Tanzania: World Bank’s IFC seeking U$7m repayment from Rites deal

GOVERNMENT should repay US$ 7m (approx. 10.5bn/-) to International Finance Corporation of the World Bank Group to receive a US$ 150m (approx. 225bn/-) concessional loan from International Development Association to finance Tanzania Railways Limited restructuring.

Speaking to 'Business Standard' over the weekend, IFC Country Lead for Africa Department, Dan Kasirye said the World Bank Group’s commercial lending arm gave US$ 14m (approx. 21bn/-) after Indian operator, Rites took over TRL through a privatization exercise in 2006.

“They simply need to repay the US$ 7m to get the IDA funds which will help cover costs of Tanzania Railways restructuring,” Mr Kasirye said.

Rites took over the former Tanzania Railways Corporation in 2006 but its failure to invest heavily as per the privatization agreement has turned the deal sour.

The TRL privatization which was one of the many conditions spelled out by World Bank to help the government restructure and recapitalize the ailing state utility giant, appears to have failed and the two sides have agreed to part ways.

“We are just finalizing the process before Rites can leave and local management takes over,” said Transport Minister, Omari Nundu recently. When Rites leave, TRL will become the second major utility whose divestiture has failed.

Dar es Salaam Water and Sewerage Company Limited was the first major project to fail after its privatization in 2003 collapsed in 2005. A British firm, Biwater, was awarded a 25-year contract to run Dawasco but failed to meet agreed investment targets. Biwater teamed up with German and local partners to form City Water Limited.

Kasirye said it has been realized that it’s impossible to finance TRL restructuring and recapitalization with the IFC commercial loan as it is expensive. The IFC had agreed to lend TRL US$ 40m which is 51 per cent owned by Rites while government remained with 49 per cent.

“Utilities such as TRL can better be financed by loans from International Development Association,” the IFC head in Dar es Salaam pointed out. Last week while presenting the government’s 2011/12 budget to parliament, Finance and Economic Affairs Minister, Mustafa Mkulo mentioned infrastructure as one of his top priority areas allocating over 85 per cent increase in funding compared to 2010/11.

Mr Mkulo said a whopping 2.78trn/- of the 13.5trn/- budget would go to infrastructure notably roads, railways, ports and information technology. Mkulo said next financial year’s budget targets to allocate resources in areas with multiplier economic effect.

“In this budget, we are giving priority to areas with economic multiplier effects like infrastructure for electricity, water, roads, ports, information and communication technology,” Mkulo said.

TRL’s poor performance in the past decade has made Dar es Salaam port suffer from congestion as much of the cargo to neighbouring landlocked countries is transport inland by road instead of heavy duty trains.

TRL needs over US$ 300m (approx. 450bn/-) to restructure, replace its aged fleet, repair railway lines and balance its books of accounts which are heavily indebted.