VZCZCXRO8292
RR RUEHDU RUEHJO RUEHMR
DE RUEHLG #0094/01 0320808
ZNR UUUUU ZZH
R 010808Z FEB 06
FM AMEMBASSY LILONGWE
TO RUEHC/SECSTATE WASHDC 2299
INFO RUCNSAD/SOUTHERN AFRICAN DEVELOPMENT COMMUNITY
RUEHFR/AMEMBASSY PARIS 0080
RUEHLO/AMEMBASSY LONDON 0188
RUEHJO/AMCONSUL JOHANNESBURG 0185
RUEAIIA/CIA WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHDC

UNCLAS SECTION 01 OF 02 LILONGWE 000094 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE FOR AF/S GABRIELLE MALLORY 
STATE PLEASE PASS TO OPIC FOR JIM POLAN 
JOHANNESBURG FOR FCS 
PARIS FOR D'ELIA 
 
E.O. 12958: N/A 
TAGS: ELTN ECON EFIN MI
SUBJECT: MALAWI'S PASSENGER RAIL SERVICE TO RESTART 
 
REF: 2005 LILONGWE 850 
 
LILONGWE 00000094  001.2 OF 002 
 
 
This message is sensitive but unclassified--not for Internet 
distribution. 
 
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SUMMARY 
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¶1. (SBU) The American operator of Malawi's railway agreed on 
terms to restart its passenger service, which had been closed 
for four months.  The closure had brought sharp criticism 
from the GOM and possibly endangered the much larger cargo 
concession, a crucial link in the Nacala Corridor.  While the 
agreement is a step forward, the concessionaire still has 
some way to go in building a good relationship with the 
government and its customers.  End summary. 
 
 
------------------------------- 
CLOSURE BROUGHT SHARP CRITICISM 
------------------------------- 
 
¶2. (U) After a break in service from September 2005, Malawi's 
privatized railway will re-open its passenger service on 
February 1.  With any luck, the resumption of service will 
end a crescendo of government-sponsored criticism in the 
press, faulting the railway for contributing to Malawi's 
economic woes and citing the railway as an example of the 
evils of privatization.  As reported at the time of closure 
(reftel), the American-owned Central East African Railways 
(CEAR) had operated the service for nine months past the 
expiration of the previous agreement while negotiations with 
the GOM dragged on.  The passenger service is a single, short 
line from south of Blantyre to Balaka, but it is a critically 
important service in the communities it serves. 
 
¶3. (SBU) The two sides had been close on nearly all points of 
a proposed renewal, including a three-fold increase in the 
subsidy paid to the railway.  What finally closed the deal 
was a decision by parent company Railroad Development 
Corporation to restructure CEAR's management, replacing the 
Pittsburgh-based CEO with management based in Mozambique. 
While the specifics of the new arrangement have yet to be 
communicated, this was enough to get Minister of Transport 
Henry Mussa to agree to the deal. 
 
¶4. (SBU) Given the unhappiness of the GOM toward the American 
concessionaires, it is unlikely that all will be sweetness 
and light from this day forward.  The transport ministry has 
accused CEAR of not spending enough of its $30 million OPIC 
loan on the Malawian side of the Nacala Corridor and of 
expatriating Malawian assets to fix the line in Mozambique, 
to name only two of many sources of friction.  (The loan, 
actually made to the larger consortium operating the entire 
line and the port in Mozambique, is for renovation of the 
line and the port.)  But now CEAR seems focused on improving 
the patchy operation of the railway, and this may mark a 
turning point in a troubled relationship. 
 
 
--------------------------------------- 
COAL IN THEM HILLS--AN ULTERIOR MOTIVE? 
--------------------------------------- 
 
¶5. (SBU) Up until the end, Mussa had tried to broaden the 
negotiation to include the concession as a whole, as well as 
the proposal by a consortium of nominally Malawian businesses 
to buy a 16.7 percent equity stake in SDCN (the share was 
reserved for Malawian ownership at the time of  SDCN's 
formation).  Mussa's advocacy for the consortium probably 
extends to his criticism of CEAR within GOM circles, which is 
apparently meant to bolster the consortium's bid to 
participate in management decisions once it has an equity 
share.  This share has suddenly become far more interesting 
with the expressed interest of Brazilian coal mining company 
CVRD in moving 10-14 million tons of coal per year from 
Moatize in northwestern Mozambique through Malawi to Nacala. 
With a ten-fold increase in traffic over the Nacala line, 
such a deal would make SDCN more valuable and probably offer 
any shareholders a chance to sell out in the near future. 
 
LILONGWE 00000094  002.2 OF 002 
 
 
 
 
--------------------------------------------- 
COMMENT: INITIAL SUCCESS, BUT SOME WAYS TO GO 
--------------------------------------------- 
 
¶6. (SBU) COMMENT: Embassy has been active in getting the 
parties back to the negotiating table to work out their 
differences, on the theory that the larger relationship was 
in danger of a complete break, which in turn would imperil 
the Nacala Corridor.  While this negotiation seems finally to 
have succeeded, there is a long way to go before CEAR and the 
Malawian government are happy with each other.  Certainly 
CEAR is more likely to succeed with active management in the 
region.  If the company can deliver cargo reliably, it may 
slowly rebuild its credibility with its customers and the 
government. 
GILMOUR