KAMPALA, Uganda – Uganda Railways Corporation (URC) is under intense scrutiny for its plan to lease four locomotives at a staggering cost of UGX 850 per month, a move critics warn could be a massive waste of taxpayers’ money.
The deal, which is currently in the final stages of negotiation, has raised alarms within government circles and among financial watchdogs, with many questioning the economic sense of such a hefty monthly expenditure at a time when Uganda’s transport sector is struggling with financial constraints.
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The lease deal, which is being brokered with Auto Ports Freight Terminals Ltd, a Kenyan-based company, is part of a larger effort to address Uganda Railways’ crippling lack of operational locomotives.
According to URC’s management, only two of the four locomotives currently in operation are functional, and the corporation is struggling to keep up with the rising demand for freight transport across the country. This, they argue, has led to inefficiencies in service delivery, putting the Ugandan economy at risk due to the lack of competitive rail transport options.
However, the terms of the lease have drawn widespread criticism, particularly the proposed daily payment of USD 7500 for the three locomotives. Critics contend that the cost is exorbitant given that Uganda is already making plans to acquire its own fleet of locomotives as part of the Standard Gauge Railway (SGR) project.
The proposal, which was approved by URC’s board, outlines a 10-year leasing arrangement, during which the corporation would pay Auto Ports Freight Terminals Ltd a fixed daily charge of USD 2,500 per locomotive, translating to USD 7500 per day for all three locomotives. Over the course of a month, the total cost would rise to USD 22,5000.
While URC has justified the lease deal by citing an urgent need for operational locomotives to cater to Uganda’s growing freight sector, industry experts and lawmakers are questioning whether the deal represents value for money. Some believe the funds could be better spent on expanding and upgrading Uganda’s existing railway infrastructure, or on expediting the delivery of locomotives through alternative sources, such as the African Development Bank (AfDB) project.
One source, familiar with the negotiations but who requested anonymity, remarked, “Given that Uganda is already investing heavily in the SGR, which will include 10 locomotives, it doesn’t make sense to spend such an enormous amount leasing locomotives for 10 years. It’s a questionable decision that could burden taxpayers for years to come.”
The justification for the lease, as presented by URC’s management, is that the company’s existing locomotives are insufficient to meet the demand for freight transport, which currently stands at about 25,000 tons per month. However, the corporation is projecting that demand will rise significantly in the coming years, with expectations of 70,000 tons per month by 2025 and 120,000 tons per month by 2029. To meet this demand, URC has stated that at least six locomotives will be needed by 2025 and that an additional five locomotives will be required by 2029.
“We need to ensure that we have enough locomotives in place to handle the projected cargo growth, or else we risk losing market share to road transport and seeing commodity prices rise,” URC’s Managing Director, David Musoke Bulega, wrote in his presentation to the board earlier this year.
The proposed deal also includes a provision for the locomotives to be maintained by the leasing company, with the responsibility for sourcing cargo and operating the assets falling to URC. This arrangement, known as a “wet lease,” means that the leasing company will bear the maintenance costs, while URC will be responsible for securing business and overseeing operations.
While leasing locomotives might offer a short-term solution to Uganda Railways’ immediate needs, critics have expressed concern that the long-term financial burden of this arrangement may outweigh any potential benefits. The deal’s total cost over 10 years could exceed UGX 100 billion, a sum that raises serious questions about the corporation’s financial management and its ability to ensure sustainable growth in the sector.
“This kind of expenditure is unsustainable, especially in the long term,” said a financial analyst with knowledge of the railway sector. “At a time when the government is struggling to balance its budget, spending such large sums on a lease agreement that doesn’t offer any long-term ownership of assets seems like a poor investment.”
Moreover, the proposal to lease locomotives from Auto Ports Freight Terminals Ltd has been controversial due to the company’s connection to the Mombasa Port, which is a key transit point for Ugandan cargo. The deal has raised concerns about the potential for conflicts of interest, particularly with regard to pricing and the long-term financial implications for Uganda.
“We have already been informed that Auto Ports Freight Terminals Ltd operates in Mombasa, which raises questions about whether Uganda Railways is in a position to negotiate favorable terms for such a major lease agreement,” the source added. “It’s possible that this arrangement will ultimately benefit the leasing company far more than it benefits Uganda Railways.”
Despite these concerns, URC has continued to push for the deal, arguing that it will help ensure a competitive rail freight market, thereby stabilizing commodity prices and ensuring that Uganda does not lose out on valuable trade opportunities. However, the reality is that the proposed lease deal may exacerbate the financial challenges already facing the railway corporation and further strain the country’s limited resources.
The government is expected to make a final decision on the lease agreement in the coming months.
The controversy comes at a time when the country is preparing to commence the cntructuction of the much sought after Standard Gauge Railway (SGR) project, which will provide Uganda with a modern railway system capable of handling larger volumes of cargo.
The SGR is expected to feature 10 locomotives, which will be able to significantly increase the capacity of Uganda Railways to move freight across the country. This raises the question: is it wise for the corporation to invest in leasing locomotives at a time when it is set to receive a significant upgrade in its fleet?
As the negotiations between URC and Auto Ports Freight Terminals Ltd continue, the pressure on Uganda Railways to justify the cost and long-term benefits of the proposed lease deal is mounting.
