Govt banks on oil money to fund 1,700km SGR network
President Museveni and other officials during the launch of the construction of the standard gauge railway at Tororo Main Station in Tororo District last week. Photo / File
What you need to know:
- President Museveni says using oil money, Uganda will be able to build all railway routes under the standard gauge railway network
Government launched the first phase of the standard gauge railway journey on Thursday, ending a nearly two-decade period of anticipation.
The region had over the period waited for Uganda to realise its ambitious plan to build a 1,700 kilometre railway, which President Museveni said would be funded by oil revenues.
The network is expected to change trade dynamics and serve as the main artery linking Uganda to DR Congo, South Sudan, Rwanda and Burundi.
It will also link Uganda to the Kenyan sea ports of Mombasa and Lamu, as well as Dar-es-Salaam and Tanga in Tanzania.
The contract for the 273 kilometre Malaba-Kampala leg was awarded to Turkish firm Yapi Merkezi for €2.7b ($2.83b) to be financed by government and a syndicated loan, with Citi Bank, as the lead arranger.
The test, however, is to raise funds to finance another 1,427 kilometres of the entire network of the Western route, which links with DR Congo at Mpondwe border post, the southward spur at Bihanga to connect with Rwanda at Mirama-Hills border post.
The network also extends to the border with South Sudan and another arm to northeastern DR Congo, via West Nile.
“Our petroleum is about to come out, maybe next year or the year after. With petroleum money, we shall build all these railway routes. Yapi are very devoted people…they will do a good job,” said President Museveni.
Uganda expects to earn at least $50b from crude sales throughout the project life, with a further $3.7b from the pipeline and refinery over a quarter of a century, Petroleum Authority of Uganda data shows.
Government has remained coy about the source of money and repayment plan for the SGR debt, with project coordinator Perez Wamburu keeping to the script that only revenue from the project operations will be used to repay the loans.
Access to markets
With its eye on big hinterland markets like DR Congo and South Sudan, Kenya has been working with Uganda to jointly source financing for their railway projects to connect. Landlocked Uganda is driven by its own interests for access to the seaport with cheaper cargo transport means.
President Museveni said as a leading coffee exporter and investor in value chains for other consumer goods including vehicles, Uganda has reached a point where it needs to make rational economic decisions that support the investments being made.
“In 1986, when we came in, our focus was the minimum recovery of the economy, which we have done. We are now making many things, including manufacturing vehicles here. With this recovery, you have to make the transport system rational. We hope to see that all cargo will be transported mainly by railway,” he said.
After Kenya, Uganda, Rwanda, and South Sudan signed the SGR Protocol in 2014 as part of the Northern Corridor Integration Projects.
President Museveni says by using oil money, Uganda will ably build all railway routes under the standard gauge railway network. Photo / File
Kenya launched construction of phase one Mombasa-Nairobi line at $3.6b, which was commissioned and started operations in 2018.
Phase two - Nairobi-Naivasha - followed but plans to push further westwards to link with Uganda stalled due to financing challenges.
This also rendered Uganda’s project unviable and unable to secure financing from Exim Bank of China.
However, Works Minister Edward Katumba Wamala, said Uganda and Kenya had revived talks, which made the two countries in January to agree that Kenya starts construction of the Naivasha-Kisumu and Kisumu-Malaba sections.
“It is essential to expedite this project … so that there is a seamless connection. Our infrastructure must not only support our demands but also the regional demands,” he said.
With the signing of the contract for the first phase and the launch of construction, it is understood that Uganda is now preparing financing pitches for the western route Kampala-Kasese, as directed by minutes of the meeting between Kenya and Uganda’s transport ministers.
Uganda will apply for financing for the SGR Western route (Kampala-Kasese-Mpondwe with a branch line from Bihanga-Mirama Hills) immediately after securing financing for the SGR Eastern Route from Malaba-Kampala.
Transport costs
At current rates, it costs between $3,200 and $3,500 to transport a 20-foot container from Mombasa to Kampala.
After the SGR is operational, the cost will halve to between $1,600 to $1,700 per container, an analysis by the SGR Secretariat on the project's viability and economic projections shows.
“This train will be a safer, efficient and cost-effective bulk transport solution,” says Katumba Wamala. “It will regenerate towns and cities along the route while providing a reliable transport system.
It is understood that Yapi initially quoted the project’s cost at €3.4b (about $3.57b) but this was negotiated down to €2.7b ($2.83b).
However, it is an increase of $630m from $2.2m deal that Uganda signed with the Chinese firm China Harbour and Engineering Company in 2015.
The deal was terminated early last year after eight years of non-execution.
According to the Engineering, Procurement, and Construction contract for the turnkey project signed last month, construction will last 48 months.
The project will deliver a railway with the capacity to carry 25 million tonnes of cargo per year at a maximum speed of 100 kilometres per hour for freight and 120 kilometres per hour for passengers.
Uganda has been planning its standard gauge railway since 2006. In 2008, the plan received buy-in from the then-Kenyan president, Mwai Kibaki, as a regional project, leading to the signing of the Northern Corridor Integration Projects protocol six years later.
