZ has lamentably failed to run the railway network it was responsible for. This is the easiest deduction to make with available information and indeed from a bystander perspective.

However, it also is important that it is determined what the financials say. Was RSZ making money? If so, how much and was it enough to meet all operational costs and invest in infrastructure? If not, was this raised as a concern and why did they still continue operating?

This may seem unimportant at this stage. It should not be. The insight it provides forms a premise for appreciating what resources will be required to run the railway network effectively in the long term.

Therefore the resource and cost question cannot be ignored or trivialised.

Cost to the taxpayer and treasury

Zambia Railways Limited was and is a parastatal company. It is for this reason that government will support operations after the compulsory acquisition. This simply means taxpayers will finance the operations for as long as the arrangement remains in place.

For purposes of transparency, the government will be obligated to divulge to the nation what the cost will be and likewise what the time frame will be for supporting the operations.

It is good practice for this to be done to ensure resources are appropriately budgeted for and utilised to avert any misapplication or unbudgeted spend that spirals out of control.

There are several dimensions that will come into play now. The scale of infrastructure investment required, maintenance of the network and daily operational costs.

Policy clarity and direction

If something is not working, it needs to be fixed. From the sentiments on RSZ thus far, it can be deduced that the arrangement has not added the anticipated value.

As a result, the compulsory acquisition was set in motion. This though is only one part of the piece.

What this calls for is a comprehensive and clear policy of what will be pursued not only for railway but the transport sector as a whole. Will the railway network be state run? Will the government privatise?

It cannot be disputed that the railway network specifically and transport sector overall are of significant strategic importance for an economy like Zambia’s. This is in light of the increased mining activities, ever growing road traffic and the pressure it puts on the road network. So there is an evident benefit and a savings opportunity in maintenance terms for instance, if rail is developed, offering relief on the roads.

One transport expert and former Tanzania-Zambia Railway Authority (TAZARA) MD, Mr Henry Chipewo, gives this some perspective. He notes that to rehabilitate 1km of a tarred road requires about K2bn (approx $400,000) while it would cost about K100m (approx $20,000) to rehabilitate 1km of a rail line.

The expectation then is for the government to outline what it intends to do in the short term leading on to long term aspirations.

This has the potential to set the tone for related benefits such as job creation and resource mobilisation through identification of the best suitors to invest in our railway.

Zambia can thus take a leaf from the British government which recently announced plans to invest up to £9bn in their railway network. This injection is earmarked for the period 2014-2019 but is already under discussion on which areas will be targeted, benefits to accrue and precise steps to generate the resources required.

The investor confidence dimension

One of the prominent cries when such action is taken is investor reaction. There is a school of thought that holds that investor confidence is shaken when steps such as this are embarked on.

In Zambia’s case, this dimension takes on even more importance coming on the back of the Lap Green/Zamtel, Finance Bank and Zanaco cases.

There could be a grain of truth that investors will be taking a keen interest in unfolding developments in Zambia to assess the suitability of the country as an investment destination. The challenge for government then becomes reassuring the investment world that these will not be the pattern or the advent of arbitrary takeovers of previously privatised entities. Additionally, statements from government must be coordinated and premised on policy rather than political rhetoric or populism.

On the other hand, actions like this may work to Zambia’s advantage. There is a likelihood that bogus investments will be curbed as close scrutiny will be paid to who will qualify as an investor. The ultimate objective of any investment is to safeguard the interests of citizens and derive developmental benefits for the nation.

It must be stated and agreed though that the approach in dealing with these matters must be well thought out without degenerating to alarmist proportions. Confidence and capacity must be built in our institutions to manage these decisions. For instance, one would curiously ask if RSZ have been accorded an opportunity to be heard? Again this may seem unimportant but it is fundamental.

The future is now

Undoubtedly, with all the activity in the mines and the heavy road traffic, investment in the rail network would be welcome.

This will not only provide relief on the roads or reduce road carnage, it will also stimulate job creation both in the short and long term. With infrastructure development, people will be needed. As the development takes root, people will be needed across the network in service roles, maintenance jobs and related areas that will interface with the railway system .

It is consideration of such areas that exposes the urgent yawning need for a comprehensive and integrated plan to revive this critical sphere.

Of course, the cost-benefit analysis must be religiously done and Zambia does not lack experts to steer this to completion.

The numbers must speak and it should not be far fetched to cut a trip from the Copperbelt to Lusaka to one hour on a bullet train! An exciting prospect.

Is government up for the challenge? We watch and wait.

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Posted by on September 13, 2012 in Economic, Opinion


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