Kenya SGR Railway May Never Make Enough Money to Repay China Loan

SGR Madaraka Express
Image by Micheal Khateli

The launch of the Standard Gauge Railway (SGR) also dubbed as Kenya’s most expensive public infrastructure project, eased the crowding & long-hours travelling in buses & in old British-built train between Mombasa & Nairobi. At just around Kshs 700, the train has cut the long exhausting journey from 12-24 hours to 4-6 hours depending on the number of stops.

Passengers also enjoy the view of elephants on the way, but only if don’t take a long nap. Passenger tickets were totally sold out when Kenya kick-started its new railway that connects the coastal city of Mombasa to the capital, Nairobi.

The railway was primarily built to move freight efficiently between the capital and the port at Mombasa, 484km (301 miles) apart. Ferrying passengers was just a secondary reason-for-building the railway although recently, the passenger service has been serving more success than the cargo service .

All is not well in the still-new knight in shining armour as the the cargo service which was launched with a lot of fanfare is struggling to send even a single train inland per day against a projection of four. The second train out of Mombasa arrived a day late, because it didn’t have enough goods to leave the port.

On the positive side, if all could go as planned, the line whose goal is to relieve congestion on the roads and lower transport costs should move about 40% (1600 containers out of 80,000 targeted) of the freight coming inland from Mombasa. The cargo is loaded straight from ships onto trains, which take it to a depot near Nairobi where it is processed by customs officials.

Although the trains go faster than lorries, it is said that the line is far less efficient at moving cargo due to delays in loading and unreliable customs processing at the inland depot. Cargo-clearing firms prefer to deal with a devil they know -the container on a truck- than a new angel, the train cargo.

But even if cargo services traffic increases, the line will probably not make enough money to repay its huge debt. This is a loan of Kshs 319B billion which was borrowed from the Chinese Exim Bank in August 2013 to fund the SGR railway construction. The loan which came with a 10-year grace period which will mature in August 2023. A total of Ksh 213B funded the construction of the tracks while the remaining Ksh 106B was used to buy the first set of locomotives and wagons.

The loans attract interest at a floating rate of 360 basis points above the London Interbank Offered Rate (Libor). Kenya will start remitting the principal sums from August 2023 with the repayment period being spread up to 40 years-that is- upto 2063 but for now officials will settle for enough revenue to cover the running costs and maintain the railway.

In 2013 the World Bank said that a new railway would be feasible only if it were able to move at least 20m tonnes of cargo a year, just about everything that goes through the Mombasa port. But sadly, the new cargo line will transport half of that at its best.

Getting importers to use the cargo service is proving harder than expected. Although fees were cut after the first slow month, traffic did not improve that much. Cargo that is not directed to a specific clearing depot in Mombasa has been ordered onto the railway automatically, regardless of its final destination. It is disappointing to importers who arrive in Mombasa to pick up containers, just to find that their cagos have been sent to Nairobi.

A few in Mombasa excluding the governor himself who has stakes in two container-storage depots in the city, are pleased by the idea of cargo being sent straight to the interior bypassing the armies of agents based in the port city. The Mombasa county governor’s spokesman, criticizes the new railway as a killer of the economy in Mombasa as it promotes movement of freight straight to Nairobi hence undermining the depots business.

The old british-built railway could have been refurbished at a cheaper cost than that of constructing a new railway for the ‘White elephant’. Nevertheless, hopes are up that the railway will connect all of east Africa.

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Business Reporter at Urbwise. Areas of interest are business, politics, music and dogs.