Official spin on status of loan adds to doubts on fate of SGR project

Sunday May 5 2019

The Kenya Railways commercial cargo train

The Kenya Railways commercial cargo train. Why contract an American company, Bechtel, to expand Mombasa Road at Sh1 billion per kilometre when that would undermine the struggling SGR? FILE PHOTO | NATION MEDIA GROUP 

EDWIN OKOTH
By EDWIN OKOTH
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Government officials have been speaking from both sides of the mouth ever since China refused to extend a loan for phase two

A week after the end of the second Belt and Road Forum in Beijing, uncertainty continues to cloud the exact plan Kenya has for its largest infrastructure project after last week’s announcement that the Standard Gauge Railway will not immediately connect Naivasha and Kisumu.

While in China, senior government officials sought to dispute media reports about Kenya being denied loans to complete Phase 2B of the SGR.

CONFIDENCE

However, some officials said in confidence that the two parties failed to agree on the conditions for the deal, with questions on viability cropping up.

State House also denied there were such discussions while former Prime Minister Raila Odinga, who was upbeat about the railway line last weekend before the Beijing trip, quietly returned with no comment.

Many questions, however, still linger on just what transpired in Beijing and which way forward for the project that combines both President Uhuru Kenyatta’s interest as a legacy project and President Xi Jinping’s interest as a critical element in the larger Belt and Road Initiative.

Was Kenya denied the loan? If it was, what was the deal breaker? If it was not, why are there no indications on the fate of the loan now that the government has opted to rehabilitate the old railway? Were there feasibility studies on the new plan? What does this say on the larger Chinese project outlook in Africa?

OFFICIAL SCRIPT

The latest spin by the Transport ministry and State House officials, that the Naivasha-Kisumu SGR was not part of the Beijing talks, contradicts the well-known official script.

As late as yesterday, the Kenya Railways website had outlined the SGR project in five phases. The now-controversial phase 2B is listed as Naivasha-Narok-Bomet-Nyamira-Kisumu and is tied to the “new Kisumu Port”.

The final phase, which is the 107km Kisumu -Yala-Malaba route, is listed as Phase 2C.

Government documents since the inception of the SGR project, up to the budget policy statement, show that Kisumu was central to the plans and no mention has ever been made about the metre gauge railway, apart from plans to sell its assets to fund the construction of the SGR.

“Already, 85 per cent of Phase 2A has been done. Further, financing negotiations and detailed designs for the construction of Phase 2B (Naivasha to Kisumu) have been done. Once Phase 2B is completed, it will connect Kisumu city with the newly established Naivasha Inland Container Depot to ease cargo freight through to Mombasa. This will in turn boost fish export and agricultural commodities in Western region,” reads the Budget Policy Statement released in February, two months before the Beijing trip.

FINANCIAL DEAL

When negotiations are marked “done”, what usually follows is the signing of the financing deal, which is what was expected to happen in Beijing last month. But, as it turns out, the SGR deal was not part of the “priority” agenda in China — according to Foreign Affairs Cabinet Secretary Monica Juma.

Transport CS James Macharia, who seemed to be giving conflicting statements last week, left more unanswered questions on whether the railway to be revived will be the one to Kisumu or the one to Eldoret-Malaba.

“We have MGR going all the way to Malaba-Kampala, which is still active. So, by linking it to the SGR, we are creating a transshipment point in Naivasha,” he said in Beijing.

“We are looking at a corridor that is very viable commercially and economically. So, we are looking from Mombasa to Nairobi to Naivasha to Kisumu and beyond,” the CS added, further complicating the statement.

The old metre gauge line takes two routes just after Nakuru. One heads to Kisumu and Butere while the other (which is the active one) takes the Rongai-Makutanao-Eldoret-Kitale and to Malaba.

The second line does not pass through Kisumu, hence the contradiction in the CS’s second statement.

REVAMPED

On Saturday, Mr Macharia told the Sunday Nation: “Both (railway lines) will be revamped but starting with the Malaba artery given that it is already operational and will only require an upgrade,” he said.

It also remains unclear whether the government actually got the Sh40 billion to be used to upgrade the yet-to-be-specified metre gauge railway line or whether they had just put a proposal while in Beijing for the use of the line.

There is also the complication that the SGR line terminates at Duka Moja, 43km from the Naivasha MGR, meaning that a railway — or road — will have to be built for the connection.

Economist David Ndii believes that the current confusion is a reminder of the need for Kenya to wake up to the fact that the project, whose Nairobi-Mombasa route is operational, was not viable in the first place.

Last year, Ethiopia extended its loan repayment for the Addis Ababa-Djibouti double track railway line financed and built by the Chinese.

REPAY LOAN

Ethiopia requested for an additional 20 years over the 10 years it had been given to repay the loan, prompting the insurer (Sinosure) to raise alarm over the financing of projects in Africa with doubtful viability.

It remains unclear what became of the feasibility study Kenyan officials were sent back to prepare last year when the first attempt to borrow for the Naivasha-Kisumu leg was made.

While Kenya had set aside funds for the feasibility study of the line as early as March 2011, a letter from then Transport Permanent Secretary Cyrus Njiru to then Kenya Railways Managing Director Nduva Muli applied a sudden brake on the process.

Correspondence at the time warned that Kenya would get a bad deal for the project if it did not do a proper feasibility study.

Kenya Railways officials later realised the Chinese had been secretly conducting their own feasibility study. When the Jubilee administration took over, the SGR became its flagship project.