Railway project hits fresh barrier in Uganda as Kenya lays foundation

Saturday April 12 2014

A section of the standard gauge railway in Changamwe, Kenya. Photo/Laban Walloga

After months of controversy around Kenya’s Ksh327 billion ($3.8 billion) standard gauge railway (SGR) between Mombasa and Nairobi, the project is finally underway. In Uganda, the wrangles are just starting.

A visit to the Changamwe yard, where Kenya’s President Uhuru Kenyatta launched the project late last year, shows that the implementation is gathering speed. Last Thursday morning, workers were on site clearing a section of the yard where the construction will begin.

Some machinery from Spedag Interfreight, the firm contracted to handle logistics, was at the site. Other materials — including slippers, rail lines, bolts and steel bridges — were said to be on the high seas and would arrive “soon,” an indication that Kenya is keen to start the project after months of controversy.

At issue are the cost of the project to the Kenyan taxpayer, its appropriateness over other options like upgrading the existing line to improve its capacity and speed, and the funding model and integrity of the procurement process for the project, which is to be done by China Road and Bridge Corporation.

READ: Kenya railway project starts amid controversy

In Uganda, efforts to start construction of its SGR line between Malaba and Kampala are mired in a procurement wrangle.


Early this week, Uganda’s Ministry of Works terminated a memorandum of understanding (MoU) with the China Civil Engineering and Construction Company (CCECC), setting off potentially protracted litigation that could expose the country to a multimillion dollar claim in compensation and cause slippage in the schedule for the project.

In an April 8 letter to the president of the construction firm, Ugandan junior Minister for Works John Byabagambi served the Chinese contractor with a three-month notice of intention to terminate the MoU entered into by the parties in March 2012.

“CCECC has shown unwillingness to resolve any differences with the government of Uganda amicably, even before we sign formal contracts for the projects. Instead, the company has resorted to threats of court action among others. I am convinced that CCECC shall not be a reliable partner in the execution of the projects, should the government go ahead to sign contracts with them,” Mr Byabagambi wrote before serving the notice of termination from April 9  to July 10, 2014.

The contractor’s representatives, however, disputed the minister’s grounds, arguing that in all meetings with him, he has attempted to force rather than negotiate positions with CCECC.

“We have also never threatened to go to court as alleged by the honourable minister, and it is only this latest action by him that now invites us to go to court,” the company told The EastAfrican.

The SGR project is poised to open up the East African Community infrastructure. A fortnight ago, South Sudan announced that it would join EAC countries in the development of the SGR to reduce transport costs and boost regional trade.

READ: Regional rail project to include South Sudan

Kenya reached a deal with Uganda and Rwanda to construct the SGR railway to link Mombasa port to Malaba on the border with Uganda. It will be extended to Uganda, and, by 2018, to Rwanda.

So why did the region opt for SGR? The major point of contention in Uganda revolves around attempts by the minister to reallocate the Kampala-Malaba section from CCECC to a rival contractor, yet the latter had already submitted detailed designs and feasibility studies.

CCECC entered three MoUs with the government for upgrading of the rail network covering the Kampala-Kasese, Tororo Pakwach-Gulu-Nimule and Kampala-Malaba sections, but it is only for the latter section that design and feasibility studies were submitted.

Mr Byabagambi’s letter came just a day after he wrote to Ugandan President Yoweri Museveni, telling him it was not possible to accommodate another Chinese bidder, the China National Corporation for Overseas Economic Corporation (CCOEC), in the SGR project because the work had been given to CCECC and the China Harbour Engineering Corporation (CHEC) as directed earlier by the president.

READ: Minister’s action may delay Ugandan leg of railway project

CCECC’s lawyers declined to comment on the amount of compensation they would be seeking but, according to official correspondence between the Finance and Works ministries, it is likely to be in millions of dollars.

According to figures from a June 2012 letter, in which the Ministry of Works sought a certificate of clearance from the Finance ministry for the financial implications of the SGR project, the cost of designing the 251km Kampala- Malaba segment was estimated at Ush7.8 billion ($3.1 million).

Sources say however that CCECC, which was contracted to design close to 900km of SGR that includes the 500km Tororo-Pakwach section and a line to Nimule on the border with South Sudan, could lodge a claim of about $100 million.

READ: Uganda SGR row boils down to nine miles

The contractor’s agents in Kampala say the company has already incurred huge costs to produce the designs and feasibility study.

In his notice, Mr Byabagambi cites sections of the MoU which say it was not legally binding; disputes arising from any part of the document would be resolved amicably between the parties and the MoU could be terminated by either party giving a three-month notice.

Independent lawyers said the minister’s actions are risky for Uganda because, in this case, it could be argued that he is terminating not an MoU but a contract.

“An MoU ceases to be such the moment it is implemented and becomes a contract. Because they have already implemented a significant portion of the terms of the MoU, it is the ministry that would be in breach and that potentially exposes Uganda to claims for redress,” said a Kampala-based lawyer who did not want to be named.

By Michael Wakabi and Daniel Nyassy