$22 million Railways locomotive deal sparks controversy 

The ministry of Works and Transport and Uganda Railways Corporation (URC) are facing intense scrutiny over a proposed $22 million (approximately Shs 80 billion) lease agreement for four locomotives.

These locomotives, intended for cargo transportation, would be operated by URC in partnership with Auto Ports Freight Terminals Ltd, a Kenyan firm. This proposal, while approved in principle by the URC board, has raised concerns about potential misuse of taxpayer funds, with critics questioning its necessity and long-term value.

According to internal correspondences obtained by The Observer, the plan involves leasing the locomotives under a 10-year wet-lease agreement. The arrangement includes maintenance by the lessor, Auto Ports Freight Terminals Ltd, with costs projected at $2,500 per day per locomotive, amounting to $7,500 daily for three locomotives.

URC justifies this move, citing its current fleet of four mainline locomotives, of which only two are operational. One locomotive has been out of service for over two years, and the rest face recurring technical issues.

In its proposal, Auto Ports Freight Terminals Ltd argues that the additional locomotives are critical to addressing Uganda’s cargo transport bottlenecks. A May 13, 2024, letter from the company to URC highlights the railway’s insufficient capacity, which it claims risks losing market share and exacerbating commodity prices due to reliance on costlier transport options.

“The railway lacks sufficient capacity to transport and deliver cargo, which could lead to a further decline in railway market share and ultimately drive up commodity prices in the country due to the absence of a competitive transportation option,” reads a letter from Auto Ports Freight Terminals Ltd.

URGENT NEED

“We recognize the Government of Uganda’s investment plans through URC to acquire additional locomotives. However, there is an urgent need to protect the current market share and expand rail operations to help stabilize commodity prices in the country,” the letter continues.

In a presentation to the Uganda Railways Corporation (URC) board in June, Managing Director David Musoke Bulega laid bare the dire state of URC’s operational capacity, emphasizing the urgent need for additional locomotives to meet growing cargo demands. Bulega highlighted that URC currently operates with four mainline locomotives, but only two are functional.

“The other two are sick; and of the sick locomotives, one has been out of service for the last two years,” he noted in the presentation.

This limited capacity has significantly hampered URC’s performance. Currently, the corporation rails about 25,000 tonnes of cargo monthly, representing just 41 per cent of available tonnage and a mere eight per cent of the track’s capacity. Bulega attributed this poor performance to multiple factors, including insufficient assets such as wagons and locomotives in Uganda’s network, compounded by infrastructural challenges in Kenya.

“The lack of deployable assets, coupled with poor track infrastructure in the Kenyan network, further exacerbates the problem,” he explained.

Looking ahead, URC anticipates cargo growth of 70,000 tonness in 2025, requiring six locomotives to meet demand. By 2026, an additional two locomotives will be necessary to rail 80,000 tonnes, including operations on the Tororo-Gulu line. The projections grow even steeper by 2029, with anticipated cargo volumes of 120,000 tonnes requiring 13 locomotives.

Although the African Development Bank (AfDB) project will supply four new mainline locomotives, they are not expected to arrive until 2028 or 2029.

“Even with the AfDB-funded locomotives, cargo growth projections indicate that URC will still need five additional locomotives to cover mainline operations,” Bulega stated.

To bridge this gap, Bulega defended leasing as the most practical solution. “Outright purchase comes with significant challenges, but leasing ensures timely delivery. Leasing from the owner of the cargo is even better as it guarantees cargo availability for URC,” he said.

Citing industry data, Bulega noted that leasing rates for a 3,000-horsepower locomotive average $3,000 per day under a wet lease arrangement, while rates for 2,000-horsepower locomotives hover around $2,800 daily.

“At an availability rate of 70 per cent, the annual cost for three locomotives would be $3.24 million, while four locomotives would cost $4.94 million,” he detailed.

Bulega underscored the importance of negotiating favourable terms, suggesting lease fees of $2,500 per day for brand-new locomotives and $2,200 for used but re-engineered units to manage operational costs efficiently.

The board is now tasked with weighing the financial implications of leasing against the pressing need to expand capacity to meet Uganda’s rising cargo demands. While URC management, led by Acting Managing Director David Musoke Bulega, defends the lease as an urgent measure, insiders suggest it could be an unnecessary drain on public resources.

A source within URC questioned the rationale behind the deal, especially with plans for new locomotives already underway under the African Development Bank (AfDB)-funded project.

“By hiring or leasing this, the government shall lose a lot of money. You wonder why they would opt for this deal yet the Standard Gauge Railway (SGR) project will provide 10 locomotives, and URC already owns four,” the source said.

URC’s internal projections indicate significant growth in cargo volumes, estimating 70,000 tons by 2025 and 120,000 tons by 2029. However, achieving these targets will require at least 13 locomotives. The AfDB-funded locomotives, expected to arrive in 2028 or 2029, will not meet this demand. According to Mr. Bulega, leasing is a practical stopgap solution.

“Even after acquiring the AfDB locomotives, URC will still need five additional locomotives to address cargo growth and infrastructure challenges,” he said.

The proposed lease terms have been met with skepticism due to their financial implications. At $2,500 per day for brand-new locomotives, the annual cost for three locomotives would be $3.24 million, rising to $4.9 million for four units.

Bulega contends that leasing directly from cargo operators like Auto Ports Freight Terminals Ltd ensures cargo availability and offsets operational costs. He has recommended negotiating lower lease rates—$2,500 per day for new locomotives and $2,200 for re-engineered units.

Interviewed over the weekend about the growing criticisms surrounding the lease, Bulega defended the corporation’s position but refrained from disclosing details about specific proposals.

“I have so many proposals from my clients, and I don’t understand why you want to pry into them,” Bulega remarked. “If you receive a proposal and the client sees it in the media, would you be responsible if it gets published? People are free to make proposals, but not all of them are honored. Proposals are not government decisions, and right now, we are not leasing. Since you’re concerned about buying, why would anyone consider leasing?”

Critics have not been swayed by these comments. Marlon Agaba, executive director of the Anti-Corruption Coalition Uganda, condemned the URC for what he described as persistent mismanagement and corruption.

“The last time, they bought locomotives that didn’t fit the rails, and that issue is still unresolved,” Agaba said, referencing a debacle that cost the country over Shs 200 billion. He added that the ongoing deliberations over locomotive leasing come as Uganda is finalizing contracts for the Standard Gauge Railway (SGR).

“This is happening while Uganda is in the final stages of signing and contracting a contractor for the Standard Gauge Railway. The real issue here is the lack of coordination within the country. If we want to establish a Standard Gauge Railway, why are we still buying old locomotives?” Agaba questioned.

He also stressed the need for greater transparency in URC’s operations and procurement processes, which he believes have eroded public trust.

LEGISLATIVE CONCERNS

Nyendo Mukungwe MP Mathias Mpuuga echoed Agaba’s sentiments, emphasizing the need for accountability and strategic planning within URC.

“When irrational decisions are made, I am not surprised, given that the URC once purchased locomotives that didn’t fit on the rails,” Mpuuga said.

He questioned the benchmarking practices behind the corporation’s decisions, urging URC to clarify its sources of inspiration and the rationale for such actions.

“It would be prudent to provide us with an idea of where you’ve benchmarked these practices and how they work. Which country has rented locomotives, and when the rent expired, they adopted this approach? We need to learn from them,” he added.

Mpuuga also raised broader concerns about the leadership at URC, suggesting that structural changes may be necessary.

“I think we should start from the basics—whether the team at the URC is actually the right one for the job. Once we determine whether we have the right people with the necessary capacity and mindset, we can judge their actions. But for now…”

The URC board approved the plan in principle, advising management to consult key stakeholders, including the Public Procurement and Disposal of Public Assets Authority (PPDA). However, the procurement process has faced delays. In July 2024, Mr. Bulega sought guidance from PPDA, citing operational challenges due to the aging fleet.

Meanwhile, Auto Ports Freight Terminals Ltd has revised its initial proposal, offering to lease three locomotives instead of four, citing customer confidence issues stemming from delayed service delivery.

The ongoing negotiations have now reached the Works and Transport minister, Gen Katumba Wamala. In an October 2024 letter, Auto Ports Freight Terminals Ltd appealed to the minister to expedite the deal, emphasizing its importance to Uganda’s manufacturers.

“We hope this long-standing issue on leasing locomotives to URC will be fast-tracked, enabling us to support Uganda’s economy through efficient railway services,” the letter reads.

Neither the minister nor the ministry spokesperson could be reached for comment.

A RISKY INVESTMENT?

Critics argue that leasing locomotives is a short-term solution that may not deliver value for money. The planned procurement of AfDB-funded locomotives and anticipated SGR developments render the current proposal questionable. Furthermore, the significant financial commitment raises concerns about accountability and oversight.

With no immediate comment from the line ministry, the fate of the $22 million deal remains uncertain. Will it address Uganda’s pressing transportation needs, or will it become another costly misstep in public procurement?

The spotlight now shifts to the ministry of Works and Transport to provide clarity and ensure public funds are spent judiciously. The criticisms highlight broader questions about the governance and strategic direction of URC at a time when Uganda’s transport infrastructure is under pressure to modernize.

As the country balances its ambitions for the SGR with the realities of its existing railway network, the corporation’s decisions will remain under a critical spotlight. The public and stakeholders alike are calling for clearer accountability, better coordination, and assurances that past mistakes will not be repeated.