WARUTERE: Why SGR will not make money soon but makes economic sense - Daily Nation

Why SGR will not make money soon but makes economic sense

Thursday July 26 2018

SGR

Kenya Railways MD Atanas Maina addresses guests at the Syokimau Terminus on May 31, 2018 in the event to mark the first anniversary of the Madaraka Express. PHOTO | FILE | NATION MEDIA GROUP  

By PETER WARUTERE
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Railways have never been your conventional business that makes money for investors.

Kenya’s standard gauge railway (SGR) isn’t making money. In its first year of operation to June 2018, it has suffered a loss of Sh10 billion, according to the Ministry of Transport and Infrastructure. The magnitude of losses raises anxiety about the viability of the first railway transport infrastructure that Kenya developed in a century, with funding from the Chinese, who are also the operators.

While operational losses are not entirely unexpected in the short term, there’s a great sense of urgency to understand how long it will take for the SGR to break even. A cost-benefit analysis of major railway systems tends to lead to the same results. Even the most advanced railways have a difficult time returning profits.

FREIGHT CONTAINERS

The Eurostar, the spectacular high-speed train that links the United Kingdom to France and Belgium through the Channel Tunnel; the Japanese Shinkansen, or bullet trains; and the Chinese high-speed rail operators have a long history of crippling operational losses and debts but government support ensured their survival.

In just a year, SGR’s Madaraka Express passenger service ferried 1.3 million passengers — or 4,000 passengers a day — between Nairobi and Mombasa. That’s equivalent to more than 60 passenger buses in a day.

Moreover, the SGR’s freight trains hauled 25,000 twenty-foot equivalent (TEU) units of cargo in six months since the service was launched in January this year — implying that it displaced about 140 trucks with a capacity of one 20-ft container or 70 trucks with 40-ft container capacity.

MORE RELIABLE

While the SGR hasn’t achieved financial viability, it has made considerable social and economic impact. That includes transferring people and goods faster between Mombasa and Nairobi; cutting environmental pollution and risks; reducing damage to transport infrastructure; and improving safety. Road traffic accidents, a regular occurrence on the Northern Corridor and other major road transport routes, have decreased.

The speed of delivery is a key advantage of railway over road or air transport. Madaraka Express covers the 472-kilometre distance between Nairobi and Mombasa in just over four hours, cruising at a maximum speed of 120 kilometres per hour (kph). It is regular and more reliable than buses, which take nearly twice the time due to long traffic jams and unpredictable disruptions. The freight service takes slightly longer but still covers the trip in half the time for trucks.

TRANSFORMATION

The Eurostar and Shinkansen, cruising at a speed of over 300 kph, have built their reputation on getting passengers faster to their destinations than aircraft flying at 900 kph ground speed equivalent. The bullet train from Tokyo to Osaka is likely to arrive 30 minutes earlier than a flight between the two cities when time for security and immigration checks, delays and road transfers is factored in.

The Eurostar, with 18 trains a day, claims that it’s faster than flying, offers ample, comfortable space for working during the train ride and achieves up to 80 per cent less carbon dioxide emission than flying.

The SGR has strong potential as a strategic instrument of social and economic transformation. Improving the efficiency of passenger and freight services between Nairobi and Mombasa would contribute to President Uhuru Kenyatta’s Big Four plan, particularly in moving up the manufacturing value chain and also improving health outcomes by reducing pollution and accidents that cripple thousands of people each year.

28M TONNES

The challenge for the SGR is to scale up its operations to reach the break-even threshold of passenger and freight volumes. Studies on railway operations worldwide indicate that profits are driven more by freight than passenger services — though there are exceptions, such as in China, where high passenger volumes have contributed to the profitability of its high-speed railways.

It is critical that the SGR increases its rolling stock to haul a bigger share of the 28 million tonnes of cargo shipped through the Mombasa port.

Improving the financial viability of the SGR is particularly critical to ensure that the project does not become a drain to national resources, particularly as it expands to western Kenya and integrates with the East African Community network.

Mr Warutere is a director of Mashariki Communications Ltd. [email protected]

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