Uganda faces a Sh522 billion bill after a London-based arbitration tribunal ruled the government wrongfully terminated a failed railway concession, turning a troubled project into one of the most expensive legal errors for taxpayers.
The tribunal ordered the government to pay $138.93 million to Rift Valley Railways Uganda Limited. The award will be drawn from public funds at a time when the country faces significant debt pressures and budget constraints in health, education and infrastructure.
The award attracts 8% annual interest until full payment, ensuring the final cost will increase the longer the government delays settlement.
The dispute followed the 2016 decision to terminate the Rift Valley Railways contract after years of missed targets, unpaid fees and deteriorating infrastructure. While the tribunal acknowledged the operator performed poorly, it ruled that the government breached the concession agreement by mishandling the termination process.
Uganda avoided a larger financial hit when tribunal chair Reichert Klaus rejected a $527.9 million claim for lost future profits. Klaus dismissed the demand as speculative and pointed to the firm’s lack of consistent profitability.
Even with that rejection, the final ruling remains significant. The tribunal also ordered Uganda to pay $1.27 million to cover the claimant’s legal and arbitration costs.
A small counter-award was issued in Uganda’s favor, requiring the railway firm to pay back $102,804 in historical damages. However, officials noted the amount is negligible compared to the total payout.
The concession began as a joint effort between Uganda and Kenya to privatize rail services. A private consortium won a 25-year contract in 2005, which was later acquired by Egypt’s Qalaa Holdings. The project was ultimately defined by decayed tracks and missed cargo targets.
By 2016, a study by the Japan International Cooperation Agency supported ending the contract. While the government acted on those findings, the tribunal found the method of termination violated the legal framework of the agreement.
The ruling remains a significant setback for the government, leaving taxpayers to fund a half-trillion-shilling bill for a railway project that failed to deliver an economic turnaround.
