FINANCING THE NACALA CORRIDOR:  
First Private Sector Integration of Port and Rail

Structural Trends in Central America

Comparing Central America with other parts of the world is very much like Africa — a lot of small, disconnected railways that don’t connect with each other and were never designed to connect with each other.

But unlike Africa rail is almost so far down the list of priorities that people don’t even think about it in regional initiatives, like Plan Puebla-Panana which is integration of Central America with North America. And the social problems in many respects are worse than some of the things that you’ll find in this part of the world.

Is this a success story? In this particular case I think it is very much a work in progress. I can tell you from the perspective of Guatemala that having a barely functioning railroad is better than having an abandoned railroad; and we are continuing to make progress commercially.

So let’s look at the Nacala Corridor in context and draw some conclusions. Table C shows how the Nacala Corridor compares with some of our other businesses.

Table C

Estonia hauled 42 million tons but on the Nacala Corridor about 300,000 tons moved by rail. And yet the investment in the Nacala Corridor is something like $10 million and in Estonia for a railway that moves several quantum levels of traffic more is like 6 times as much. So there is a disproportionate amount of financing required to make the Nacala Corridor work.  This is the bad news.

The good news is that relative to an operation like Guatemala, the Nacala Corridor is a relatively good deal. However, in our own defense Guatemala has a lot businesses attached to it that we just don’t know what they’re worth; for example, the ability to run electricity rights-of-way, develop the undeveloped ports, etc.  And the purchase price was $0.  Our commitment was to put the railroad back into operation and give 10% of the revenue, not the profit, revenue to the government. Each is different but it is interesting to see how these deals contrast.

I would like to make a comment about financing. In our experience the multi-laterals have found it very easy to do business in Europe. For example, part of our financing in Estonia came from IFC (see Table C). Getting financing for developing countries is more difficult. In fact, political correctness—things like squatter policies that prevented us from getting financing in Guatemala—has caused needless deaths.

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Photo 7 shows a container that fell off and hit a bus, killing 23 people. If Ferrovias Guatemala had 25% of the container market, which is normal market share in North America, then saving 25% of those 23 people means that there would have been people alive if we would have been able to get financing. In the meantime, we struggle more slowly.

Now I would like to share with you a trip I took on the Nacala Corridor. As a railway investor, the best way to see a railway is from the cab of a locomotive. So in late February, early March 2005, I made the trip from Nacala to the Rivi Rivi Bridge which is north of Nkaya.

Photo 8…In the port of Nacala there is a lot of container traffic. At one point there were 500 containers backed up as a result, among other things, of the delay in the privatization and the stagnation effect of having a plan that kept getting delayed. Photo 9…Note the track conditions at the Nacala Port. There is a stone holding the switch point open. This is environment that we stepped into in January 2005. Photo 10…We have to start somewhere, so we are rehabilitating the tracks at the Nacala Station and we are gearing up to do a main line track program.

Photo 11…But let’s take a ride on the Nacala Corridor. Here is how a big shot like myself travels by train. This is a converted guard’s van that we outfitted as a caboose with bunks, stove, etc. The man in the picture is Johan Beneke, who was referred to us by Braam le Roux. Mr. Beneke has brought some very important innovations to this operation. We’re looking to keep trains moving by having double crews, and one of the ways to accomplish this is by having a caboose operation. Photo 12…Inocencio Horacio is seeing me off for my ride from Nacala to Malawi. Photo 13…Here is a picture that embodies the whole trip–note that all of the windows are broken in the locomotive. What you don’t see is that the door was also about to fall off. These locomotives are basically junk that have been kept running for a long time with very makeshift maintenance.

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