Jump to navigation

Kenya

Finance costs threaten the Nairobi-Mombasa express

A showpiece for Beijing-Nairobi cooperation the Standard Gauge Railway project is also one of the world's costliest

Concerns are rising about Kenya's capacity to repay the hefty loans it took from Chinese contractors and banks to finance the Standard Gauge Railway (SGR) as the cost of servicing the country's debts consumes an ever larger share of state revenues.

The Kenya Railway Corporation (KRC), which has the worst debt of the parastatals, lost 24 billion shillings ($240 million), in the 2020/21 financial year. Persistent losses at KRC are blamed on SGR operations whose revenues have lagged far behind operating costs ever since its launch (AC Vol 55 No 4, No way to run a railway).

Besides operating fees for running the railway paid to management company Afristar, which is owned by China Road and Bridge Corporation, KRC has to repay the Ksh324bn ($3.2bn) it borrowed from China's Exim Bank in May 2014. The grace period on that lapsed last year.

To meet the revenue targets needed to finance the loan repayment, an agreement signed by KRC committed a quota of Mombasa port cargo freight to the SGR. The deal required the port to pay compensation if it failed to meet targets.

Import cargo previously handled by the Kenya Ports Authority was also transferred to the SGR, and a permanent inland terminal was established to handle the freight arriving exclusively via the SGR – all this was meant secure the railway's commercial viability (AC Vol 61 No 8, Freight storm hits the port).

Yet the SGR continues to slide deeper into the red. It earned $5.7m in its first year of operations, against the $12m needed for the project to break even.

The government's audit report confirmed that the Kenya Ports Authority was listed as a principal security alongside KRC in the loan deal with Exim Bank. The parliamentary advisory committee says KPA signed the deal against advice.

The Treasury's projected debt repayments to Exim Bank are set to more than double, revised from KSh42.67bn ($420m), to KSh96.7bn ($960m), in the financial year starting July 2021.

Repayments also account for 24.15% of the $4 billion external debt obligations for the next financial year ending June 2022.

Competition posed by routes such as Tanzania's central line running from Dar-es-Salaam to Isaka, about 100 kilometres south of Mwanza with a planned extension to Kigali and a branch line to Musongati in Burundi, will also bite into the SGR's commercial viability. At 1,400kms, the distance from Dar to Kigali is 25% shorter than Mombasa to Kigali.

If China keeps its pledge to build a megaport at Tanzania's Bagamoyo as well, Mombasa will struggle to compete for transit cargo to and from Rwanda and beyond.

There are also commercial concerns about the development of Kenya's Lamu port, part of the wider Lamu Port South Sudan-Ethiopia Transport (Lapsset) Corridor, a $24bn project connecting the Kenyan coast with inland markets.

Since being inaugurated in May, Lamu has seen only five container ships dock at the facility.



Related Articles

No way to run a railway

President Kenyatta is backing a US$4 billion no-bid contract with a state-owned Chinese company to rebuild the Nairobi-Mombasa railway

Kenya's flagship transport plan, the Standard Gauge Railway Project (SGRP), is attracting growing controversy over its enormous cost and the uncontested contract award for the first phase. The...


Freight storm hits the port

Fulfilling the terms of China’s loans for the standard gauge railway is at the expense of Mombasa’s role in the national economy

If it wasn't for the drama that preceded it, the resignation of the Kenya Ports Authority (KPA) managing director, Daniel Manduku, at the end of March would have...


Ruto struggles to regain control

Weeks of protests sparked by punitive tax hikes have morphed into a wider revolt, pushing the President on the defensive

The sense of chaos coming from State House in Nairobi is palpable. Having fired his government and accepted the resignation of Inspector General of Police Japhet Koome, President...


The hard road to truth, justice and reconciliation

President Mwai Kibaki's 23 July appointment of Bethuel Kiplagat to chair Kenya's newly created Truth, Justice and Reconciliation Commission is problematic. Some suspect the government will use the TJRC to exonerate any senior politician convicted of election violence and Kiplagat, a senior aide to President Daniel arap Moi, lacks support and credibility, as do some other TJRC members. Furthermore, the TJRC's remit stretches back to 1963. Far from resolving postcolonial crises, this may prove yet another lengthy, expensive inquiry whose conclusions are seen as just another cover-up.

Many regard the question of Bethuel Kiplagat's independence as fundamental. He was a leading coordinator of Daniel arap Moi's survival strategy (AC Vol 31 No 24) and critics...


Mining for votes

Firebrand politician Michael Sata’s anti-Chinese rhetoric is helping the opposition’s campaign ahead of next year’s elections

Opposition politicians and trades unionists have gone on the offensive since Chinese managers at the Collum coal mine shot protesting Zambian workers on 21 October. The charge is...