Africa: Kenya’s big SGR dream begins to fizzle out as losses mount
It was billed as the saviour of the choking Mombasa port traffic.
Eighteen months down the line, with a string of lost business and livelihoods, the standard gauge railway (SGR) cargo haulage continues to traverse the over 400-kilometre Nairobi-Mombasa stretch with each trip raking up losses.
It’s the same sad story for the passenger service which was to complement cargo haulage and charm the electorate.
Unknown to taxpayers, every time a train shuttles between the port city of Mombasa and Nairobi, it adds to the financial burden of the taxpayer even as the public debt pit deepens and widens.
Just last week, it emerged that Kenya had revised downwards earnings from the SGR in the first full year of operations by 44 per cent to KSh5.7 billion from the previously reported KSh10.6 billion, dimming hopes that the project will break even any time soon, even as its loan repayment starts to chalked up the country’s revenues.
“We believe SGR is economically viable. Note that in the first year of operation it earned Sh10.33 billion, which is close to the operating cost of Sh12 billion. It’s never easy for a railway project to achieve nearly break-even in a year,” Chinese ambassador to Kenya Wu Peng said last week.
However, data from the Kenya National Bureau of Statistics (KNBS) paints a grim picture of the railway line, whose annual operating cost is KSh12 billion and whose cargo capacity is already at its peak, according to insiders.
For instance, in the 16 months to April this year, cargo hauled via the SGR stood at 3.76 million tonnes with the month of April having seen the highest haulage of 318,848 tonnes.
Kenya Railways Corporation has also cut back goods wagons to 203 as at the end of April from a high of 214 at the start of the year, the report shows.
However, there still exists a disparity between official figures on the performance of freight trains.
The number given by Kenya Railways is less than the official statistics captured by KNBS.
For instance, Kenya Railways’ figures obtained by the Nation show that 2.57 million tonnes of cargo were moved by rail in the 12 months to December last year, a contradiction of the KNBS data that showed 2.89 million tonnes.
From the KNBS data, the freight service operated by China Communications Construction Company, which started in January last year, generated Sh4 billion last year against the initial announcement of Sh8.72 billion, almost a 50 per cent adjustment.
This gloomy figures are despite the special offers run by the government through its key agencies Kenya Railways and Kenya Ports Authority in most of last year, and several policy decisions that almost unilaterally forced importers to use the cargo haulage service.
“SGR … probably carries about 18 per cent of the cargo that arrives at the port. At [the] maximum when they do 12 trains a day, they will probably carry 32 to 35 per cent,” Shippers Council of East Africa chief executive Gilbert Langat said.
In terms of the passenger service, which also ran on a promotional tariff till the start of this year, SGR sold 1.66 million tickets worth Sh1.61 billion in the 12 months to last December even though Kenya Railways data puts this figure slightly higher.
“Over 2.8 million passengers have used the service since inception to date,” the railway agency said in the latest performance report seen by the Nation.
The poor financial performance of SGR comes even as principal payments to Exim Bank of China, the main SGR financier, will rise six-fold to nearly Sh34.3 billion in the next financial year starting end of June.
In May 2014, Exim Bank advanced Kenya Sh323 billion comprising Sh163 billion as a commercial loan and Sh160 billion as concessional loan for the railway line.
Kenya used the funds to build the more than 400km railway between Mombasa and Nairobi.
The loan, whose interest is 3.6 percentage points above the six months average of the London Inter Bank Offered Rate (Libor) — which serves as an international benchmark — is to be repaid in 15 years with a grace period of five years. The grace period ends in June 2019.
Treasury documents tabled in Parliament late last year show that Kenya will pay Chinese State-owned lenders nearly Sh81.67 billion from July 2019, up from the current Sh26.23 billion, and Sh35.76 billion from July this year.
Kenya’s Sh81.67 billion debt to Beijing will account for a third of the Sh270 billion debt that will be due to foreign lenders in the 2019/20 financial year.
But even as the government struggles to make the railway economically viable, Mombasa is already moving on, having licked its wounds on lost businesses at the port, resulting from this new reality.
Already, the local political leadership is pushing for the realisation of the Mombasa Special Economic Zone in Dongo Kundu to promote manufacturing and job creation as an alternative port investment to arrest negative effects of the SGR on the port’s economy.
Once fully operational, the economic zone is expected to create 3,000 jobs, which the local leadership believes will replace those lost when the SGR was put into operation.
“Mombasa has seen a reduction in income from the port as a result of SGR operations. We have to accept this reality and be innovative in the way we forestall its after effects.
“We are already working with the national government and consultants in a bid to see how to fully actualise the free trade area. We want to see how it can help in job creation,” Mombasa Senator Mohamed Faki said.
The Kenya Ports Authority had already identified more than 3,000 acres where it plans to build the Dongo Kundu economic zone, with the first phase — which was set for ground-breaking early this year following a funding investment of Sh27 billion from Japan — now in limbo