Tanzania's first phase of SGR project gets Sh215bn surety cover

Works, Transport and Communications minister Isack Kamwelwe (nearest to camera) inspects a completed section of the standard gauge railway in Soga, Coast Region. He is flanked by his deputy, Mr Atashasta Nditiye (right), and Tanzania Railways Corporation director general Masanja Kadogosa. The railway construction is in its first phase between Dar es Salaam and Morogoro. PHOTO | COURTESY

What you need to know:

A New York-based multinational insurance broker, Marsh LLC, announced yesterday that it has provided a $95 million (about Sh215 billion on the prevailing exchange rate) bank surety solution to Yapı Merkezi Construction and Industry Inc. (Yapı Merkezi).

Dar es Salaam. Tanzanians could be rubbing their hands in glee as they envisage smooth construction of the new high-speed electric railway. This is largely thanks to a newly-arranged bank surety solution.

A New York-based multinational insurance broker, Marsh LLC, announced yesterday that it has provided a $95 million (about Sh215 billion on the prevailing exchange rate) bank surety solution to Yapı Merkezi Construction and Industry Inc. (Yapı Merkezi).

This is the Turkish firm that is currently building the 300 kilometre-stretch of the high-speed standard gauge railway (SGR) from Dar es Salaam to Morogoro at a total cost of $1.25 billion.

Marsh said in a statement yesterday that they structured the surety in collaboration with the African Trade Insurance Agency (Ati), and is backed by Ati’s treaty reinsurers – led by Munich Re – and a consortium of facultative reinsurers Trust Re (lead facultative reinsurer), BarentsRe, AfricaRe, and ZepRe.

Ati is working with the CRDB Bank Plc and NMB Bank Plc in Tanzania to issue guarantees for the SGR infrastructure project.

Basically, the bank surety solution means that in case the project developer faces an eventuality that may see implementation being halted the insurance firms will make available funds that would ensure that construction continues uninterrupted.

“For instance, if floods pound part of the SGR project which is under construction, or in the event that a ship carrying some construction materials capsizes, the insurance firms will make available funds to ensure that construction proceeds uninterruptedly,” said the information officer at the Tanzania Insurance Regulatory Authority (Tira), Mr Faustine Oyuke.

The surety will thus help Yapı Merkezi to comply with project requirements by using Tanzanian banks to guarantee the Turkish firm’s contractual performance-related obligations and the repayment of advance payments where necessary.

Marsh’s Global Bank Surety Syndication team, headed by Manuel López, structured the solution, Marsh said in a statement yesterday.

According to Ati’s resident underwriter, Tusekile Kibonde, the resident underwriter with Marsh enables the company (Ati) to keep focused on one of its four main priorities of paving the way for increased investments in Ati’s African member countries.

“Ati has mobilized investments well in excess of $1 billion into Tanzania in recent years. Marsh was instrumental in helping us close this deal – thus supporting additional investments in the country and, ultimately, delivering new critical infrastructure to the people of Tanzania,” said Tusekile Kibonde, the resident underwriter.

The insurance structure allows Yapı Merkezi, as the ultimate corporate beneficiary, to free up domestic Turkish banking lines – and, more optimally, deploy its credit lines. This would, in turn, allow the firm to take on more project risks.

Additionally, this insurance structure allows local banks in Africa to take on more risks than their risk tolerance might otherwise permit.