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Region lobbying China to jointly finance rail project

Saturday May 10 2014
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Kenya, Uganda, Rwanda and South Sudan have resolved to lobby China to jointly fund the construction of the standard gauge railway (SGR), in an arrangement that will make the project more attractive to financiers.

The countries, in their latest meeting in Nairobi last week, set October as the deadline by which construction of all the sections of the line ought to have started.

The region is pitching the financing agenda for the rail project to the Chinese Premier Li Keqiang who arrived in Nairobi on Friday.

On Sunday, President Kenyatta will be joined by leaders from the region — President  Museveni (uganda), President Jakaya Kikwete (Tanzania), President Paul Kagame (Rwanda), and  President Salva Kiir (South Sudan) and a representative of the government of Burundi – for talks with the Premier Li Keqiang, centred on regional infrastructure. 

Thereafter they are expected to sign an agreement in respect of the SGR, which, when completed, is expected to link the Kenyan port of Mombasa to the Burundi capital Bujumbura, through Kampala and Kigali. It will also expand to the South Sudan capital of Juba.

The joint line is to be sold as a single project in a bid to increase the project’s selling point.

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A ministers’ report from the Nairobi meeting seen by The EastAfrican shows that individual governments have been negotiating with China on financing their segment of the proposed railway line, but officials from these states see a joint approach to Beijing as advantageous, as it will increase the bankability of the project and thus reduce the cost of funding.

“In line with previous summits communiqué directives on joint resource mobilisation, the four earner states should pursue a joint regional financing mechanism with the People’s Republic of China during the visit,” reads the ministers’ report.

The pressure to abide by the planned project timelines has seen Kigali, Kampala and Nairobi court different financiers, with Uganda considering structuring its share of the SGR as a Private Public Partnership (PPP).

Finance Minister Maria Kiwanuka said the government is preparing a bankability report, which it will use to seek a public-private partnership for the project.

Kenya, Uganda and Rwanda have already signed an MoU with the Africa50, a company established by the African Development Bank (AfDB) to help develop and structure financing for infrastructure projects across the region.

World Bank’s financing arm, the International Finance Corporation (IFC), has already shown interest in financing the SGR and a proposed crude pipeline from Hoima in western Uganda to Lamu on the Kenyan coast through the Africa50.

The new thinking to court China as a block comes even as Uganda, Rwanda and Kenya said they had already agreed on the technical specifications for infrastructure, rolling stock, operations and the SGR protocol.

READ: Uganda seeks private investor for SGR

However, concerns over Kenya’s ability to generate enough cargo for the Mombasa-Nairobi segment has seen China impose strict conditions, including an assurance that Nairobi will guarantee a specific amount of cargo is lifted through the rail. Nairobi has also been forced to take insurance on the loan taken from Beijing, increasing the total cost of the railway.

READ: Kenya’s shift to Beijing rewarded by $712m in loans

Selling the railway as a single project will strengthen the business case — by increasing the amount of cargo it can transport and removing the probability that an inland country, say Uganda, may lift its portion faster than Kenya, making the investment useless while at the same time loading a high amount of debt on the country.

The four countries — and especially Kenya, Uganda and Rwanda — are under pressure to close financing deals by the third quarter of this year to ensure that the project remains on track.

“In consideration of the target completion date of March 2018, it’s noted that the construction on all sections ought to start not later than October 2014..,” reads the report.

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