Malawi in rail concession review after due diligence raises concerns

Malawi is finalising a review of the concession of the country’s rail operator, Central East African Railways (CEAR), to ensure the company, which has incorporated Brazilian mining giant Vale Emirates as a major shareholder, is entirely responsible for the operation, maintenance and development of the railway network in the country.

Malawi Privatisation Commission CEO Jimmy Lipunga says the review process is being undertaken in line with the recommendations of Indian consulting firm Crisil Infrastructural Advisory Consultants, which carried out a due diligence review of the concession with funding from the Southern African Development Community Banking Association. Crisil’s study identified weaknesses that needed to be dealt with, taking into account international best practice in the rail sector.

The Malawi government awarded CEAR a 20-year concession to operate and manage the country’s rail network in 1999, when CEAR had the US’s Railroad Development Corporation as a majority shareholder. However, CEAR was later acquired by Insitec, which has now sold its majority shareholding to Vale Emirates.

Lungu: Review will be completed this year

Vale wants to use the Malawi rail network to transport coal from its Moatize coal mine, in neighbouring Mozambique, to Indian Ocean ports.

Malawi Ministry of Transport and Public Infrastructure planning director Victor Lungu says the review process, which started in 2007, will be completed this year.

“The purpose of the exercise is to improve service delivery by Malawi Railways and to bring it in line with the Public Private Partnership Act.”

The review process, besides other things, gives Vale Emirates the freedom to inject capital for the rehabilitation of Malawi’s dilapidated railway network and the acquisition of locomotives.

Meanwhile, the Malawi government has signed a new agreement with Vale for the construction of a new railway line that will link the Moatize mine with the Nacala railway line at Nkaya – a distance of 138.5 km.

The agreement will allow Vale to manage the line for an initial period of 30 years, with possible renewal for a further 20 years.

Vale has committed to spending about $1-billion in Malawi over three years on the construction of the railway network, and it is expected to employ about 4 500 people, of whom 70% will be Malawians.

“The detailed feasibility study on the project has already been undertaken and proved viable. The environmental-impact assessment report has already been approved by the Department of Environmental Affairs,” says Lungu.


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