Henry Posner's remarks at AfricaRail 2000, Johannesburg

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It is a great pleasure to be addressing this audience for the first time as an investor in Africa. For those of you who know me, I’ve been coming here for many years and it gives me a great deal of personal satisfaction that we have finally begun to do business here on the African continent. Today's discussion is “Structuring Concessions in Africa, the Perspective of an Investor.” The agenda will be as follows: an overview of RDC; what RDC sees as the fundamentals of Africa’s railways, and why they are in some cases a sound investment; the difference between commercialization and concessioning, which I think is an important distinction; what RDC sees as the structural trends for railway concessions in Africa; structural considerations as an investor; and finally to draw some conclusions. Background on RDC - General RDC is a Pittsburgh-based railway investment and management company. Our business is increasingly defined as “emerging corridors in emerging markets,” meaning not just railways, but railways and ports, railways and fiber optics, and other ways of maximizing the value of railways in what is always a difficult environment. I would like also to emphasize that everything we do is a Joint Venture. We are involved in no businesses on our own – it is always with local partners – and this can be seen in how we have structured our businesses to date. Today I will try to be as transparent as possible so that you can understand the inner workings of how we put these deals together. Hopefully that will give you a better basis on which to understand not only how RDC does its business but also helpful to you regardless of whether you are a railway in Africa, a potential competitor of ours or a potential partner. I would like to say again with great pride that RDC is the only American railway company making investments in Africa. Background on RDC - Transactions Iowa Interstate Railroad Our business in the USA is quite limited; we have investments in one railway. The Iowa Interstate Railroad (IAIS) is one of the main lines from Chicago to Omaha and it is one of the more difficult markets in the USA and in fact, this railroad was abandoned between 1980 and 1984. It was revived as a through route and RDC became involved in 1991 in order to stabilize the business. For a small railroad in the central USA, one thing that is quite interesting about the IAIS is that it has developed a low technology train control system based on an IBM AS400 computer and radio links. In fact, this system is so competitive that it is being used throughout South America and in South Africa on Spoornet. Buenos Aires al Pacifico & Ferrocarril Mesopotamico RDC’s involvement in rail privatization began in the first country where rail privatization occurred outside of the USA, specifically Argentina. In the early 1990s the railways in Argentina were almost closed and in the case of the Argentine railways, there was no place to go but up. The government of Argentina had made the then-courageous decision to privatize their railways. RDC wanted to be a part of this process and entered into a Joint Venture with an Argentine company. The result is the railway from Argentina to Brazil and from Argentina to Chile. Together these link the Mercosur common market, which also includes Paraguay and Uruguay. Ferrovias Guatemala A most challenging project, and which to my knowledge has few parallels even in Africa, is the resurrection of the railway in Guatemala, which was abandoned in 1996. Despite the collapse of the financial markets in Central America, despite Hurricane Mitch in 1998, and despite having zero traffic, the railway was reopened in December of 1999 and is now functioning in the first phase of our plan to reopen the entire system. Interestingly, Ferrovias Guatemala is traded on the stock market in Guatemala. It is a very small capital market but it is an important model for developing countries. Your country may be small, but if the deal is a good one, it is possible to attract investor capital.		Top
Ferrocarril Central Andino In September of 1999 RDC was also successful in winning a concession in Peru. We are a part of a Joint Venture for the Central Railway from Lima into the Andes Mountains. It is the world’s highest railway and reaches an altitude of 3 miles. This railway is so steep that it is not possible to go up the mountains directly. The way we go up the mountains on a 4.2% gradient is through switchbacks. In this case it is the first time that RDC has been able to attract international investors, specifically Commonwealth Development Corporation (United Kingdom) and Mitsui (Japan).	(click on photo to enlarge) World's Highest Railway uses over a dozen switchbacks to climb 3 miles in the distance of 100 miles between Lima and Galera

Central East African Railways In December of 1999 RDC was part of the consortium that privatized the Malawi railways. This is once again a Joint Venture and our partners include CFM – the national railway and port company of Mozambique – as well as investors from Mozambique, South Africa, Portugal and Bermuda. In fact, our locomotive fleet is relatively modern, having been rebuilt in the last decade, so we are starting off with a railway that is at least functioning in comparison with what RDC took over in Guatemala.	(click on photo to enlarge) CEAR Locomotive #509
RDC is also looking to be involved in Mozambique in the Nacala Corridor. We expect that in the next several months the Nacala Railway and Port will be integrated with The Central East African Railways.
RDC's Focus: "Emerging Corridors in Emerging Markets" As mentioned at the beginning, RDC is an investor in emerging corridors in emerging markets. If you look at Map 1, there is a railway in Malawi, a railway in Mozambique and a port in Mozambique. To our knowledge, this has never been done in the private sector – the integration of a general cargo port with a general cargo railway. I think this goes a lot toward creating the seamless service that has been often discussed. This is not only a port and a railway, but also several countries. What is interesting about this business is that it is also quite similar to the railway in Guatemala (Map 2).	Map 1 Map 2 (click on maps to enlarge)
While the railway in Guatemala was abandoned, there is still a right-of-way and in many places track in place all the way to the capital of El Salvador. In the long run what we expect to see is a reunification of the railway of El Salvador with the railway in Guatemala, giving us a second source of traffic. Again, this is an example of two countries’ railways working together to reach the ocean. The other interesting thing is that in the future we will get Puerto Barrios back, so in about 15 years, we will be a railway/railway-port network if we do our jobs well. Thus our theme is “Emerging Corridors in Emerging Markets” and not just railways.

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STRUCTURING RAILWAY CONCESSIONS IN AFRICA: AN INVESTOR'S PERSPECTIVE AfricaRail 2000 Johannesburg, South Africa June 2000	Henry Posner III Chairman