Tanzania's turn to Turkey for SGR funds leaves China in limbo

Monday January 30 2017

A railway line that once linked Kenya’s coast to Tanzania is no longer in use. Tanzania will use proceeds from a Eurobond and concessional loans to fund its standard gauge line. PHOTO | FILE

Tanzania is looking at using proceeds from its $700 million Eurobond and concessional loans to fund the construction of its standard gauge railway, making a big policy shift from its regional neighbours, who have bought into China’s fund, build and operate model to fund their railway projects.

This change of tack brings into question the role China will play in the project, having agreed in July last year to advance $7.9 million to the project through its Exim Bank, despite its key contracting firms having been blacklisted by President John Magufuli’s administration over tendering malpractices.

On Tuesday, Tanzania formally asked for an unspecified amount of cash from state-owned Export Credit Bank of Turkey during a state visit by Turkish President Recep Erdogan, to help finance a 400km stretch of a new 2,561km railway connecting its main port of Dar es Salaam to landlocked neighbours Democratic Republic of Congo, Zambia, Rwanda and Uganda.

“I am confident that we will secure that loan as Mr Erdogan said that is a ‘small’ matter to him. We have also received a bid from a Turkish company that is keen on executing the project,” said President John Magufuli.

The funding request came barely three weeks after Finance Minister Philip Mpango revealed that they had sought a $300 million loan for infrastructure projects, including the SGR, barely a week after announcing the country’s intention to float a Eurobond.

Permanent Secretary in the Ministry of Finance and Planning James Doto said that all documents were submitted to the consultant Citi Group last November.


“We are now waiting for them to respond. We will borrow up to $700 million, depending on the timing of the Eurobond,” said Mr Doto.

Dr Mpango also said that they had initiated talks with UK-based Credit Suisse for a $300 million loan for infrastructure projects.

“We are also in separate talks with other lenders, including the Kuwait Fund for Arab Economic Development, the Abu Dhabi state fund Mubadala Development and the Opec Fund for International Development for other concessional loans to fund these projects,” said the minister.

Tanzania’s turn to Turkey now leaves the earlier commitment with China in a limbo, while also raising the stakes as its neighbours Kenya and Uganda stick with Beijing for their railway projects.

READ: Turkey, China caught up in SGR tender confusion

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This is also the first public admission by Tanzania’s presidency of the “behind the scenes” lobbying between China and Turkey to lead the investment, which saw China’s Foreign Affairs Minister Wang Yi tour the country earlier in the month.

It is understood that the new administration blacklisted the Chinese firms that had won the tender under the previous administration, leaving the Turkish firms to execute the initial part of the project.

A senior government official, speaking on condition of anonymity, said the blacklisting concerns were a point of discussion with Mr Wang, but a bid by a Turkish firm to build the railway is almost a “done deal,” with the promise of financing from Ankara.

“The initial contract that was to be funded under the $7.9 billion fund from China Exim Bank had been awarded, but the president cancelled it following irregularities. The Chinese consortium was disqualified from re-entering the race,” the official said.

Tanzania is also looking for a new source of concessional loans and Ankara promises to be a viable partner. There have been concerns that the regional countries could be turning to bilateral, syndicated and concessional loans, shying away from traditional multilateral lenders like the World Bank and International Monetary Fund for mega projects.

However, Dr Mpango said that the World Bank still remains Tanzania’s partner in developing infrastructure, even as the country looks for supplementary financing.

On Thursday, the Bretton Woods Institution announced that it would lend Tanzania $1.15 billion for projects in energy, water and transport. The funding will include $425 million for the second and third phases of the Dar es Salaam Bus Rapid Transit, $305 million for expansion of the port of Dar es Salaam, $60 million for the planned Ubungo interchange junction and $100 million for Dar es Salaam water supply upgrade projects.

In 2014, Tanzania signed a memorandum of understanding with the World Bank and other partners to facilitate the expansion of the Dar es Salaam port at a cost of $600 million, with the bank promising to provide $305 million for the first phase.