Tag Archives: SGR

Funding the SGR

Excerpts from the Public Investments Committee special report on the procurement and financing of the construction of Standard Gauge Railway (SGR) from Mombasa to Nairobi (phase I) (April 2014)

  • The Ministry of Finance on 4th January 2010 wrote to the Government of China requesting for a concessional loan for the construction of a new Standard Gauge Railway at a cost of USD 2.5 Billion. The funding of the project is not a grant to Kenya but rather a loan that the people of Kenya are going to pay.
  • In the Budget Statement for Fiscal Year 2013/14 delivered on 13th June, 2013 the Cabinet Secretary for the National Treasury proposed an amendment to the Customs and Excise Act, Cap 472, Laws of Kenya, so as to introduce a Railway Development Levy of 1.5 % of the customs value of all imported goods. The loan will cost USD 3.23 Billion from EXIM Bank of China comprised of a concessional loan of USD 1.6 billion and a commercial loan of USD 1.63 billion. The concessional loan is for 20 years and has a grace period of 7 years and an interest rate of 2% per annum while the commercial loan is for 10 years and grace period of 5 years and insurance cover of 6.93% of the commercial loan and interest of six months LIBOR + 360 basis point. The loan has a grant element of 35%. The insurance component is always available for any commercial loan. For China, the insurance cover has to be done by a Chinese firm, SinoSure. The insurance cover is to take care of nonpayment.
  • The major financial implications of the project will be Kshs. 349.44 billion relating to: – EPC contract for USD 3.8 billion covering USD 2.657 billion for civil works, and USD 1.146 billion for facilities, locomotives and rolling stock; Kshs. 8.04 billion for compulsory acquisition of 2,253 hectares of land for the railway corridor; Kshs. 10.6 billion for Embakasi Inland Container Depot (ICD) expansion programme, facility development and container handling equipment; Kshs. 1 billion for land acquisition for the Embakasi inland depot; and Kshs. 3 billion for project supervision.
  • The Government of Kenya has met all the requirements of the EXIM Bank of China which include; an Assurance that the Government will guarantee minimum freight demand for the SGR through execution of take or pay agreement between KRC and the Kenya Ports Authority and confirmation that Railway Development Fund will be used to repay the loan. EXIM Bank of China is currently going through its internal credit approval process following which it will submit to GoK, through the National Treasury the Financing Agreements. The financing agreement has not yet been signed (at the time of the report).
  • There is no financing agreement yet signed between the Government of Kenya and EXIM Bank in China. There is no sovereign guarantee by the Government of Kenya on the commercial and concessional loan from the Government of China (at the time of the report).
  • The National Treasury has undertaken a debt sustainability analysis and to ensure that the SGR loan does not compromise the debt policy parameters spelt out in the debt sustainability strategy paper and is sustainable.
  • In the unlikely event that the revenues from railway operations are inadequate, the proceeds from the Railway Development Fund will be used to repay the loan.

$1 = ~Kshs 103

Nairobi-Mombasa Highway Transforms

For a long time, motorists on the road trip to Mombasa had endless savannah and semi arid brush-land as their only view, with few sizeable towns and centres along the highway. Many travelers would drive the long stretch between Nairobi-Mtito Andei or even up to Voi, before deigning to stop for refreshments and use of sanitation facilities at what were mostly only petrol station joints. Many of the Colonial era taverns and Inns along the Highway had fallen either into disrepair or closed completely. And a night in Voi meant accessing the adjacent Tsavo East National Park to stay in Voi Safari Lodge.

Not anymore. Recent events have led to a great change in the landscape along the Highway. Sure the great vast ranches of Konza are still largely intact but urban development has become a major feature of the highway with numerous new centres expanding and what were once junction centres now turning into overnight stop points or places of bustling with 24-hour economic activity. A number of factors have contributed to these developments and are manifested in some of the features observed.

Konza City: Previously tiny centres such as Kyumvi (Chumvi) or the Machakos turnoff have now become major truck stops. Investors have established vehicle sales centres nearby and the price of land is sky rocketing going by rough quotations one receives. Further along is Malili centre which sprung up once news of the plan publicized by the grand coalition government about a new Technological (ICT) city to be built at Konza, that was meant to take away pressure of land and space from Nairobi. The city was touted as a Kenya’s Silicon Valley and out of nowhere, Malili town sprung up right next to the borders of the proposed, but yet to be built, Techno-City.

Standard Gauge Railway (SGR):  This is Kenya’s single largest investment in infrastructure. As is widely known, the project replaces the old Uganda Railway (also known as the Lunatic Line) from Mombasa to Uganda. The first phase starts from Mombasa to Nairobi with advanced plans to extend it first to Naivasha and then to Kisumu and Malaba. When the SGR is done, the railway will need return cargo i.e from Western Kenya or Nairobi to Mombasa to be viable, and to get more trucks off the road.

Whatever the merits or demerits of this project is not for debate here but what must be stated are the numerous economic activities and developments that have been brought about by this project.

As the SGR is constructed, groups of the thousands of workers involved must be watered, fed, housed, clothed, transported, treated and entertained along the route. This direct and multiplier effect of the project is an indication of heavy spending. Elevated sections of the railway are a sight to behold especially for one who has not travelled the route for a long time. Major site stations chosen include Makindu, a town whose most distinct feature is the Sikh Temple. A Skygo motor cycle assembly factory is one of the new investments set up by a local born and bred entrepreneur, while new entertainment joints such as Shushan Place and Oasis  have emerged. emali

At Emali, Nakumatt, Kenya’s largest Supermarket chain by sales volume, products variety and retail outlets has deigned it fit to set up shop. The petrol station eateries of Mtito Andei which marks the half way stop between Nairobi and Mombasa have changed tremendously. Weary travellers alighting from luxury coaches can now relax in massage chairs. Voi town has also enjoyed a boom in construction of residential and commercial real estate that as previously unimaginable. These are all visible signs that there is money along the highway.

Oil Pipeline: Kenya is replacing its over 40-year-old Mombasa to Nairobi oil pipeline. This project has also attracted huge groups of workers contributing to the activity along the highways in camps and sections nearby.

Concrete Poles Not to be forgotten as a major activity is the replacement of old wooden electricity poles by the Kenya Power & Lighting Company with heavier concrete ones.Poles

Devolution: It is indeed true that devolution has  brought major developments and investments in the towns along the highway. The County Governments have spent on setting up their structures and attempting to deliver services to their people; the heavy spending has indeed yielded change, and this has attracted new players even in the tourist sector at Tsavo. One such establishment is the Zomeni Lion Hill Lodge in Voi, 6 km outside town along the road to the Tsavo East National Park Gate which is run by the knowledgeable father and son duo of Basil and Agam. The lodge features 8 rooms and 4 tented rooms with delightful views of the vast Tsavo park. It is secured from wild animals by electric fence, and is one of the new joints that offer real variety to local and international tourists. There are two air strips ay Voi, one by KWS in the park

Lion Hill Conclusion: This article is not intended as a feel good piece but an appreciation of tremendous changes that have taken place along the highway. The writer has not spent time in many of the centres and towns to appreciate other factors such as the availability or lack of water, sanitation, waste management or security among others let alone whether much of this development is affordable, planned or sustainable.

But for long time travelers, it may be worth it skipping that flight to Mombasa and instead taking a day long drive and appreciate the changes that have taken place along the highway. Although the Mariakani Weighbridge headache is ever-present, newer routes into Mombasa or the South Coast are opening up. Both County and National Government are endeavoring to create alternatives through Kaloleni to the North Coast and Samburu to the South Coast.

Today’s children will never know what the old highway looked like before, e.g why Man Eaters was named so, or appreciate that the drive down to the Coast used to be about five hours only (it now takes about 10 hours to drive between Nairobi and Mombasa)  or why is the lane going towards Mombasa is smoother than the uneven lane climbing towards Nairobi. But who else to tell the story than their parents when caught for speeding between Mtito-Andei and Voi by the NTSA?

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