You are here Home » Start-ups » Business Plans » East Africa Community’s Standard Gauge Rail network remains a mirage, with Kenya already shoulders-deep into Chinese debt

East Africa Community’s Standard Gauge Rail network remains a mirage, with Kenya already shoulders-deep into Chinese debt

by Milicent Atieno
East Africa Community’s Standard Gauge Rail network remains a mirage, with Kenya already shoulders-deep into Chinese debt

In 2013, East Africa states Kenya, Rwanda, and Uganda convened at the first Northern Corridor infrastructure summit in Uganda. The three countries came up with a resolution to build a high-speed standard gauge railway network linking the three countries, with the hopes it will spur up their socio-economic growth.

The Standard Gauge Rail (SGR) network was to span over a distance of 1,500 km and was supposed to be up and running by 2018. Well, it is June 2019, and the only nation that has laid down some of the railroads is Kenya. The SGR is now running from the coastal city of Mombasa to the capital Nairobi, a distance of some 487km, which was constructed at a cost of $3.8 billion.

90% of the funds to build the Mombasa-Nairobi SGR network was obtained by Kenya from the Exim Bank of China back in May 2014. The loan has a grace period of five years, and a repayment period of 15 years.

Kenya is now extending the SGR to Naivasha, some 120km west of Nairobi at a cost of $1.5 billion loan from China. Remember, in the original blueprint of the SGR, the network was to start from the eastern borders of Kenya (Mombasa) to the western borders of Kenya (Malaba) through the port city of Kisumu.

Extending the SGR from Naivasha to Kisumu would cost another $3.6 billion, which would be the third phase of the project. However, the Chinese lender in April refused to extend another loan to Kenya; much to the appeal of Western nations who have long criticized China of neo-colonialism via its loans to developing nations.East Africa Community’s Standard Gauge Rail network remains a mirage, with Kenya already shoulders-deep into Chinese debt

As it is, the SGR will be completed only partially, from Mombasa through Nairobi to Naivasha. The rest of the network, as announced by Kenya will be the old meter-gauge network. Uganda, Rwanda, and South Sudan (which was roped into the program in May 2014) have been keeping a keen eye on the performance of the up-and-running Mombasa to Nairobi SGR line. The line began operation in June 2017.

The three countries are critically judging the commercial value of both the passenger and cargo trains on the line. By the looks of things, they are not impressed, and word has it they are strongly thinking of pulling out of the grand SGR network agreement.

Kenya is expected to start paying for phase one of the SGR network (Mombasa to Nairobi) in the 2019-2020 fiscal year; which begins next month. However, with the Mombasa-Nairobi line realized commercial value being overwhelmingly down the expected value. It is very clear Kenya is going to struggle (if at all) to pay the Chinese loan. The line is said to be not even generating enough revenue to cover its operating costs, let alone get the funds to pay back the loan.

On its first year of operations, the Mombasa-Nairobi line recorded a loss of $100 million. Something that prompted the government of Kenya to arm-twist cargo shippers to exclusively use the SGR to ferry their containers from the port in Mombasa to Nairobi.

The International Railway Journal says the freight share of the East African market is below 5%, bringing doubts on the economic viability of the SGR line. Something that further dampens the spirit of Uganda, Rwanda, and South Sudan to embark on the construction of the SGR line on their side.

Importers and exporters also do not want to use the SGR services citing high freight charges. As things currently stand, it looks like the government of Kenya will have to foot the bill to extend the railway from Naivasha to Malaba at a cost of $400 million. However that line will not be an SGR line, but the old meter gauge rail.

The Ugandan border has in the meantime invested $205 million to restore the old meter-gauge railway running from Malaba on the Kenyan border to the capital Kampala. According to Uganda forecast, upgrading the meter gauge railway from Malaba to Kampala will boost freight capacity from its current 20,000 tonnes to 120,000 tonnes. Something that has made Uganda really cold towards replacing the current meter gauge railway to the proposed SGR.

Doubled with the fact that Uganda is struggling to secure funding from China for the Malaba to Kampala line, the country has resorted to putting the SGR construction on hold. Instead, it is focusing on upgrading the already existing meter-gauge railway.

Though the Malaba to Kampala SGR plans were laid down in October 2014 and the stakeholders were in agreement with the feasibility study and design of the line. Though lack of funding and Kenya’s failure to complete its SGR side of the line to Malaba has made Uganda rethink about the entire project.

You may also like