Transaction Advisory Services for Phase II, Dar es Salaam Isaka Kigali/Keza Musongati Railway Project

Transcription

1 Investor Brief Transaction Advisory Services for Phase II, Dar es Salaam Isaka Kigali/Keza Musongati Railway Project Prepared for: Rwanda Transport Prepared by: CPCS In association with: Aurecon, ITEC Engineering Ltd (Rwanda), LawCastles (Tanzania)

2 Table of Contents Disclaimer... ii Acronyms/Abbreviations... 3 Executive Summary Introduction... 8 Project History Overview of the Project Countries Tanzania Government Structure Existing Transportation Network Economic Development Major Industries Rwanda Government Structure Existing Transportation Network Economic Development Major Industries Burundi Government Structure Existing Transportation Network Economic Development Major Industries DIKKM Railway Project Project Overview Traffic Projections Gauge Selection Integration with Regional Transportation Networks PPP Approach PPP Approach Legal and Regulatory Environment Legal and Regulatory Environment Transaction Process and Timeline Transaction Process and Timeline... 41

3 Disclaimer This Investor Brief (IB) has been prepared by CPCS (the Transaction Advisors ) on behalf of their client, the Rwanda Transport Development Agency (RTDA), for the DIKKM railway development project on the basis of a public private partnership. Whilst this IB has been prepared in good faith it does not purport to be all inclusive or to contain all of the information that a prospective investor may consider material or desirable in making its decision to participate in an initial expression of interest and tender process. No representation or warranty, express or implied, is made, or responsibility of any kind is or will be accepted by the Transaction Advisors, the Rwanda Transport Development Agency (RTDA), the governments of the Republic of Rwanda, Republic of Burundi and the United Republic of Tanzania or any of their agencies, with respect to the accuracy and completeness of the information contained in this document. It is the responsibility of each bidder to ensure that it has all of the information it needs to prepare its submissions. The Rwanda Transport Development Agency (RTDA), by itself or through its Transaction Advisors, may amend or replace any of the information contained in this IB at any time, without giving any prior notice or providing any reason. In furnishing this IB, the Advisors, the Rwanda Transport Development Agency (RTDA), the governments of the Republic of Rwanda, Republic of Burundi and the United Republic of Tanzania or any of their agencies, undertake no obligation to provide recipients with access to any additional information, or to update, or to correct any inaccuracies which may become apparent in this IB or any other information made available in connection with the Project prior to the issuance of bidding documentation. Additional information shall be provided at appropriate times during the formal tender process. All information in this IB is qualified by the terms and conditions of the bidding documentation and any additional bid information that may be issued up to the submission of bids. In case of any conflict between the information and terms in this IB and the bidding documentation and/or the draft agreements, those set out in the bidding documentation and/or the draft agreements shall prevail.

4 Acronyms/Abbreviations AfDB BMPRA BOT CPCS/CTIL DB DIKKM(R) DRC DSM EAC EPC FIDIC FIRR FS GIF IFC JPIU JRIC JRRA JTMC MDB MTPA O&M PPI PPP RAHCO African Development Bank Burundi Maritime, Ports and Railway Authority Build Operate Transfer CPCS Transcom International Limited Design Build Dar es Salaam Isaka Kigali/Kesa Musongati (Railway) Democratic Republic of Congo Dar es Salaam East African Community Engineering, Procurement and Construction International Federation of Consulting Engineers Financial Internal Rate of Return Feasibility Study Global Infrastructure Facility International Finance Corporation Joint Project Implementation Unit Joint Railway Infrastructure Company Joint Railway Regulatory Authority Joint Technical Monitoring Committee Multi Lateral Development Banks Million tonnes per annum Operations and Maintenance Private Participation in Infrastructure Public Private Partnership Reli Assets Holding Company Limited 3

5 RfEOI ROC RTDA SG SPV SSA STMP TAZARA TOR TRL VSR WP ZAR Request for Expressions of Interest Railway Operating Company Rwanda Transport Development Agency Standard Gauge Special Purpose Vehicle Sub Saharan Africa Strategic Transport Master Plan Tanzania Zambia Railway Terms of Reference Tanzania Railways Limited Vertically separated railway Working Paper South African rand $ US dollars 4

6 Executive Summary The Republic of Rwanda, Republic of Burundi and the United Republic of Tanzania have collectively decided to construct new standard gauge (1435 mm) railway lines from: Isaka to Kigali; Keza to Musongati via Gitega in Burundi, and Dar es Salaam (DSM) to Isaka. The line between DSM and Isaka will largely parallel the existing meter gauge (1000 mm) railway and in some locations constructed within the right of way of the existing line. The approximate length of the lines will be 970 km between DSM and Isaka; 494 km between Isaka and Kigali; and 197 km between Keza and Musongati. The three governments partnering together on this new railway intend to implement it using a Public Private Partnership (PPP) arrangement. An extensive feasibility study (FS) was carried out by Canarail and Gibb Africa 1 and completed in March 2014 which presented viable project options. Three traffic scenarios were analysed in the feasibility study and are presented below. At a minimum, the railway is expected to handle 8.5 MTPA by Canarail and GIBB Africa, Phase II Dar Es Salaam Isaka Kigali/Keza Musongati Railway Project Study (March 2014). 5

7 Figure E1: Summary of Traffic Scenarios Source: Canarail/GIBB Feasibility Study (Executive Summary). The standard gauge railway will be built primarily for freight trains with heavy permissible axle loads (32.4 tons) and long train lengths (2000 m); though passenger trains will also be operated. Freight operations are expected to be profitable but it is anticipated that passenger operations will require a form of subsidy or Passenger Service Obligation (PSO) payment. The track structure will consist of ballasted track with heavy rail (70 kg/m) and pre stressed concrete sleepers with elastic fasteners. Signals, telecommunications and control systems will be of the latest technologies. Signals and controls will consist of centralized traffic control (CTC); computerbased interlocking, automatic train protection (ATP) and a fibre optic communication backbone. Telecommunications will utilize GSM R for data and voice communications between drivers, control center, stations and maintenance crews. Passing sidings will be placed according to operational requirements and sidings added with capacity requirements over time. Of the three project countries involved, Tanzania is the only country to own and operate an existing rail network. Tanzania operates the existing meter gauge line along the central corridor and to Arusha, as well as the TAZARA line (Cape gauge 1067mm) jointly owned with Zambia. Two options are being considered for the preferred PPP scenario Build Operate Transfer (BOT) and Affermage. The BOT provides an integrated turnkey solution for the Governments, including fixed and moveable infrastructure, operations and maintenance. The Affermage scenario will see the railway developed under separate construction and operations & maintenance contracts. 6

8 The governments of the Republic of Burundi, Republic of Rwanda and United Republic of Tanzania have jointly launched a request for expressions of interest (RfEoI) aimed at attracting companies interested in participating in the planned solicitation process. Tender Process and proposed transaction timelines Full details of the ongoing tender process and key deadlines are shown on the project website at 7

9 Introduction Key Messages The Dar Isaka Keza/Kigali Musongati railway is a joint effort between the United Republic of Tanzania, the Republic of Burundi, and the Republic of Rwanda. The railway will link the hinterland directly to the port of Dar es Salaam provide more cost effective and reliable transport services. 8

10 Project History The Republic of Rwanda, Republic of Burundi and the United Republic of Tanzania have collectively decided to construct a new railway line from Isaka to Kigali (494 km); from Keza to Musongati via Gitega in Burundi (197 km); and from Dar es Salaam (DSM) to Isaka (960 km). The line between DSM and Isaka will largely parallel the existing meter gauge (1000 mm) railway and in some locations constructed within the right of way of the existing line. The primary objective of the railway is to reduce transport costs and enhance economic development by: Improving the connection of landlocked countries (particularly Rwanda, Burundi and DRC) to the world economy; and Providing improved performance and reliability for rail transport over the Central Line in Tanzania. Figure 1 1: Existing and Proposed Rail Network Source: DIKKM Feasibility Study, 2014 Canarail/GIBB 9

11 This Investor Brief provides an overview of the project for potential investors. The document is structured as follows: Chapter 2 Overview of the Project Countries Chapter 3 DIKKM Project Chapter 4 PPP Approach Chapter 5 Legal & Regulatory Environment Chapter 6 Transaction process and timeline 10

12 Overview of the Project Countries Key Messages Of the three project countries, Tanzania is the only country with an existing rail line. Currently Tanzania operates a meter gauge railway and a cape gauge railway (TAZARA) connecting to Zambia. The hinterland of East Africa is richly endowed with mineral and agriculture resources. Additionally, the project countries are popular destinations for tourists. These sectors will greatly benefit from the railway, helping to unlock the vast resources of the hinterland. 11

13 Tanzania The United Republic of Tanzania is located in East Africa bordered by Kenya and Uganda to the north, Rwanda, Burundi and the Democratic Republic of the Congo to the west, Zambia, Malawi and Mozambique to the south and the Indian Ocean to the east. Tanzania attained Independence from colonial rule in The country was formed as a union between the mainland territory, Tanganyika, and the island of Zanzibar in Zanzibar still maintains a semi autonomous government and legislature. 2 The population in million Government Structure The United Republic of Tanzania is a unitary state composed of 30 administrative regions. The current head of state is President Jakaya Mrisho Kikwete, first elected in 2005 and re elected in 2010 for a final five year term. Since 1996, the official capital of Tanzania has been Dodoma, where the parliament and some government offices are located. Between independence and 1996 the major coastal city of Dar es Salaam had been the country's political capital. Today Dar es Salaam remains the principal commercial city of Tanzania and the de facto seat of most government institutions. It is the major seaport for the country and its landlocked neighbours Existing Transportation Network Tanzania s national development strategy emphasises that extensive and efficient infrastructure is critical to ensure the effective functioning of the country s economy 5. The transport system in Tanzania consists of five modes: roads, rail, water, air and pipelines. A high proportion of the infrastructure was not modernised over time due to limited resources to invest and a large amount of infrastructure and equipment is now beyond its economic life. Roads The road network in Tanzania currently comprises 86,472 km of roads in the formal inventory of which 12,786 km are categorised as trunk roads, 21,105 km as regional roads and the remaining 52,581 km as district, urban and feeder roads. Rail Tanzania has two railway systems of different gauges that were constructed at different times and for different purposes. The first and oldest system is the Reli Asset Holding Company (RAHCO)/Tanzania Railway Limited (TRL) system which was constructed pre independence starting at the turn of the 19 th century EAC Facts and Figures 2014 (2013 mid year figures) Tanzania Transport Sector Review (AfDB),

14 The rail system was constructed to a metre gauge (1,000 mm) standard. The mainline comprises the central corridor between the port of Dar es Salaam in the east, linking central and western areas of the country and terminating at Kigoma on Lake Tanganyika in the west. A second eastwest line from the port of Tanga to Moshi was built between the years 1899 to 1911, and was subsequently extended to Arusha and linked to the Kenya and Uganda rail system at Voi in Branch lines were constructed to Mpanda in 1949 and to Kidatu in Another line was constructed in 1965 linking the central corridor line with the Tanga line. The total system length is 2,707 km. The Tanzania Zambia Railway (TAZARA) is the second railway system constructed from 1970 to 1975, financed by the Peoples Republic of China It was constructed to the cape gauge standard, (1,067 mm), so to connect to the rail systems of Southern Africa. The line is 1,860 km in length, of which 975 km is in Tanzania and 885 km in Zambia. An interface was constructed between this railway and the TRL system at Kidatu to facilitate freight traffic interchange between the two rail systems. Water The ports sector of Tanzania has a long history extending well over a century commencing with the initial coastal settlements at Dar es Salaam and Tanga in the 19 th century. Lake ports were also developed to serve the lakeside communities and provide trading nodes to surrounding settlements. The coastal ports became important ports of call for both freight and passenger shipping movements and were the main gateways for international travel between the country and foreign destinations, particularly in the Middle East and Europe. The Tanzania Ports Authority (TPA) was established under the Ports Act No 17 of 2004 to take over the functions of the Tanzania Harbours Authority and the Marine Services Company. Its major responsibilities are to develop, manage and promote the port subsector in the Tanzania mainland. TPA s network of ports serve a large market which includes the whole of the country s hinterland and the neighbouring landlocked countries of Burundi, Rwanda, DR Congo, Uganda, Zambia and Malawi. The main seaports, especially Dar es Salaam, provide vital access to world markets for this region. The ports on Lake Victoria, Tanganyika and Nyasa are also important for local and international trade although they now suffer from competition from road transport in many locations. Air Airports in Tanzania play an important part in the country s transport infrastructure. In addition to providing international gateways, airports have historically been used for domestic traffic and have been indispensable for pioneering development opportunities in remote rural areas. Overall, the country has 368 airports with the Tanzania Airports Authority (TAA) responsible for 58 airports on the mainland. The majority of the airports are private airfields owned by Mining companies and tour operators. 13

15 Pipelines At the present time there are three pipelines in Tanzania which are all related to the energy sector. They are the TAZAMA pipeline which transports crude oil from Dar es Salaam port to an oil refinery at Ndola in Zambia over a distance of 1,710 km, the Songo Songo pipeline which transfers natural gas from Songo Songo island to Dar es Salaam over a distance of 232 km and the Mnazi Bay pipeline which transfers natural gas from the Mnazi gas field to a power plant in Mtwara over a distance of 28 km. The oil and gas industry is currently expanding at a fast pace as new sources of supplies are being discovered Economic Development In 2012 and into 2013, the Tanzanian economy expanded at an annualized rate of approximately 7%. Economic growth continues to be driven by growth in a few sectors, particularly the ICT, financial services, construction, trade and mining sectors. Except with mining, activities within these sectors are largely concentrated in urban areas. Future economic growth will also depend on the ability of the Government to remove existing constraints on businesses. The most significant constraint on growth as reported by 80% of businesses operating in Tanzania, relates to the provision of electrical energy. On transport infrastructure, Tanzania has made notable progress in the rehabilitation and extension of the country s road network. However, rural roads need more improvements as they raise production costs in the agriculture sector, and the rail systems are not effectively operated with poor infrastructure and equipment problems Major Industries The major industries in Tanzania are consumer industries like breweries, soap and textiles manufacturers. The mining and tourism industries are growing rapidly with the liberalisation of the economy. 6 Agriculture Since 1985, the country s overall agricultural GDP has grown at an average annual rate of 3.3 percent while the country s main food crops have been growing at 3.5 percent annually and its export crops at 5.4 percent annually. Today, approximately 80 percent of Tanzanians are employed by the agriculture sector plays, which accounts for half of the national income and three quarters of the merchandise exports in the country. The majority staples that are produced by Tanzania include maize, sorghum, millet, rice, wheat, pulses (mainly beans), cassava, potatoes, bananas and plantains with the bulk of the country s export crops being composed of coffee, cotton, cashew nut, tobacco, sisal, pyrethrum, tea, cloves, horticultural crops, oil seeds, spices and flowers. The Government has prioritized several tasks in a continued effort to strengthen the sector including the pursuit of macroeconomic policies in order to stimulate investment in agriculture by small holders and large scale commercial farmers; the creation of an enabling environment and the provision of proactive support to private operators, farmers organizations, NGOs and

16 CBOs who supply inputs and credit to small farmers thus ensuring a strong regulatory mechanism; the concentration of budgetary allocations in agriculture research and extension; the provision of special support to investments in agricultural processing, particularly in fruits and vegetables, while, at the same time, granting top priority to the implementation of new land Act. Tourism The Ministry of Natural Resources and Tourism of United Republic of Tanzania, is responsible for the management of Natural, Cultural and Tourism resources. Tanzania has a great potential for natural resources, cultural and tourism attractions. In terms of wildlife, the present network of wildlife Protected Areas (PAs) in Tanzania comprises 14 National Parks, Ngorongoro Conservation Area, 38 Game Reserves and 43 Game Controlled Areas. The wildlife protected area network covers 233,300 Sq. Km (28%) of the total Tanzania's land surface area. Tanzania's coastline plays an important role in the tourism sector along with the large game parks inland. Resorts and game parks are an important source of foreign revenue for the country. Mining Tanzania is the 4th largest gold producer in Africa after South Africa, Ghana and Mali. Gold production currently stands at roughly 40 tonnes a year, copper at 2,980 tonnes, silver at 10 tonnes and diamond at 112,670 carats. In total the mining sector contributes 2.8% to GDP each year but this could rise considerably in future years, with Business Monitor International (BMI) forecasting average annual growth in the sector of 7.7% between 2011 and BMI also predict a doubling in value of the sector between 2010 and 2015, from US$0.64bn to US$1.28bn. 7 Other sources of natural wealth include gemstones such as tanzanite (In 2009, Tanzania was the world s only producer of tanzanite), diamonds and tin. Offshore exploration has also discovered natural gas and oil, which could bring the country new revenue. The mining sector is expected to expand significantly, and to account for almost 10% of the GDP by Cement and Petroleum Products? Combined cement production in 2005 of Tanzania s three producers, Tanga Cement Company, Tanzania Portland Cement Company and Mbeya Cement Company peaked at 1.39Mt. Estimates for 2006 show consumption rising 12%, and thus outstripping installed capacity of 1.7Mt. As Tanzania continues to announce new infrastructure projects and as its mining sector expands, demand for cement in the country is rising. Tanzania expects to double its cement production in the next few years as new factories come on stream to satisfy growing demand from the construction sector 7 Tanzania Chamber of Minerals and Energy 15

17 Rwanda The Republic of Rwanda is a small landlocked country located in East Africa and is a member of the EAC community. Rwanda is sometimes said to be located in Central Africa. It is bordered by Uganda, Tanzania, Burundi and the Democratic Republic of the Congo. Its land mass is estimated to be 26,338Km 2 with an approximate population of 11.7 million people 8. The three main ethnic groups in Rwanda are Twa, Hutu and Tutsi. The official languages in Rwanda are Kinyarwanda, French and English. Rwanda became independent in 1962 after colonisation first by Germany and later by Belgium. Rwanda experienced a genocide in 1994 that was triggered by the death of President Habyarimana in a plane crash. The country is in the recovery process and has established laws and policies to support the political stability of the country Government Structure The President of Rwanda is the head of state, and has broad powers including creating policy in conjunction with the Cabinet, exercising the prerogative of mercy, commanding the armed forces, negotiating and ratifying treaties, signing presidential orders, and declaring war or a state of emergency. The President is elected by popular vote every seven years, and appoints the Prime Minister and all other members of Cabinet. The incumbent President is Paul Kagame, who took office upon the resignation of his predecessor, Pasteur Bizimungu, in Kagame subsequently won elections in 2003 and Rwanda has been governed by a strict hierarchy since precolonial times. Before colonisation, the King (Mwami) exercised control through a system of provinces, districts, hills, and neighbourhoods. The current constitution divides Rwanda into provinces (intara), districts (uturere), cities, municipalities, towns, sectors (imirenge), cells (utugari), and villages (imidugudu); the larger divisions, and their borders, are established by Parliament. The five provinces act as intermediaries between the national government and their constituent districts to ensure that national policies are implemented at the district level. The "Rwanda Decentralisation Strategic Framework" developed by the Ministry of Local Government assigns to provinces the responsibility for "coordinating governance issues in the Province, as well as monitoring and evaluation." Each province is headed by a governor, appointed by the President and approved by the Senate. The districts are responsible for coordinating public service delivery and economic development. They are divided into sectors, which are responsible for the delivery of public services as mandated by the districts. Districts and sectors have directly elected councils, and are run by an executive committee selected by that council. The cells and villages are the smallest political units, providing a link between the people and the sectors. All adult resident citizens are members of their local cell council, from which an executive committee is 8 World Bank

18 elected. The city of Kigali is a provincial level authority, which coordinates urban planning within the city Existing Transportation Network The transport sector is one of the key engines of growth in an economy. Improving the quality and reliability of transport infrastructure and services is a major building block for reducing transport costs, attracting domestic and foreign investment, and expanding access to economic opportunities. The Government of Rwanda recognizes that more needs to be done to address existing constraints in the transport sector and to offset the geographical bottlenecks which continue to drive the high transportation costs in Rwanda relative to the region. Indeed, an efficient transport sector is central to achieving the objectives of Rwanda s Vision 2020 whose overarching goal is to transform the country from a low income agrarian economy to a medium income export oriented and knowledge based economy. Air Transport International air transportation in Rwanda is currently limited to the Kigali International Airport (KIA), which has experienced appreciable growth in traffic over the years. Between 2007 and 2010, aircraft movements at the KIA increased by 38% while passenger volumes increased by 34%. A higher increase in aircraft movements compared to passenger volumes was perhaps because RwandAir continued to operate smaller aircraft at higher frequencies since mid This resulted in a reduction in average seats and passengers per aircraft and an increase in aircraft movements. The high air traffic growth rates are expected to continue in Rwanda with some projections indicating that the capacity of the KIA is likely to be achieved in The predicted mediumterm growth of traffic volumes in Rwanda are estimated at about 1.3 million passengers, 15,500 tonnes of cargo and 17,712 aircraft movements per year by Road Transport Infrastructure Road transport is the dominant mode of travel in Rwanda, accounting for the bulk of domestic passenger travel and freight traffic demands. Rwanda is dependent on its road transport system for the economic development of the country. All the major towns are connected by the road network. Rwanda is also well connected by the road transport system with the neighbouring countries of Uganda, Kenya, Tanzania, Burundi and the Democratic Republic of Congo. The road system plays a very important role in the import and export business of the country. The main freight on Rwandan roads consists of agricultural products, construction materials, household goods, foodstuffs and minerals. Estimates of the 2010 passenger traffic volumes contained in the STMP of Rwanda indicate that many roads have low levels of traffic. The road transport in Rwanda has greatly improved through rehabilitation and upgrading of various roads which has resulted in faster economic development of the country. Rwanda has a total road network of 14,008 kilometres broken down as follows: Paved Roads: 2,662 kilometres Unpaved: 11,346 kilometres 17

19 Roads in Rwanda are classified into national, districts and gravels. Classified roads constitute about 34% of the entire road network in Rwanda. These can be summarized as below; National Road: 2860 kilometres District Roads: 1835 kilometres Gravel Roads: 3.5 kilometres The high volume roads are the cross border highways, which provide links to the country s major production and economically active regions. The remaining road links have passenger volumes of less than 1,000 per day. Freight traffic routes are similar to those of passengers with the main routes being those between Kigali and the towns of Muhanga, Rwamagana and Base. Passenger volumes are expected to increase at the projected population growth rates of 2.3% or slightly higher, while freight volumes will depend on economic growth rates and expansion of the range and volume of the main goods being transported. Such growth is expected to average about 10%. Water Transport Lake Kivu is the largest lake in Rwanda forming the border with the Democratic Republic of Congo. There are limited modern boat services between the major ports of Cyangugu, Kibuye and Gisenyi. The local boats are most common means of transport on the lake. Air Transport The department of Air transport is responsible for promotion of effective competition and economic efficiency, protection of consumer interests, protection of financial viability of efficient suppliers, ensuring availability of regulated services to all consumers of air transport services. It is also responsible for monitoring the performance of service providers, establishing and implementation of procedures for the regulation of air transport services in Rwanda through monitoring the performance of air services operators, monitoring fares and rates to ensure fair play. Kigali International Airport, located about 10 km from Kigali city centre, is the country s main gateway by air. The airport handles international flights to Lagos, Brazzaville, Dubai, Nairobi, Entebbe, Addis Ababa, Bujumbura, Johannesburg, Amsterdam, Brussels and Doha Economic Development The Rwandan economy is based on the largely rain fed agricultural production of small, semisubsistence, and increasingly fragmented farms. It has few natural resources to exploit and a small, non competitive industrial sector. While the production of coffee and tea is well suited to the small farms, steep slopes, and cool climates of Rwanda and has ensured access to foreign exchange over the years, farm size continues to decrease. The country entered a high period of economic growth in 2006, and the following year managed to register 8% economic growth, a record it has sustained since, turning it into one of the fastest 18

20 growing economies in Africa. This sustained economic growth has succeeded in reducing poverty, with growth between 2006 and 2011 reducing the percentage of the country's population living in poverty from 57% to 45%.The country's infrastructure has also grown rapidly, with connections to electricity going from 91,000 in 2006 to 215,000 in Existing foreign investment is concentrated in commercial establishments, mining, tea, coffee, and tourism Major Industries Agriculture and Primary Resources In 2012 agriculture accounted for 33% of the economy of Rwanda. Rwanda is a country of few natural resources, and the economy is based mostly on subsistence agriculture by local farmers using simple tools. An estimated 90% of the working population farms, and agriculture comprised an estimated 42.1% of GDP in Crops grown in the country include coffee, tea, pyrethrum, bananas, beans, sorghum and potatoes. Coffee and tea are the major cash crops for export, with the high altitudes, steep slopes and volcanic soils providing favourable conditions. Reliance on agricultural exports makes Rwanda vulnerable to shifts in their prices. Major export markets include China, Germany, and the United States. The economy is managed by the central National Bank of Rwanda and the currency is the Rwandan Franc (RWF). Rwanda joined the East African Community in Agricultural animals reared in Rwanda include cows, goats, sheep, pigs, chicken, and rabbits, with geographical variation in the numbers of each. Production systems are mostly traditional, although there are a few intensive dairy farms around Kigali. Shortages of land and water, insufficient and poor quality feed, and regular disease epidemics with insufficient veterinary services are major constraints that restrict output. Fishing takes place on the country's lakes, but stocks are much depleted, and live fish are being imported in an attempt to revive the industry. Mining Rwanda's mining industry is an important contributor, generating US$93 million in Minerals mined include cassiterite, wolframite, sapphires, gold, and coltan, which is used in the manufacture of electronic and communication devices such as mobile phones. Production of methane from Lake Kivu began in 1983, but to date has been used only by the Bralirwa Brewery. With increasing investments in the mining industry since 2004, there have been proportionate increases in the contribution of the sub sector to national revenue stream. Mining and quarrying activities expanded by an estimated 55 per cent over 2004, largely boosted by increased cassiterite tin production. Value added in this sector increased from RWF 89 billion in 2003 to RWF 100 billion in The mining and quarrying sector is estimated to directly employ around 50,000 people in Rwanda. Quarrying has of recent expanded to include other materials such as sand and stones to meet the growing demands of the booming construction industry as well as road construction. Currently, quarry products contribute 11 per cent of the internally generated revenues up from 3 4 per cent of the 1990 levels. Growth in the industrial sector reached nearly 7 per cent over 2004, despite the negative effects of the double energy crisis (rising fuel costs and electricity shortage) and new competitive pressures arising from the COMESA free trade area entry in Jan

21 More recently, in the fiscal year, the mining sector experienced intensive privatization that led to growth. The Mining and Exploration Authority (REDEMI) which has been under government management is currently undergoing privatization with 17 out of a total of 20 concessions already under private ownership. Seven foreign companies have already received permits to conduct research and exploration for gold, nickel, cobalt, platinum, copper and wolfram (PSF 2009). Following the research stage, the companies will formally report results on the reserves prior to being granted concessions for mining. Mineral revenues were US$ 71 million and 93 million for 2007 and 2008, respectively which have exceeded earlier projected targets. Sector regulations including new data on investors and enhancing value addition in metallic ores are some of the justifications for the overall performance levels in the sector. Tourism 9 Rwanda is one of only three countries in the world where the endangered mountain gorillas live. Rwanda is well known for its mountain gorillas. Rwanda's Gorrillas were first brought to international attention by Dian Fossey in the 1960s and 70s. Rwanda s gorillas have featured in many documentaries. Experts estimate that there are only 780 mountain gorillas still in existence and one third of these are in Rwanda. Gorilla tourism in Rwanda is a valuable conservation tool because there are strict rules for visiting and tracking them. There are only a limited number of permits available for tourists to buy. The revenues collected from sale of these tickets help conservation activities. The international perception of Rwanda has changed and the country is now considered one of the safest destination in the East African region. Marketing the mountain gorillas has helped in this changed image. The revival of gorilla tourism demonstrates that with the right strategy and instruments, a post conflict country can focus on high end tourism while maintaining conservation and contributing to poverty reduction through the involvement of communities as priorities In addition to the gorillas, Rwanda has two other national parks that offer a range of wildlife and biodiversity. Furthermore, the country has been particularly successful in attracting large numbers of business and conference travelers, most of them from the DRC as well as the neighboring countries of the East African Community (EAC). This is showed by the large increase in the number of hotel rooms and restaurants as well as the on going construction of a convention center. Local and foreign direct investments have been substantial. In terms of export revenue, tourism has already outperformed coffee and tea by a wide margin. There are several aspects that have contributed to the successful revival of the tourism sector in Rwanda. First and foremost, the government has shown a clear commitment to the development of the tourism sector and has established itself as a safe destination in the region. The early development of a strategy and policy demonstrated this commitment. Furthermore, the 9 The success of tourism in Rwanda Gorillas and more. Hannah Nielsen and Anna Spenceley /Tourism_Rwanda.pdf 20

22 government involved the private sector from the start and has implemented a good strategy to market Rwanda as a destination. The business environment has improved markedly, promoting private sector involvement. In addition, Rwanda has always seen tourism as an instrument to reduce poverty, for example by directly involving local communities. Burundi The Republic of Burundi, is a small country (approx. 27,839Km 2 ) in the East Africa Region. It has an estimated 10.6 million inhabitants 10. Its neighbours are Rwanda, located to the north, Tanzania in the east and south, and the Democratic Republic of the Congo on the west side. The country is landlocked though it has access to Lake Tanganyika on its south eastern borders. The main ethnic groups in Burundi are the Twa, Hutu, and Tutsi people. The official languages in Burundi are Kirundi, French and English. Burundi attained independence in 1962 and the current head of state and Government is Chief Executive Pierre Nkurunziza. Having emerged recently from a civil war, Burundi is making efforts to political stability, peace, reduced poverty and economic growth. A significant turning point towards this was the signing of the peace agreement in Arusha in A new constitution that provides for appropriate ethnic checks and balances was approved in August Government Structure The political system in Burundi is that of a presidential representative and a multi party system which came into in The government is divided into three branches, the executive, legislature, and the judiciary. The President is the head of state and the head of government. He is also responsible for electing the council ministers during elections. In 2007, Burundi became a member of the East African Community (EAC), which comprises Kenya, Rwanda, Tanzania, Burundi and Uganda Existing Transportation Network Transport is one of the most vital sectors in Burundi as other sectors depend on it either directly or indirectly. The sector was hard hit by the civil war but is now undergoing improvements. Characteristics of the Sector

23 The country is fairly well connected to its neighbours as well as the other EAC member states by air and there are plans for construction of roads connecting to neighbouring countries The national vehicle fleet includes 19,000 passenger cars as well as 12,300 commercial vehicles. The most common transport that can be seen on the road are bicycle taxis. Other than that small vans and buses are also used. The sector is affected by high fuel prices since Burundi imports most of the petroleum products. The transport vehicles are owned by small scale operators The means of transport in Burundi include: Roads Road is the dominant mode of transport in Burundi as the country is landlocked. The road transport system in Burundi comprises about 14,480 kilometres of roads, of which only about 7 percent remain open in all weather; the rest are considered as local roads or local tracks. Most major roads in Burundi are sealed and public transport is mainly by minibus. Available means of transport here include: Minibuses: Minibuses and taxis are the principal means of transportation readily available all over the country. The minibuses are mostly Toyota Hiace. Special Hire vehicles: Special hire vehicles are privately owned units hired to go to specific destinations and are mainly found in urban areas. Public buses: There are both domestic and regional buses routes. The regional buses provide service to neighbouring countries. The domestic buses transport people to most urban areas of Burundi. Container trucks and Lorries: These Lorries and trucks transport goods within the country and beyond the national borders. The type of lorry to hire depends on cargo type, tonnage and destination. Buses: OTRACO (Office des Transports en Commun) is a public corporation under the Ministry of Transport, Public Works and Equipment and its mission is to transport people by bus. OTRACO is a national bus company with officially some 90 buses but in practice few are in service. Most bus transport is by private midi buses, most of which are Toyota Coasters. In Bujumbura the private buses, organized in an association, are white and blue, outside Bujumbura they are white and yellow or white. There are very few large buses in Burundi, apart from the few dozen OTRACO buses. In public transport the only other large buses that can be seen ply the international route to Kigali and Kampala and belong to 22

24 Ugandan companies. Toyota Coaster buses belonging to Rwandan companies operate the Bujumbura Kigali route. Water Transport Lake Tanganyika is used for freight and passenger transport, with the major port on the lake being Bujumbura. Means of Water transport on Lake Tanganyika include: MV Liemba: MV Liemba is a passenger and cargo ferry that moves along the eastern shores of Lake Tanganyika between Kigoma and Mpulungu MV Mwongozo: MV Mwongozo is a mixed passenger and cargo ferry on Lake Tanganyika that travels between Kigoma and Bujumbura. Tanganyika Transport Company: Tanganyika Transport is a private limited liability company. It is a family enterprise having a self propelled unit, the MV Mbaza moving from Bujumbura Kigoma and Bujumbura Mpulungu waterways Local boats: There are also local wooden boats that transport passengers and cargo on Lake Tanganyika to various destinations As lake transport is the cheapest way of transporting goods, the Government has made it a priority to improve the standard of the services offered by the port of Bujumbura, which is managed by the company holding the concession to operate the port (EPB). Air Transport Air transport is of strategic importance to the nation because, given that Burundi is a landlocked country, it guarantees an alternative gateway to the rest of the world. It is the most efficient and quickest mode of transport to and from Burundi. The aviation industry in Burundi is managed by the Civil Aviation Authority of Burundi and regulated by the Ministry of Transport and Telecommunications. Bujumbura International Airport is the only international airport in the country. Air service is provided by Air Burundi, which operates domestic service and also flies to Rwanda, Tanzania, and the Democratic Republic of Congo. International service is also provided by other airlines. Railways Burundi does not possess any railway infrastructure at the present time Economic Development Burundi s growth accelerated to an estimated 4.6% in 2013, up from 4.2% in 2012, thanks to increased activity in both the secondary and tertiary sectors. 23

25 Burundi s economic freedom score is 53.7, making its economy the 132nd freest in the 2015 Index 12. Over the past five years, economic freedom in Burundi has advanced by 4.1 points. Business freedom, control of government spending, and investment freedom have improved by 5.0 points or more. This year, Burundi has achieved its highest economic freedom score ever, registering the seventh biggest improvement in the 2015 Index Major Industries Agriculture Over 94% of Burundi's population lives in rural areas; the great majority of people are subsistence farmers. Coffee is the major export and foreign exchange earner, accounting for over 80% of exports. Tea accounts for less than 10%. Manufacturing industry There is diminishing supply of land available for agriculture because of the growing population. The country is densely populated. Hence the need to accelerate the pace of industrialisation. Production and employment in the private manufacturing sector are dominated by two breweries, Bragita and Barudi. Burundi's brewery sector is the largest and most effective industry and it continues to produce and be profitable regardless of the political and social context. Most manufacturing revolves around food production and processing and is intended for the local market. Production is concentrated on typical import substituting activities: (a) agro industries (beverages, dairy products, sugar, and cigarettes); (b) chemical industries (soap, foam and a range of plastic products); (c) textile and leather (cloth, garments, blankets and shoes); (d) metal working industries (nails, corrugated sheets, profiles, and tubes); and (e) Other products (building materials and printed matter) 13. Burundi does have important reserves of vanadium, uranium and nickel. But high transportation costs have limited the possibility of exploiting these reserves Report on Buru Private Sector Development in the Industrial Sector. 24

26 DIKKM Railway Project Key Messages The DIKKM railway will be developed as a standard gauge (1435mm) railway, in line with directives from the African Union and the East African Community. The project involves Greenfield development of the lines from Isaka in Tanzania to Kigali in Rwanda and from Keza in Tanzania to Musongati in Burundi. The existing metre gauge railway from Dar to Isaka in Tanzania will be upgraded to Standard gauge keeping to the existing alignment as much as possible. Traffic volumes for the DIKKM railway are projected to be, at minimum, 8.5 MTPA in Should the optimal scenario be realised, traffic projections are expected to be in excess of 24 MTPA. 25

27 Project Overview Rwanda, Burundi and Tanzania have collectively decided to construct a new standard gauge (1435 mm) railway line from Dar es Salaam (DSM) to Isaka (970 km); onwards from Isaka to Kigali (494 km) and from Keza to Musongati via Gitega in Burundi (197 km). The existing Tanzanian meter gauge railway line (1000 mm) currently runs from DSM to Isaka (970 km), and portions of the standard gauge line will be built within this existing right of way; though without disrupting the continuity of the meter gauge line. This project will have an enormously beneficial impact on the economies of all three countries and will be a major cornerstone in the development and integration of the East African Community (EAC). Once implemented, the new railway will provide the landlocked countries of Rwanda and Burundi and the interior of Tanzania with a more efficient and low cost transport link to the port of Dar es Salaam via the Central Corridor, thereby facilitating exports and facilitating a reduction in the price of imports, which are currently burdened by extremely high logistics costs 14. The link would also improve connectivity between the EAC and the Democratic Republic of Congo. It would also facilitate the development of a number of major mining projects within the catchment area of the new line. The standard gauge railway will primarily be built primarily for freight trains with heavy permissible axle loads (32.4 tons) and long train lengths (2000 m); though passenger trains will also be operated. Freight operated are expected to be profitable but it is expected that passenger operations will require a form of subsidy or Passenger Service Obligation (PSO) payment. The track structure will consist of ballasted track with heavy rail (70 kg/m) and prestressed concrete sleepers with elastic fasteners. Signals, telecommunications and control systems will be of the latest technologies. Signals and controls will consist of centralized traffic control (CTC); computer based interlocking, automatic train protection (ATP) and a fibre optic communication backbone. Telecommunications will utilize GSM R for data and voice communications between drivers, control center, stations and maintenance crews. Passing sidings will be placed according to operational requirements and sidings added with capacity requirements over time. Traffic Projections This section will provide a brief summary of the traffic projections prepared as part of the feasibility study (FS) 15. The FS prepared a comprehensive traffic projection for the DIKKM railway. The base year of the forecasts is 2011 and traffic projections were made from 2020 to The FS examined a number of potential traffic sources for the railway, including the diversion of existing traffic, traffic from the mining sector, and new traffic generated by the existence of the railway line. Three scenarios were prepared to capture alternative assumptions in particular 14 Trade/01 Corridor Logistic Costs.pdf 15 Canarail and GIBB Africa, Phase II Dar Es Salaam Isaka Kigali/Keza Musongati Railway Project Study (March 2014). 26

28 looking at different diversion rates and variations in mining output. The diversion rates used for each scenario are included in Figure 3 1. Figure 3 1: Default Traffic Diversion Percentages to New Railway Dar es Salaam Mombasa Regional Base Case 60% 50% 30% Low Growth 50% 40% 20% Optimistic Case 80% 70% 50% Source: Canarail/GIBB Feasibility Study (Table 2.1, Volume 1) The diversion rates and traffic flows were developed through extensive stakeholder consultations and covered a geographic region that included Tanzania, Rwanda, Burundi, Uganda, and Eastern DRC. A summary of the three scenarios developed in the study is provided in Figure 3 2. A detailed summary of traffic projected for 2029 is provided in Figure 3 3. Figure 3 2: Summary of Traffic Scenarios Source: Canarail/GIBB Feasibility Study (Executive Summary) 27

29 Figure 3 3: Traffic Projections, Year 2029 Tonnages Low Base Optimistic Rwanda (incl. DRC) Export Import Burundi Export Import Tanzania (incl. Uganda) Export Import Internal Total Source: Canarail/GIBB Feasibility Study (Executive Summary) Of the 12.9 MTPA of estimated base case traffic, 5.4 million represents import traffic passing through the port of Dar s Salaam. Approximately 6.9 MTPA are related to the mining industry (either ores for export or production inputs) and a full 2.4 MTPA come from a single project the Burundi Mines. These market projections assume that rail tariffs would be set approximately 20% lower than truck tariffs in order to encourage shippers to select rail. Based on the consultants assessment of prospects for GDP in the region and their analysis of the development of projects with potential to generate rail traffic, the traffic carried by the railway is projected to develop as shown in Figure 3 4. Figure 3 4: Traffic Projections from Source: Canarail/GIBB Feasibility Study (Executive Summary) 28

30 3.2.1 Port of Dar es Salaam The efficient movement of cargo along the Central Corridor depends on the capability of the port of Dar es Salaam to move cargo effectively. Users of the port are currently experiencing considerable delays using this facility. There are also reported to be incidences of lost and damaged cargo while passing through the port. Container dwell time has been calculated to average over 25 days and berth occupancy is greater than 80%. In 2011 the Port moved 477,000 TEUs plus 6.7 million tonnes of dry cargo and 3.7 million tonnes of liquid cargo. The original capacity of the container terminal was 250,000 TEU per year. Figure 3 5 below shows the transit and trans shipment tonnage at Dar es Salaam during 2009 and 2010, inbound and outbound. It can be seen that transit traffic accounts for about one third of total port tonnage. Figure 3 5: Transit and Trans shipment at DSM Port for 2008/09 and 2009/10 (tonnes) Country 2008/ /10 % of Total Traffic (2009/10) % of Transit Traffic (2009/10) Zambia 1,089,025 1,254, % 46.28% DRC 544, , % 21.23% Burundi 256, , % 9.11% Rwanda 217, , % 8.46% Malawi 111, , % 4.14% Uganda 28,133 27, % 1.02% Others & TRM 675, , % 9.76% Total Transit 2,922,240 2,710, % % Tanzania 4,872,804 5,841, % Grand Total 7,795,044 8,552, % % Transit / Total 37% 32% Source: Canarail/GIBB Feasibility Study (Table 2.5, Volume 1) Based on the Landlord Strategy Report produced by TPA in April 2011, Figure 3 6 provides future traffic estimates for the port of Dar es Salaam. Growth rates were determined using forecasted GDP growth rates prepared by the IMF. Although the feasibility study noted the potential for downturns in economic growth, it did not account for these due to the inability to accurately predict such downturns. 29

31 Figure 3 6: Container Forecasts for Dar Es Salaam (000 TEU) Low Growth Imports: Tanzania DRC Burundi Rwanda Uganda Total: Exports: Tanzania DRC Burundi Rwanda Uganda Total: Source: Canarail/GIBB Feasibility Study (Table 2.10, Volume 1), Adapted from TPA Landlord Strategy report April 2011 Gauge Selection The prominent topic of discussion for many years in the East Africa rail sector has been the issue of gauge selection. Many studies have been completed on the matter. A number of factors must be considered. The African Union has issued a resolution on the development of rail networks and standard gauge (1435mm) must be the gauge of new railways to promote regional integration. The feasibility study showed only a small difference in the financial and economic returns of standard gauge versus both cape gauge and meter gauge systems. More importantly, the governments of the EAC region have made a policy decision to move forward with standard gauge rail networks and construction is underway on the Mombasa Nairobi rail line as the first standard gauge line in the EAC countries. Under a similar premise, the DIKKM line will also be built as a standard gauge line. Integration with Regional Transportation Networks The DIKKM network will be connected directly to the Port of Dar es Salaam and thus also the TAZARA line to Zambia. A number of inland container depots (ICD) are under consideration as per the TPA Port Master Plan of Any ICDs established along the central corridor would benefit from being directly connected with the DIKKM line. Construction at the Port of Bagamoyo is expected to begin in 2015 offering an alternative port to the congested port in Dar es Salaam. Although a rail link has not yet been developed to Bagamoyo, there are plans to connect the port to the DIKKM line. 30

32 The DIKKM line, once complete to Kigali, may integrate directly with the Northern Corridor railway line. Plans are not complete, but this connection would allow movements from Western Tanzania directly to Uganda and Kenya by rail and vice versa. Transfer facilities will be developed in Gitega and Kigali to handle offloading and loading of cargo from the railway. Similarly, import cargo for Burundi and Rwanda will travel in bond and therefore be cleared at Gitega and Kigali respectively. 31

33 PPP Approach Key Messages The Governments of Rwanda, Burundi, and Tanzania see benefits from using the expertise of the private sector to build and operate the railway. Two PPP models are under consideration; A BOT structure, whereby the Partner States would grant to a private company the right to develop and operate the railway for a defined concession period; and an Affermage arrangement, under which the infrastructure would be procured on a traditional basis by the Partner States, preferably through concessional financing terms, while the management and maintenance of the completed infrastructure and operations, along with the investment in rolling stock and systems, would be the responsibility of the private partner. 32

34 PPP Approach The PPP structure for this project has been studied in detail as part of the FS. The Governments of Rwanda, Burundi, and Tanzania are pursuing the DIKKM rail project on the basis of a PPP to leverage the skills and capabilities of the private sector. Two PPP approaches are under consideration for the implementation of this project: Build Operate Transfer (BOT) concession, an Figure 4 1: Typical BOT Structure arrangement typically used for greenfield projects, in which the Partner States would grant to a private company the right to develop and operate the railway for a defined concession period. The concessionaire in these cases is typically a Special Purpose Vehicle that raises funding for the project using project finance. From a lenders perspective, this has the advantage that the project assets are ring fenced. The concessionaire is able to utilize commercial revenues from operations to cover O&M costs, financing charges and, depending on the economics of the project, pay a concession fee for the right to operate the system. At the end of the concession period, the defined concession assets are returned to the conceding authority. The BOT arrangement is typically used when the railway is run as a vertically integrated company, i.e. when both train operations and infrastructure maintenance/management are combined in the same company. This vertically integrated approach has advantages in terms of optimal management of track/train interactions. It also facilitates financing of infrastructure construction and improvements.. Affermage is a hybrid approach, consisting of two transactions: 1. The Construction of the railway infrastructure through an Engineering, Procurement and Construction (EPC) contract(s) on a Design Build basis; 2. A Concession for the Operation and Maintenance (O&M) of the railway and associated infrastructure (Affermage). The infrastructure would be financed by public funding, preferably through concessional terms, while the management of infrastructure and operations, along with the investment in rolling 33

35 stock and systems, would be the responsibility of the private partner. The Affermage approach enables the sovereign Partner States to use their low cost of capital to finance the infrastructure. This is a very large project that involves constructing fixed infrastructure in three host countries and private investors may have difficulty financing it. Private sector management expertise would be introduced into operations and maintenance of the completed infrastructure through a concession arrangement which would also include an investment in the rolling stock, systems and maintenance equipment. Figure 4 2: Typical Affermage Structure (EPC plus Financing plus Lease/O&M concession) The Governments, in partnership with the Joint Technical Monitoring Committee (JTMC) and the Transaction Advisors, will be working with Investors to determine the most appropriate project structure. A project of this unprecedented size will require a robust yet flexible PPP arrangement that properly allocates risk between project stakeholders. The final structure of the PPP will balance many important goals of a PPP project, including: Meeting the Needs of Customers Attracting Capital Public Sector Exposure to Financial Risk Consistency with the Legal & Regulatory Framework 34