It has now emerged that the South African company Sheltam Pty has been allowed to take control of both the Kenya and Uganda Railways without handing over some $5 million it was to pay to the two governments under an agreement signed on April 7 this year.

Under the deal, Sheltam was to pay an "entry fee of $3 million to Kenya and $2 million to Uganda before taking over the running of the two companies.

Sources within the joint concessioning committee that has been negotiating on behalf of the two governments have confirmed to The EastAfrican that neither Uganda nor Kenya was paid.

According to the sources, neither did the South Africans fulfil the disbursement conditions that their international lenders had imposed. The documents confirming that this had been done, according to the April 7 agreement, were supposed to be finalised and given to the two governments for approval before the takeover.

The upshot is a situation where the concession has now commenced without an assurance of disbursement of the financing by the two main lenders of the project - namely, the International Finance Company (IFC) of the World Bank and KFW of Germany.

In the case of the Uganda contract, Sheltam has not acquired all the licences it was supposed to have before taking over as stipulated in the April agreement.

Whether this was a case of the South Africans buying time by outmanoeuvring the committee that has been negotiating on behalf of Uganda and Kenya or a genuine hitch is not clear.

According to informed sources, Sheltam explains away its failure to pay the entry fees on a last-minute pullout by one of its consortium members - Grindrod, a South African company and Sheltam's business partner in that country.

According to Sheltam, Grindrod had made a decision to join the consortium only five days before the closure of the transaction.

Consequently, it says, all agreements had been changed to reflect Grindrod's participation in the deal.

But on Wednesday last week, only five hours before the closure of the transaction, Sheltam managing director Roy Puffet informed the two governments that Grindrod had pulled out of the consortium.

The upshot of the pullout was that Sheltam was now able to pay neither the entry fee nor finalise the financial agreements as had been planned.

It is understood that the news about Grindrod's pullout was announced in Uganda when Mr Puffet was attending a party given in his honour by the Ugandan government.

Insiders said there had been explosive disagreements among the lawyers and the transaction advisers, with some of them calling for the cancellation of the deal if the $5 million payment was not made by Sheltam.

Whichever way one looks at it, the two South African companies, perhaps unwittingly, had got the Kenya and Uganda officials into a position where they could not negotiate.

Effectively, the two governments had been cornered because the joint commission had been led by the South Africans to a point where cancelling the deal was no longer a political option.

Up to the very last day, the South Africans had given no indication to the joint concessioning committee that they would not be able to pay the entry fee.

At one point - according to our sources - the two governments had been asked to send wiring instructions to Sheltam's bankers in South Africa so that the money could be sent.

On Tuesday night, top government officials of both Uganda and Kenya and the team the consultants hired to give advisory services to the two governments spent the night at the Treasury crafting separate agreements stipulating new conditions to allow Sheltam to take over without having to meet the conditions that had been stipulated in the April 7 agreement, including payment of the entry fee.

By Wednesday morning, the new agreements were ready, in time for the handing over celebrations at the headquarters of the Kenya Railways Corporation.

There was further drama at the venue of the celebration when journalists and invited guests were made to spend hours waiting for the function to begin.

The stage had been set for the celebrations and several tents had been pitched as early as 6 o'clock in the morning - complete with special seating for the Police Band brought there specifically to entertain guests and play the national anthems of both Uganda and Kenya.

In attendance at the venue of the celebrations were members of the diplomatic corps, CEOs of freight companies and employees of the Kenya Railways Corporation.

Anxiety started building when it became apparent that an event that was supposed to begin as early as 8 am had not started by midday.

At that point, guests and journalists gathered at the venue started to realise that something had gone terribly wrong between the South Africans and the two governments.

Anxiety gripped the guests as word began to spread around the venue that the event had been postponed due to a last-minute falling out between Sheltam and the joint concessioning committee.

Just after midday, as it became clear that the invited guests were becoming restive, a Ministry of Transport official intervened to request the guests to disperse, saying that he had been informed by Transport Permanent Secretary Prof Gerishon Ikiara that the event had been rescheduled for one o'clock.

But as it turned out, the ceremony was not to start until well after 5 pm.

What was going on behind the scenes and why the long delay?

It is still not clear what exactly happened. But one explanation is that it took many hours to persuade Finance Minister Amos Kimunya to accept a waiver of the conditions to the South African company.

How Sheltam will progress in running the company remains to be seen. The EastAfrican has learnt that the waivers given to the South Africans have many conditions attached to them.

Sources who have seen the new agreement say that the agreement has four major parts. First, Sheltam managing director Roy Puffet was made to admit in writing that he had been unable to raise the entry fees.

Second, Sheltam has been given up to December 15 to pay up and fulfil all the conditions stipulated in the April 7 contract or face termination of the concession agreement.

Third, until the South Africans pay up, Sheltam will be prohibited from transfer to itself any dividends or fees in the course of business.

Fourth, any expenditure above $250,000 can only be made with the approval of both the residual Kenya Railways Corporation and Uganda Railways.

Finally, Sheltam's principal shareholder, Mr Puffet, has been made to provide a personal guarantee securing the financial operations of the company.

In a conversation with The EastAfrican, Sheltam's transaction adviser, Vishal Aggarwal, denied that the deal was unfavourable for Kenya and Uganda, promising that the South African company will fulfil all the conditions in the stipulated time.