Tuesday, 18 December 2012

European investors eye Tanzanian toll road

EUROPEAN Contractors are eyeing the US$535 million Dar-es-salaam- Chalinze toll road in Tanzania, we have learnt. In an internet posting, a Belgium based trading company Group DML, www.dml.com is shopping for a partner for a joint venture with an unnamed European contractor to develop the project on a 3P basis.
Chalinze Junction: To the right is A14 leading to Tanga 

 The company is proposing to invest in equity together with its partners. The Tanzania government, says the firm, will be a minority shareholder in the project. DML estimates that if the partners raise $150 million, they can raise the rest of the money from bank debt. They propose to use cash flows from the project as collateral.

The 100 Km long Dar-Chalinze toll road is a section of the Arterial Morogoro road. This is a very busy section of the A7 highway that carries traffic to central and southern Tanzania and the neigbouring countries such as Zambia, Rwanda, Burundi, Congo, and Malawi where Dar is a key port.  The road design proposes to build three laneson a 50KM long stretch from Dar-es-salaam.The other 50Km to Chalinze will be two lanes.
 Chalinze is the junction town where Morogoro road connects to Tanga road A14 which serves the port town of Tanga and Mombasa Kenya.  Tanga road in turn links to B1 to Moshi which also links to A104 to Arusha and on to Kenya via Namanga. In effect the toll road fronts a pretty rich catchment area. 

According to informed sources and documents seen by this publication, an estimated 70 per cent of freight landing in Dar-Es-salaam Port is shipped through the toll road.  This suggests that the road has a heavy traffic of heavy trucks.  DML agrees suggesting that 70 per cent of the traffic is cargo hauling trucks.

The second largest population is buses since all buses to Kenya, Central Tanzania and neighbouring countries such as Zambia ply this road. Cars, SUVs and   Light trucks also form a significant proportion of the motor population.

Thika superhighway in Kenya. To be a toll road
The proposal to build the project on a PPP basis-if it succeeds-bucks the trend in both Tanzania and other east Africa countries. The trend is for governments to build a project using public funds or third party debt, then concession the complete project –be it roads, railways and power stations – to the private sector to toll and maintain.

This is the business model to be applied on the Kigamboni Bridge. The $135million project is funded by the government of Tanzania 40 per cent and the National Social Security Fund 60 per cent. This is the model commonly applied in east Africa especially in roads and power projects. It is also the model being applied on Thika super highway and Menengai Geothermal power wells in Kenya.

The argument has been that investors do not have the stomach for the risk involved in large initial sunk capital. It is a slow, tedious and frustrating model if the case of Lake Turkana wind power project is anything to go by. If this European partnership succeeds, it will be bucking this trend and also the conventional wisdom.

But why are Europeans- famous for being risk averse- taking this risk? The wisdom of One Time Cabinet Minister in Kenya is catching up with them. Five years ago, the Late John Michuki, then then Transport Minister, bluntly told a delegation of European investors that by the time all Laws protecting their investment are in place, there will nothing for them to invest in.

A mission statement by DML backs Michuki’s wisdom; the company, is lobbying European contractors and the EU to support a financial product that will enable European companies to “compete head-on- with Chinese state funded contractors for infrastructure projects in Africa.” It adds, a financial product it is proposing could “profoundly change the geopolitical strategy of Europe. Group DML is 100% convinced that the major chances for European economic growth lay in Europe's front yard, namely AFRICA and nowhere else.”

The desire to roll back Chinese influence in Africa has aroused Europeans out of their slumber forcing them to stomach high risk capital investments in Africa.  But the speed at which they raise the funds necessary for the projects on offer will determine how soon European companies can stand up to Chinese contractors in Africa.

Wednesday, 12 December 2012

Nairobi Securities Exchange tops the world

Activity at the NSE, Kenya

THE NAIROBI SECURITIES EXCHANGE led five other African bourses to top the charts as world top performing securities exchanges, we can report. the best performing Analysts, among them, investing in Africa, www.investinginafrica.net  show that by the year ending November 30th, 2012, African boasted of the six best performing bourses in terms of dollar dominated index.

The six are; Nairobi Stock exchange, Nigeria stock exchange, Zimbabwe industrials, Uganda securities exchange, BVRM, and Ghana stock Exchanges in that order.

The Nairobi securities exchange topped the pack posting 46.3 per cent return in dollar terms. Nairobi is capitalized at US$1.2 billion. The Nigeria Stock Exchange, capitalized at US$5.5 billion was second posting a 42 per cent return as at the end of November. The investing in Africa report is backed by reports from the bourses themselves. The Nigeria Stock Exchange shows that Market capitalization grew by 129 percent to US5.5 billion in November from US$4.23 billion in January. Index rose to 26,336.7 in November from 20,657 in January 2012.

The value of traded stocks at the Nairobi Stock Exchange rose 312 per cent from US42.2 million to US$130 million while volumes rose 261 per cent to 917 million at the end of November.
An index measures the change in value of a group of stocks over a defined period, usually, a year. Going by this measure, several bourses in Africa out performed bourses in the West. The S&P 500 posted a 12.6 per cent return.

Other good performers were Zimbabwe Industrials 28 per cent; Uganda Securities exchange 26per cent; BVRM 17.6 per cent and Ghana Stock exchange 16.7 per cent. Johannesburg Stock Exchange, the largest bourse in Africa posted 5.6 per cent return. The bourse became a victim of wild cat strikes in the mining sector. Some of the affected companies are listed at the JSE.

Ironically, at the opening of the year, the bourses were all in negative territory.  The Nairobi securities exchange, the leading performer, was 33.30 per cent in the negative territory. And so was the Nigeria securities exchange, which was 26 per cent in the negative territory. Others in the negative territory included; the Uganda stock exchange (34.4 per cent), Zimbabwe industrial (9.32 per cent).

 However, the turnaround began at the end of last year, though in tiny dosages. The Nairobi stock Exchange, in a monthly review of the markets performance, attributes to the change in fortunes a return of investors- both domestic and foreign into the bourse.

The African capital market was adversely affected by high oil prices in 2011 which led to increased inflationary pressures and weakened domestic currencies.

The melt down in Europe, also played a role: There was a stampede out of the African capital market in the second half of 2011 on fears of making loses by fund Managers. However, towards the end of the year, they began trickling back.

Data available shows that the foreign desk in the Nairobi Securities exchange is very active. By August 2012, says the Nairobi Securities exchange. Foreign investors hit 48.9 per cent of all investors in the bourse.
The good performance by African bourses, analysts say, is a result of political and economic reforms, favorable external environment, strong Commodity prices, relatively low interest rates, strong earnings by listed companies and attractive valuations of some scripts
The second reason: economic growth. Over the past decade six of the world’s ten fastest-growing countries were African, says the Economist. “In eight of the past ten years, Africa has grown faster than East Asia, including Japan. This growth has added another 60 million to Africa’s middle class whose per capita is $3,000. This number is expected to rise to 100 million in 2015, says the Economist. This has increased local consumption making local manufacturers and other listed firms profitable and attractive to investors.

Tuesday, 4 December 2012

Is Nairobi Commuter rail service sustainable?

The commuter train service:a 30 year concession
ALTHOUGH PESSIMISTS DOUBT the survival of the Nairobi commuter rail service, an analysis of business variables tells the opposite story -the project is viable and sustainable. In fact, it could turn out a money spinner. The operation of the service will be in the private sector’s hands for an estimated 30 years concession. 

Sentiment and necessity favour rail transport which is clean in terms of pollution, transports many people and is relatively safe and affordable.

Commuter Rail service world-wide are geared to ease traffic jams in cities by persuading motorists to leave their cars at home and ride the train. They are thus designed to be faster-reliable –safer and affordable alternative to cars. Therefore passenger car traffic on the competing roads is critical inputs in assessing the viability of a commuter rail service.
Studies show that the proposed commuter rail routes are on heavily trafficked roads in the city. Traffic Population surveys show that Jogoo road and Mombasa roads boast of the highest population of motor vehicles per day in the city.

The same study also shows that cars dominate the roads in the city. Mombasa road has the highest population of cars at 78 per cent. On Jogoo road, says the study, cars form 55 per cent of the traffic population.  Cars generally carry no more than driver. Consequently traffic snarl-ups on these roads are chronic.
Traffic snarl up on Mombasa road

The commuter service will initially comprise of three modern inter-modal railway stations that consist of a huge parking space for cars and also a parking for passenger service vehicles. Makadara station off-jogoo road will boast of parking for 5000 cars; Imara Daima, designed to serve 2000 passengers will have a parking for 150 cars. While Syokimau Station, designed to sever 10,000passengers a day, will have a parking space for 2500 cars. 

The feather in the cap for the service is the high speed line serving JK International airport. The airport serves an estimated 6.5 million travelers and years and is still counting. By the time the Greenfield terminal at the airport is completed say, in 2020, the population of travelers through the airport will rise to 12 million and onwards to 20 million. The entire project is expected to serve an estimated 15 million passengers initially rising to 60 million passengers by the time the whole project is complete.

The initial service will comprise of six coaches each with a capacity of 200 passengers. That is 1200 per trip lasting just about 30 minutes or less. On the road, that trip can last up to 90 minutes according to Kenya Railways corporation’s estimates. It can go up to 120 minutes in some instances. That trip in the case of Syokimau station will cost US$1.5 one way. It could be more or less depending on the station. Parking will cost another US$2.4 per day. It is not clear what Nairobi CR’s IRR is. However, similar services elsewhere in the world operating in similar circumstance have an IRR of 15-20 per cent.

Despite what seems like exorbitant cost, motorists will save big, providing them with an incentive to leave their cars home and take a ride. Currently, motorists waste up to two litres of fuel in traffic jams one way. For commuters to and from work, that is four litres wasted a day. At the current price per litre, motorists waste up to $6.7 worth of fuel a day. At the CBD, Parking costs US$1.65 a day and it could take up to an hour of waiting for a parking space.

 So motorists spend an estimated US$8.35 a day on vehicles operations. If we factor in the waiting time for a parking space, we are talking about $20 worth wasted on traffic jams in the city per day, or a whole $600 a month. This is what Motorists will save themselves by riding a train to the CBD a month.

The service provider will also make a killing. According to its MD of the corporation Nduva Muli, a single round trip costs $1766. At the current prices, a round trip earns $2824 at full capacity. The break- even level is 756 passengers. These passenger numbers are available in the market. The conclusion then is that the commuter service is viable and profitable.  The corporation plans to operate five round trips a day, generating US$14,120 revenue per day. 

This analysis assumes away the parking fees per day which stands at US$2.4 per car pay day. The implication here is even the leans trips will be underwritten by parking fees.
As for traffic jam, the train will remove 1200 vehicles from the road one way. This means that a round trip will remove are 3500 per hour. With 2400 eliminated per day, only 1100 PCUs are left on the road increasing cruising speed to almost 60KM per hour on Mombasa road and Jogoo road. It will also reduce air pollution in the affected areas.