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Luxembourg Protocol can reshape African rail industry

19th October 2018

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

     

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The adoption of the Luxembourg Protocol to the Cape Town Convention can be a solution to unlocking billions of dollars of investments from private investors into Africa’s rail industry.

The new treaty, which will provide a Luxembourg-based central international registry of ownership of railway assets, can enable Africa to create a more vibrant and competitive industry through increased freight volumes.

In line with this, Swiss-based Rail Working Group (RWG) is engaging African rail operators and African governments with a view to ensuring the Protocol is embraced by every country with rail operations, and have the Protocol and the central registry recognised in local legislation.

“A major stumbling block for private investors looking to invest in Africa has always been the need to manage the risks inherent in cross-border operations, where there is limited legal infrastructure, and no common system for tracking assets and identifying railway equipment,” says private locomotive and rail operator Traxtion Group CEO James Holley.

Africa needs an efficient, expanded, rail network; however, the current condition of existing railway infrastructure and rolling stock in many countries is suboptimal.

“Currently, Africa has one kilometre of rail track for every 400 km2 of land,” says UN Economic Commission for Africa executive secretary Dr Vera Songwe, who points out that the continent’s large land mass, with 16 landlocked countries, should encourage the development of high speed, high capacity and efficient transport corridors.

However, the pricetag of infrastructure is high, she says, citing the recently commissioned $475-million, 34 km Addis Ababa Light Rail Transit city transport; the $4-billion bill for the rehabilitation of the Ethiopia-Djibouti Railway and the alleged raising of Kenya’s external debt by 17%, owing to the new Mombasa to Nairobi rail line.

In South Africa, it is estimated that more than $110-billion will be needed to convert the country’s 20 000 km of the Cape gauge rail track into a standard gauge.

The Luxembourg Rail Protocol, which offers extensive solutions, will boost finance raising activities for rail development as it will protect private investment in the rail sector, she adds.

The not-for-profit RWG was established at the request of the International Institute for the Unification of Private Law (Unidroit) to represent the position of the rail industry relating to the adoption and implementation of the 2007 Luxembourg Protocol to the Cape Town Convention.

The central registry will issue unique identification numbers for all rolling stock globally at a negligible cost, ensuring that every creditor and operator can identify and track rolling stock wherever it is, providing a worldwide legal framework to recognise and regulate the security interests of lenders, lessors and vendors of mobile railway assets.

African countries adopting the protocol will provide certainty of ownership for potential investors, thereby reducing both creditor and operator risk, and unlock a greater pool of capital finance available for investment, which will lower the barriers to entry for smaller operators and ultimately result in a more competitive and dynamic African rail industry.

Further, reducing finance charges for rolling stock ultimately translates into a reduction of freight charges for customers.

“This means the rail industry can become more competitive. It really is one of those steps that will allow Africa to advance – and there is absolutely no downside to it,” says Holley.

“Cross-border operations are essential to a thriving African rail industry, but operators need to know their rights are protected,” he says, pointing out that, unlike the aviation industry, there is currently no single global system relating to the ownership and identification of railway equipment.

South Africa has already ratified the Cape Town Convention and the equivalent protocol for aircraft.

The Cape Town Convention and the Aviation Protocol, adopted in 2001 and now in force in almost 70 countries, has been a significant success with over 800 000 registrations covering 110 000 aircraft objects with an estimated value of over $650-billion since it started operation in 2006.

The Luxembourg Protocol was only adopted in 2007 and is due to come into effect in 2019.
Songwe calls on governments to ratify the Protocol, saying it would enable the private sector to be tapped into finance delivery and management of the rail sector.

The Luxembourg Rail Protocol –

In a Nutshell

  • It is estimated that railways currently invest about £53.7-billion a year in rolling stock but much more is needed and many governments cannot finance the existing requirements at the current level.
  • Unless there is investment-rated State credit support, private-sector funders of railway equipment require security that credit provided through loans or leases will be repaid and that their property rights will be respected, even when their collateral moves across borders, so the assets can be repossessed by the creditor on nonpayment or insolvency of the debtor.
  • However, there is no international registry system for their security interests and often no asset specific registry on a national level regulating the priority of creditor rights.
  • At a diplomatic conference in Luxembourg in February 2007, sponsored jointly by Unidroit and Intergovernmental Organisation for International Carriage by Rail and attended by 42 States and 12 international organisations, the Luxembourg Protocol to the Cape Town Convention on International Interests in Mobile Equipment was adopted, creating a new worldwide legal framework to recognise and regulate security interests of lenders, lessors and vendors selling under conditional sale agreements, where each are secured by rolling stock.
  • The protocol applies to all rolling stock, from high-speed trains to trams, and will create an international system of registration and priorities for secured parties with the registry accessible 24/7 through the Internet, allowing parties to register their interests and facilitating prospective creditors checking any rival claims to the equipment being financed.
  • The protocol will also create a common system for repossession of asset on default or insolvency of the debtor subject to public interest safeguards.

Edited by Creamer Media Reporter

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