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Doubts linger on SGR as Kenya is denied funds

Saturday April 27 2019

The Murua Okondi Bridge which stretches for 557.7m near Duka Moja town.

The Murua Okondi Bridge which stretches for 557.7m near Duka Moja town. The bridge connects phase 2A and 2B of the Naivasha to Kisumu railway. PHOTO | FILE | NATION MEDIA GROUP 

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Even after finally getting the support of the opposition and Uganda as directed by China last year, Kenya failed for the second time to get funding for the Naivasha-Malaba leg of the Standard Gauge Railway (SGR), putting the fate of the first two phases in jeopardy.

Instead, the government secured a paltry Sh40 billion for the upgrade of the line between Naivasha to Malaba as a compromise.


Not even flying in opposition leader Raila Odinga, who was last year appointed special infrastructure envoy in Africa to Beijing, to drum up support for the SGR convinced China to release Sh380 billion to fund the final leg of a project they began.

As a result, Kenyans has been left with a piece of infrastructure economic experts have termed as “a railway to nowhere” and which taxpayers are supposed to start paying 0.7 per cent of the economy in Chinese loans from June 2019.

In his latest visit to Beijing, President Kenyatta had hoped to secure the loan for the third leg of the railway project that would terminate at Kisumu and the change of plan must come as a major disappointment.


In an interview with Saturday Nation from Beijing, Transport cabinet secretary (CS) James Macharia said that the country had bagged Sh40 billion worth of funding to upgrade the meter gauge railway from Naivasha to Malaba as a priority before any discussions of the funding of SGR between Naivasha and Kisumu could commence.

“We have agreed to work on upgrading the meter gauge railway as a matter of priority so that, once the ongoing construction between Nairobi and Naivasha are completed in August, we are able to transport goods to Malaba in time,” Mr. Macharia said, adding that the upgrade works will start in two months.


And, in a dispatch, PSCU Friday announced that the government had secured some Sh67 billion in project financing at the Belt and Road Summit in Beijing through concessional financing and Public Private Partnership (PPP).

“The projects include the Konza Data Centre and Smart Cities Project to be undertaken by Chinese telecommunications giant Huawei at a cost of Sh17.5 billion and the construction of the Nairobi JKIA to James Gichuru expressway on a PPP arrangement by the China Road and Bridge Corporation for Sh51 billion,” it said.

President Uhuru Kenyatta thanked China for the Belt and Road Initiative (BRI) projects which he said are expanding economic activities and unlocking potential for prosperity in many developing countries including Kenya.

“The Belt and Road Initiative has forged cooperation in the development of critical sectors including expansion of infrastructure, education and capacity building, trade facilitation and investment, agricultural modernization, industrial promotion and energy connectivity. Collectively, these developments are expanding economic activities and unlocking potential for prosperity,” President Kenyatta told the world leaders.

In 2017, Kenya inked the financing deal China Exim Bank, which will be channelled to finance its construction, through the China Roads and Bridge Company (CRBC).


This will come as bad news for Uganda, which last month bagged a dry port in Naivasha, given that it had hoped the SGR deal to Kisumu would actually help it close the deal to access almost Sh200 billion in funding for its own line from Malaba to Kampala.

China’s reluctance to fund the third phase could be as a result of the poor performance of the Nairobi to Mombasa line, which Mr Macharia in July last year told the parliamentary committee on investment made a loss of Sh11 billion.

“On average, the line made a monthly loss of Sh750 million in the 2017/18 financial year largely as a result of low cargo business. However, the project will now turn around and make a profit of Sh5 billion by June 2019, averaging Sh420 million profit monthly as we ramp up the cargo volumes,” Mr Macharia said.

According to the Kenya Ports Authority (KPA), the SGR cargo haulage raked in more than $16.2 billion in the last nine months to November last year, at Sh180 million a month, as the daily tonnage capacity moved above 800 containers, out of the 1,700 that arrive at the port of Mombasa.


Both China and Kenya seem to be in agreement that the SGR cannot be economically viable unless it is linked to Uganda. In its current state, the SGR is still struggling to break even despite being operational since June 2017. In its first year of operation, the Mombasa-Nairobi line earned Sh10.33 billion.

Kenya National Bureau of Statistics (KNBS) data shows the passenger service earned a paltry Sh1.61 billion. The freight services which were launched in January last year brought in Sh8.72 billion as at the end of last year.

The government is, however, paying China Communications Construction Company a billion shillings a month to run the railway. This translates to Sh12 billion annually to run a railway that is not only loss-making but one whose loans are supposed to be paid starting this year.

Kenya in May 2014 entered into a deal to borrow $3.233 billion loan (Sh324.01 billion) from China’s Exim Bank, comprising $1.633 billion commercial loan and $1.6 billion concessional to build a 385km modern railway between Mombasa and Nairobi.

The five-year grace period given by the China Exim bank comes to an end this year. Tax payers will from June cough out Sh56.7 billion or 0.7 per cent of the economy to the Chinese for funding the Nairobi Mombasa leg of the SGR.


Experts say it is not surprising that China has refused to lend Kenya more money.

“If you had a colleague of yours who you know has financial issues and they came back to ask you for more money and you know they may never pay back, will you give them? That is the human aspect of it,” said Mr Robert Shaw, a public finance and policy expert.

“China has realised that it has got into projects all over the world without due diligence so it has decided to take a keener look on its loan portfolio,” he said.

Kampala, which was thought to hold the key to unlocking the SGR funds, agreed with Kenya to build a railway line in 2008 but the arrangements were only concretised in 2012. By then, Kenya was on the last stages of negotiations with China for the Mombasa-Nairobi SGR line.