[This investigation is a collaboration between Malina and the magazine Politikà]
The railway is not in the best shape of its life. Once a preferred mode of transportation, the train entered a phase of sharp decline in the early 1980s. The privatization of the northern railway network did not trigger the expected dynamic or revival. An investigation.
Madagascar’s railway system is divided into two networks of lines, both of which were constructed at the beginning of the 20th century. The line connecting Fianarantsoa to Manakara, known as the Fianarantsoa-East Coast (FCE), and the northern railway network, which includes the Tananarivo-East Coast (TCE) line, connecting Antananarivo to Toamasina, the Moramanga-Lake Alaotra (MLA) line, and the Tananarivo-Antsirabe (TA) line, linking the towns of the same names.
Turning the Tide
The northern railway network holds significant economic importance for Madagascar. It connects the country’s capital to its largest port, as well as to Antsirabe, a major industrial city. Yet, despite the 673 km of railway lines, the majority of freight traffic between these three cities is now carried out by road, via National Routes No. 2 and No. 7.
It is clear that the trend is negative: freight transport on the TCE line dropped from 450,000 tons to 60,000 tons between 2011 and 2019, and the TA line is currently not in operation. However, rail freight transport is more economical. A recent report from the World Bank estimates that the cost of transporting one ton of freight from Antananarivo to Toamasina by rail is $18, compared to $26 by road. This figure does not account for the degradation of National Route No. 2 caused by truck traffic, nor the costs associated with increased road accidents and air pollution.
To reverse this trend, an extensive revival plan for the northern railway network was launched in 2020.
A Slow Decomposition
At the beginning of the 2000s, powerless in the face of the inexorable decay of the northern railway network, the Malagasy state entrusted its management and operation to the Malagasy company Madarail S.A., created for this purpose by Comazar, a subsidiary of the French group Bolloré. An agreement was signed between the two parties on October 10, 2002, formalized the following year by an interministerial decree. This agreement between the Malagasy state and Madarail has since been amended seven times. Initially set for 25 years, its duration was extended to 40 years in 2011.
Between 2003 and 2012, Investments
The network continued its slow deterioration, accompanied by a gradual immobilization of its rolling stock. A total of $83 million was invested in the northern railway network. However, due to the lack of any significant new investments since 2012, the network continued its slow decline, with a progressive immobilization of its rolling stock. The majority of passenger rail services on the network have now been suspended, following several serious accidents. The sixth amendment to the concession agreement, signed in 2012, had, however, provided for continued investments amounting to $87 million. Unfortunately, the state was unable to mobilize the promised funds at that time.
The seventh and final amendment to the concession agreement between the Malagasy state and Madarail outlines a new investment plan for the period 2020-2024. The total amount of this ambitious investment program is 654.9 billion Ariary, with 276.1 billion Ariary allocated to railway infrastructure, including the rehabilitation of tracks, structures, signaling, telecommunications, and operational buildings; 182.2 billion Ariary for rolling stock; and 8.5 billion Ariary invested in implementing an environmental and social management plan.
A Less Expensive Transport Offer
According to the terms of the latest amendment signed in 2020, the acquisition and rehabilitation of rolling stock planned under the new investment plan are meant to “allow for the resumption of rail transport for the evacuation of mining production from Morarano to Toamasina, as well as the transport, primarily, of petroleum products, containers, and construction materials from Toamasina to the highlands.” The stated objective is, while ensuring Madarail’s profitability, to secure the road infrastructure, reduce road accidents on RN2, and offer a less costly, more regular, and safer transport option for economic operators by transferring “heavy and hazardous traffic” from road to rail.
The new investment plan also includes relocating Madarail’s facilities, currently located in the Soarano district of Antananarivo, the creation of a dry port at the bypass (a road network designed to avoid the Antananarivo urban area), dedicated to managing container traffic transported by rail and road between Toamasina and the highlands, at a cost of 188.1 billion Ariary. The plan also calls for resuming regular passenger services on the three northern network routes: Ambatondrazaka, Toamasina, and Antsirabe, as well as providing support for the operation of an urban train project in Antananarivo. The total cost of this investment plan was re-evaluated at 196.35 million US dollars, approximately 785 billion Ariary, according to the progress report of the revival plan for the first quarter of 2022, which the authors of this article were able to consult.
Amendment
According to the first amendment to the concession agreement signed in 2005, the responsibility for investments related to the infrastructure component falls to the state, as the owner of the public railway domain and the existing infrastructure. Investments related to the rolling stock component, on the other hand, are mainly covered by Madarail, with the notable exception of the acquisition and repair of various locomotives and rolling stock, which are funded by the state for a budgeted amount of 41.7 billion Ariary, approximately one-fifth of the total cost of the “rolling stock” component of the 2020-2024 investment plan. Unlike amendment No. 6 to the concession agreement, which stipulated that the entirety of the rolling stock would be financed by Madarail via a loan from the Malagasy state, the state has now agreed to cover a substantial portion of the cost of this equipment.
For the remaining rolling stock to be funded by Madarail, amendment No. 7 to the concession agreement stipulates that they may be financed through a loan. The 2020-2024 investment plan thus envisions that Madarail will take out a conditional loan of nearly 37 million US dollars from the International Finance Corporation (IFC), part of the World Bank Group.
In addition to this loan intended for Madarail, the state has requested a specific budgetary aid of 130 million US dollars from the World Bank as part of the revival plan, with 120 million allocated for the northern railway infrastructure and 10 million for the dry port facilities.
The new investment plan also includes relocating Madarail’s facilities, currently located in the Soarano district of Antananarivo.
Between 2006 and 2012, the international institution lent Madagascar nearly 50 million US dollars to rehabilitate the northern railway network. Furthermore, a few years earlier, it financed a plan to mitigate the social impacts of the concessioning of this network, amounting to five million US dollars. It therefore seemed natural that the World Bank would contribute to financing Madarail’s new revival plan. However, this has not been the case, at least not so far.
Main Shareholder
It seems that a prerequisite for the World Bank’s participation in financing the new investment plan was the withdrawal of businessman Maminiaina Ravatomanga, Madarail’s main shareholder, from the company’s capital. A “restructuring of the shareholding” of Madarail is indeed mentioned in Article 3 of Amendment No. 7 to the concession agreement. However, the specifics of this restructuring are not provided. It is only noted that “the state acknowledges the decision of the current reference shareholder to accept this restructuring.”
Was it Maminiaina Ravatomanga’s proximity to the current President of the Republic that prompted the World Bank to demand his removal before participating in Madarail’s investment project, as Ravatomanga himself claimed in a television interview in April 2022? Or was it the opacity of Madarail Holdings Ltd’s shareholder model, the Mauritian company that officially owns 75% of Madarail’s shares, that was perceived negatively by the World Bank? (See the article Madarail Holdings Ltd – Some Companies Hide Others p.19).
In this context, it is worth recalling that Maminiaina Ravatomanga also has interests in the road transport of hydrocarbons, through his Sodiat group, which may be in competition with Madarail’s activities. In any case, during the same interview in April 2022, Ravatomanga announced that he would comply with the World Bank’s recommendation to withdraw from Madarail’s capital. This has now been done. Since April 7, 2022, the entirety of Madarail Holdings Ltd’s stake in Madarail has been transferred to the National Participation Company (Sonapar), on behalf of the Malagasy state.
Restructuring of Capital
Founded in 1991, Sonapar’s mission is to finance businesses, notably through private equity, meaning equity stakes. With a share capital of 10.2 billion Ariary, it is primarily owned by the Malagasy state. The transfer of Madarail shares was organized under a “portage agreement,” signed between the state and Sonapar in November 2021. According to the terms of this agreement, Sonapar, with the assistance of the World Bank, is tasked with seeking new investors capable of purchasing the Madarail shares it now holds.
This portage agreement was concluded for a period of nine months from the date of the transfer of shares to Sonapar. However, a reversal is not entirely out of the question. The restructuring of Madarail’s shareholding would indeed depend on obtaining formal guarantees requested by the state from the World Bank regarding the financing of the infrastructure component of the 2020-2024 financing plan.
On April 14, 2022, the state sent all the information concerning the shareholding restructuring to the institution. It is now up to the World Bank to decide on potential financial support. The main reason the bank might still hesitate to finance the 2020-2024 investment plan would be the excessively large demands made by the majority shareholder to formalize his exit from the capital of the railway company.
A Vast Economic and Social Hub
The price of the shares sold by Madarail Holdings Ltd has not been disclosed. However, it is known that the outgoing shareholder of Madarail wished to retain some of the most valuable assets of the railway company’s real estate holdings. Amendment No. 7 to the concession agreement indeed mentions that the ownership of the Soarano station land should be transferred to Madarail Immobilier S.A. in order to build “a vast economic and social hub.” A protocol is expected to be established between the state and Madarail Immobilier, specifying the price of the land and the terms of payment. Furthermore, it is the state’s responsibility to handle the relocation of the current railway facilities from the Soarano site to the Antananarivo bypass.
In a 2021 post on the social network Facebook, a former senior official of the Malagasy National Rail Network (RNCFM), the state-owned company that managed the northern railway network before its concession, expressed his confusion regarding the transfer of ownership of these lands. “Privatization should only concern operations, and in no case should it involve the land and real estate (…). In the original project, the real estate was supposed to remain the indivisible property of the state. A state-owned company should be created to manage and operate these assets,” this former official lamented.
Amendment No. 6, on the other hand, had foreseen granting a commercial right for the Soarano site to Madarail for a period of 50 years. Now, it is not just a commercial right that would be transferred, but the ownership of the land itself. Moreover, it is no longer Madarail that would benefit from this, but Madarail Immobilier S.A. According to the Malagasy trade and companies register, the general manager of this company, created in 2013, is Herisoa Razakasolo, who is also the coordination director of the Sodiat group, with Maminiaina Ravatomanga serving as a member of its board of directors. However, it seems that, given the difficulties faced by the state in expropriating the land for the new railway facilities at the bypass, these facilities will remain at Soarano for several more years, thus calling into question the construction of the economic and social hub desired by Madarail Immobilier. Without the financial support of the World Bank, is Madarail’s 2020-2024 investment plan, crucial for its survival, doomed to face the same fate as the previous investment program adopted in 2012, i.e., abandoned due to lack of funds?
The Malagasy State is Generous with Madarail
Without waiting for the World Bank’s decision regarding the financing of the infrastructure component of the investment plan, the Malagasy state has already invested heavily in Madarail’s revival. In addition to the 130 million dollars in budgetary aid expected from the World Bank, the state has committed to contributing 27.35 million dollars, approximately 110 billion Ariary, to the investment program using its own resources. The Malagasy government has already allocated 76.4 billion Ariary between 2019 and 2020. These funds were used 44% for the “infrastructure” component of the investment program and 56% for the “rolling stock” component. They were transferred to Madarail and nearly fully spent, according to the progress report of the revival plan dated the first quarter of 2022.
Thus, the rolling stock to be funded by the state, as outlined in Amendment No. 7 to the concession agreement, which includes four AD19-type locomotives, two shunting locomotives, and six passenger cars, have all been purchased and delivered, with some already in use by Madarail. Additionally, a reinforced concrete sleeper production plant (UTBA) has been built, 800 tons of rails have been laid on the TCE and MLA lines, and three stations have been renovated with these state funds.
Mortgaging the Future of Rail in Madagascar
Madarail awarded Somatrafer, a public limited company established in 2005, the contract for laying the 800 tons of rails, as well as for the construction and operation of the UTBA. According to the Malagasy trade and companies register, several members of Somatrafer’s board of directors also served on Madarail’s board as of April 2022, including Patrick Claes as CEO of both companies, as well as Maminiaina Ravatomanga and José Andrianasolo, who is also vice president of the Sodiat group. (See the article Composition of Madarail S.A.’s Board of Directors in April 2022, p.17)
Between 2019 and 2020, the state also provided Madarail with an operating subsidy of 26.3 billion Ariary. Despite this generosity, Madarail’s financial situation remains critical. The operating loss in 2020 exceeded 7 billion Ariary. Thanks to the transfer of these state funds to its accounts, Madarail earned 6.2 billion Ariary in bank interest. This allowed the company to settle a significant portion of the arrears it owed to Madarail Holdings Ltd, totaling 6.6 billion Ariary. The future of the investment plan and Madarail’s recovery now hinges on the World Bank’s decision. Will the demands of the outgoing shareholder mortgage the future of rail in Madagascar? The World Bank, contacted by email, had not responded to our inquiries by the time this article went to press.
