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Kenya fails to secure funding to complete major railway

By Morris Kiruga
Posted on Monday, 29 April 2019 15:26

Spending on the Standard Gauge Railway project has largely contributed to Kenya's public debt. REUTERS/Thomas Mukoya

Kenya's inability to secure $3.6bn worth of funding from China for the third phase of the standard gauge railway has put the mega multi-country project at a crossroads

President Uhuru Kenyatta’s three-day visit to China yielded several deals, but not the main one he wanted. China’s hesitance to sign funding for the $3.6bn third segment of the standard gauge railway (SGR) began last year as it asked Kenya and Uganda to conduct a commercial viability study. The Kenyan government, already under pressure over the debt burden the railway has contributed to, was seeking favorable terms that would have seen half the funding of the phase provided as a grant, as opposed to a loan.

Perhaps one hope was that China would prioritise completing the railway to connect the Great Lakes region’s landlocked states, especially after its companies lost deals to construct Tanzania’s lines in 2015. The contracts went to a joint venture between a Turkish and a Portuguese firm instead. China has already burnt its hands in Ethiopia’s railway and might be looking to avoid a similar situation in East Africa. The completed stretch of Kenya’s line made an average monthly loss of KSh750m ($7.4m) in its first year of operations.

The absence of a funding deal means that Uganda will wait even longer to build its railway. In October last year, the landlocked East African country suspended its plans to extend the SGR from Malaba, located on its eastern border with Kenya, to Kampala, but President Yoweri Museveni visited and used Kenya’s passenger rail earlier this year. At the moment, Uganda is revamping its sections of the old railway to ease transport.

Kenya now plans to do the same thing on its side of the border as a short-term solution, but the plan is bound to shake the confidence of the cargo handlers it’s been trying to win over. If it works, cargo will have to be transported to Naivasha on the new railway, by road to the old railway, and then onwards to the border. Transport minister James Macharia called upgrading the Naivasha-Malaba stretch of the old metre gauge railway “a priority” for the Kenyan government.

Kenyatta’s officials went into crisis management mode after it became clear there was no deal in the offing. His chief of staff, Nzioka Waita, called reports of the president’s failure “incorrect and misleading.” In a statement, he also said that the funding was “not on the agenda of the meeting between the two presidents.” Foreign Affairs Cabinet Secretary Monica Juma said that “it is not the most urgent thing.”

  • The statements differ from an earlier one by Kenya’s Ambassador to China, Sarah Serem, who had said before the Belt and Road Initiative summit that “You cannot go halfway if you have started…all we are interested in is to ensure that SGR is complete.”

Bottom Line

For now, Kenya will have to settle with going halfway on its new line. Turning Naivasha town into a trans-shipment center is a priority for the Kenyatta government, as it offered Uganda land for a dry port and is also setting up a special economic zone in the town. Even without the line, Naivasha could turn out to be the most important logistics centre in Kenya after Mombasa.

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