Wednesday, November 27, 2013

Building of Sh1.2trn railway starts on Thursday

The existing Kenya-Uganda railway. Ground breaking for the standard gauge railway that runs from Nairobi to Malaba has been set for Thursday. Photo/FILE
The existing Kenya-Uganda railway. Ground breaking for the standard gauge railway that runs from Nairobi to Malaba has been set for Thursday. Photo/FILE
President Kenyatta receives a model of a modern train from Mr Liu Qitao, the chairman of the China Communications Construction Company at State House, Nairobi, Wednesday ahead of Thursday’s ground-breaking ceremony for a standard gauge railway that will run from Mombasa to Malaba and eventually to Kampala, Kigali and Juba. Photo | PSCU
By JAINDI KISERO
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Plans to build a new standard gauge railway line from Mombasa will enter a decisive stage on Thursday with the ground-breaking ceremony for the country’s largest infrastructure project in many years.

Kenya is keen to strengthen its positions as the logistics hub in East Africa.

Supporters of the railway project have said that the cost of transporting cargo will go down by 60 per cent.

Expected to be completed in 2016, its sponsors have said that it will take a passenger train four hours to travel between Nairobi and Mombasa and a passenger will pay Sh800 as fare.

Freight trains will move at 80 kilometres per hour, reducing the journey to eight hours from the current 36.

Airlines, container freight stations, trucking companies and bus firms will come under renewed competition from rail transport.

However, the manner in which the gigantic project was procured is the subject of a raging controversy in the National Assembly, with critics suggesting that the price was too high.

But according to the government, the first phase of the new line will cost $2.9 million per kilometre.

The plan is to award the project to the state-owned China Roads and Bridges Corporation, who will also supply a total of 56 locomotives.

Ethiopia, which is currently building a railway line between Sabeta and Mieso in the Northern part of the country, is building it’s line at $3.8 million a kilometre.

In Uganda, Gauff Consultants of Germany, who have been retained as consultants for the Malaba-Kampala section of the Standard Gauge Railway, have estimated the cost at $9.3 million per kilometre.

The wide variations between the three projects mainly reflects differences in altitude, gradient, geographical conditions, the cost of labour, steel and cement.

Controversy has been raging  over the capacity of the Chinese company especially after critics said that it was basically a roads and bridges contractor with little experience in railway construction.
But a government delegation which visited China last month to inspect similar projects completed by the Chinese construction company reached a positive verdict.

The delegation found that China Roads and Bridges had recently completed building six large projects, including the Beijing–Shanghai high speed railway, the Harbin–Dalian passenger dedicated line and several others. On financial capacity, the government team looked through the contractors’ financial statements in the last four years.

It reached the conclusion that China Roads and Bridges Corporation had an annual turnover of $16 billion, owner equity base of $3.6 billion and a debt to equity ratio of 17 per cent.
The team also concluded that despite the superior design and greater construction challenges of the Mombasa–Nairobi standard gauge railway, it was still cheaper when benchmarked against similar projects in Ethiopia and Uganda.

Consequently, a delegation from China Exim Bank visited Nairobi to negotiate a financial agreement.

The Chinese export credit agency has been worried about the ability of the project to pay for itself, citing the problems with the Tazara Railway which was built to transport Zambia copper to Dar-es-salaam for export.

Over the years, and mainly as a result of inefficiencies at the Dar port, traffic migrated to the roads, hurting the viability of Tazara.

Exim Bank has therefore demanded a freight agreement between the Kenya Ports Authority and the Kenya Railway Corporation,  guaranteeing freight traffic to the new line.

The Chinese financiers have also demanded a major expansion of the Embakasi Internal Container Depot to cater for increased railway traffic.

With the Chinese loan only covering part of the total project cost, and considering that interest has to be paid during the construction period before revenue can be available from operations, the government has had to budget money for the project.

This year, the government has budgeted Sh22 billion and established a railway development fund to be financed from a special tax.

The new levy is expected to raise Sh15 billion this accounting year.

Controversy also broke out last month when the Office of the Deputy President wrote to the Attorney General, asking him to give an opinion on whether the plans to grant the project to Chinese firm met the requirements of international competitive bidding.

But the Ministry of Transport has defended the procurement, citing section 6(1) of the Public Procurement Act which allows procuring entities to circumvent competitive tendering where projects involve negotiated grants or loans.

The railway line linking Kenya to Uganda was  built 100 years ago and now has serious limitations in terms of technology and capacity.

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