What Role for Multilateral Development Banks in Project Finance? Some Thoughts from the Rift Valley Railways in Kenya and Uganda

This case study uses primary evidence from the Rift Valley Railways concession—a complex multinational rail concession originating from Mombasa (Kenya) and to Kampala (Uganda)—to discuss strategic roles of multilateral development banks in infrastructure project finance. We find that multilateral development banks were uniquely positioned to play the roles of advisor, honest broker, guarantor and financier required in this transaction. However, we document a number of shortcomings in execution which adversely affected the performance of the concession. First, procurement flaws resulted in the choice of an under-qualified lead investor, and subsequent non-performance of the concessionaire. Second, there was failure to ensure compliance with loan disbursement pre-conditions. Third, governments had unrealistic expectations about the concessionaire’s capacity to improve the railway’s performance and make major capital investments. Extensive due diligence on the lead investor prior to concession award could have circumvented concession restructuring. As investors become more interested in opportunities in Africa, more entities should provide advisory services to African countries. However, such entities should have adequate resources and capacity to remain engaged over a long period.