SGR future in doubt as governments revert to old metre gauge railways

Wednesday June 19 2019

Standard gauge railway.

The second phase of the standard gauge railway passes through the Nairobi National Park. Without funding, the rest of the project is at risk of failure. PHOTO | AFP 

JAMES ANYANZWA
By JAMES ANYANZWA
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When the leaders of Kenya, Rwanda and Uganda conceived the idea of a high-speed standard gauge railway linking the three countries at the first Northern Corridor infrastructure summit in Uganda in 2013, there was hopes of socio-economic transformation of East and Central African economies.

The rail project was set to increase the region’s competitiveness and lower the cost of doing business. The planned 1,500km-long railway was expected to be completed by 2018.

This led to the signing of a tripartite agreement for the development and operation of the SGR between Mombasa-Kampala-Kigali, with branch lines to Kisumu (Kenya) and Pakwach/Gul-Nimule (Uganda).

Convinced of the benefits of the high speed train, South Sudan acceded to the agreement in May 2014 to extend the line to Juba.

Six years later, the grand rail project appears to be in trouble, with the chances of its completion hanging by a thread.

Although Kenya has completed its initial phase of the project linking Mombasa to Nairobi, and has embarked on the second phase from Nairobi to Naivasha, the subsequent phases from Naivasha to Kisumu and then to Malaba at the Ugandan border have stalled due to funding constraints.

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Kenya obtaining funding for the Malaba-Kisumu segment was critical to Uganda’s plans to close a $2.3 billion funding deal with the Chinese government for the Malaba-Kampala section.

The Exim Bank of China was expected to foot 85 per cent of the budget.

FINANCING

Kenya completed the initial phase of the 487km SGR line from Mombasa to Nairobi at a cost of $3.8 billion, with 90 per cent of the funding coming through a loan from the Exim Bank of China in May 2014, with a grace period of five years and a repayment period of 15 years.

Kenya also secured a further $1.5 billion loan from the same bank to extend the SGR network to Naivasha, 120 kilometres west of Nairobi. However, attempts to obtain another loan of $3.6 billion for the third phase from Naivasha to Kisumu from the Chinese lender flopped in April, when China turned down Kenya’s request for additional funds.

The completion of the SGR line on the Kenyan side is critical to Uganda, Rwanda and South Sudan, which are closely monitoring the performance of both passenger and cargo business on the Mombasa-Nairobi phase that was launched in June 2017.

While financing of the multibillion-dollar project has been a major issue amongst the participating countries, the question of the viability of the railway has sparked debate among economists, policy makers and analysts.

Kenya is expected to start repaying its SGR loan in the next fiscal year (2019/2020), but this debt obligation may be difficult to meet given that the Madaraka Express operating between Mombasa and Nairobi is not generating enough revenue to cover its operational costs and repay the loans.

During the first year of operation, the SGR recorded a loss of Ksh10 billion ($100 million) and, in an attempt to generate traffic, the government directed that all imports through Mombasa port use the railway.

However, according to the International Railway Journal, rail freight’s share of the market remains below five per cent across East Africa, and there are concerns about the economic value of ongoing and recently completed rail projects.

Failure to generate enough revenue prompted the China Road and Bridge Corporation, the operator of the SGR, to increase freight charges and double the fares for children.

However, importers and exporters have been reluctant to use the SGR because of its high freight charges.

And without funding for the subsequent phases of the SGR, the Kenyan government has said it will start upgrading the 120-year-old metre gauge railway from Naivasha to Malaba at an estimated cost of $400 million.

It remains to be seen whether traders will prefer to load cargo on the SGR to the Naivasha inland container depot, then move it by road to its final destination, or just go by road all the way.

“Upgrading the metre gauge line offers us a chance to evacuate goods landing in the inland port as we await completion of the Kisumu-Malaba segment,” said James Macharia, Kenya’s Transport Cabinet Secretary.

DELAYS

Meanwhile, Uganda has invested $205 million in restoring the old railway line linking Kampala to Malaba on the Kenyan border.

Delays in securing funding for the 273km Malaba-Kampala component of the SGR also informed Kampala’s decision on the grand Northern Corridor infrastructure project.

Uganda estimates that its upgraded metre gauge railway line will boost monthly freight capacity to 120,000 tonnes from the current 20,000 tonnes by 2026, further casting doubts on the future of SGR.

Last year, Finance Minister Matia Kasaija said Kampala had put SGR plans on hold and would instead invest in revamping the old metre gauge railway.

Uganda’s section of the SGR was launched in October 2014 after completion of the feasibility study and designs of the railway line. The delay in implementation is due to lack of financing and Kenya’s failure to complete the line to Malaba.

The financing agreement for the Naivasha-Kisumu, Kisumu-Malaba, and Malaba-Kampala sections was to be completed by September 2018.

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