What you need to know:
- With plunging performance, Kenya Railways is struggling to keep its revenue taps flowing with varied degrees of success. There is also uncertainty as the new administration settles down with new policy measures aimed at reforming the sector.
East African governments are having sleepless nights in their quest to revive and guarantee efficient railway system to lower the cost of moving cargo.
While Kenya successfully built a standard gauge railway, connecting the port of Mombasa and inland port in Naivasha to facilitate movement of cargo to neighbouring countries, a recent policy shift that gives importers liberty to choose the mode of transport has placed authorities between a rock and hard place.
For instance, a change of policy by the Kenyan government aimed at improving logistics services has left Kenya Railways Corporation sweating to retain customers in the face of a flight from the standard gauge railway to other transport options.
With plunging performance, Kenya Railways is struggling to keep its revenue taps flowing with varied degrees of success. There is also uncertainty as the new administration settles down with new policy measures aimed at reforming the sector.
This week, as he sat before MPs for vetting, the nominee for Roads, Transport and Public Works Cabinet Secretary Kipchumba Murkomen, gave a preview of President William Ruto administration’s plans for the SGR that reported an operation loss of Ksh3,488,038,551 ($28.8 million) for the 2021/22 financial year, according to official data.
Ahead of the pack
The introduction of SGR passenger train in 2017 and a freight one the following year was part of a wider regional network connecting Kenya, Uganda, Rwanda and South Sudan. Each of the countries was expected to develop the part of the railway line within its borders and Kenya went ahead of the pack.
Most of the cargo handled at the Mombasa port is destined for Uganda, Rwanda, South Sudan, Ethiopia, Burundi and the Democratic Republic of Congo, which account for 30 percent of cargo through Mombasa.
Since the introduction of freight train in 2018, the government made it mandatory to haul cargo from the port to Nairobi and other hinterlands using the SGR, locking out truckers. To entice East African countries, Kenya allocated each country using the port 10 acres to establish dry ports in Naivasha in the Central Rift.
Change of policy
But President Ruto government has gone on to change policy, a move that potentially puts Nairobi on a collision course with China. The change is said to go against the agreement between Kenya and Beijing on a pick-or-pay deal to ensure traders use the SGR and use the guaranteed business to repay the $3.7 billion loan taken to finance the project.
Last week, the National Treasury denied reports that China has penalised Kenya Ksh1.312 billion ($10.8 million) for delayed payments of loans for the SGR. Treasury Secretary Ukur Yatani maintained that Kenya had not defaulted on its public debt, arguing that the country has not accumulated repayment arrears for decades. He was reacting to media reports that indicated the delayed payments to the Chinese lenders had attracted penalties.
The end of the compulsory use of SGR puts Kenya Railways in a tight spot. With about 400 trucks expected back on the roads, SGR cargo freight revenues are expected to drop by more than a half, logistics experts say.
“As we expect more trucks on the Northern Corridor, cargo hauled via SGR is expected to reduce to 20 percent from the current 40 percent,” said the Shippers Council of Eastern Africa CEO Gilbert Lagat.
SGR depends on freight
According to data from the Kenya National Bureau of Statistics, in the first six months of this year, SGR recorded $750 million in revenue, of which $610 million was from cargo volumes. Revenue for the past five years totals $4.6 billion. Passenger revenues stood at $160 million over the same period, an indication that SGR depends on freight to remain afloat.
To ensure traders within the region continue using the SGR, Kenya Railways has launched an intensive campaign to ring-fence its revenues from truckers. KRC managing director Philip Mainga and a team from Business and Corporate Affairs Department this month visited different companies and organisation trying to lobby them to continue using rail services.
KRC has also launched online and offline advertising campaigns and has set up plans to improve both cargo handling and passenger services to compete with the truckers.
Northern Corridor Transit and Transport Coordinating Authority (NCTTCA) executive secretary Omae Nyarandi said for KRC to remain relevant in the sector it will have to review its charges and improve efficiency.
“KRC need to address the last-mile issue by partnering with truckers and give one package to attract more users. But, even as we support use of trucks, we should consider the effects on roads and the increasing carbon emissions,” said Mr Nyarandi.
On Friday, businesses met in Mombasa and asked the Kenya government to extend the SGR line to Malaba to save it.
"The purpose of extending SGR is to transport cargo from Mombasa to the landlocked countries seamlessly. Tanzania has a plan to partner with Rwanda, Burundi and DR Congo in building connectivity through SGR but Kenya is lagging despite being first to launch a modern rail," said Dock Workers Union Secretary-General Simon Sang.
"Considering our geographical position, Kenya has bigger potential of so it must move fast."
Allow companies to own wagons
Kenya Maritime Authority acting director-general John Omingo suggested that Kenya Railways allow companies to own wagons.
"Kenya can win big by ensuring that the port is efficient. All transport modes should be left to competitive and the directive by President Ruto will open that up. We have a lot to gain from the blue economy but we have to ensure efficiency," said Mr Omingo.
But Kenya is not the only EAC partner in a quandary. In Uganda, a mix of corruption scandals, dilapidated railway tracks, and political interference have impacted Uganda Railways, forcing traders to opt for the costlier road transport to haul cargo. The business community describes Uganda railways as “inefficient and unreliable” with lengthy transit times as a result of low average speeds, less than 30kph.
Uganda’s Ministry of Works and Transport’s Integrated Transport and Infrastructure Service (ITIS) Programme Performance Report Financial Year 2020/21 confirms the business community’s concerns. Instead of being a cheaper and safe mode of transport, using Uganda railways has pushed up costs. Out of a route length of about 1,250 km, only 21 per cent of the network is operational, leaving over 985km of the rail line out of use.
Declining freight volumes
“The rest of the rail network was closed due to declining freight volumes which precipitated deferred maintenance and subsequently a dilapidated track with several sections vandalised,” says the Transport ministry.
URC is also grappling with a shortage of locomotives, now six, down from 43.
Uganda government’s efforts to procure new locomotives last year was marred by corruption allegations. The four locomotives procured from South African manufacturer, Grindrond Rail, and delivered in August 2021 cost Ush48 billion ($12.6 million), prompting President Museveni to sack the entire board and managing director and order their prosecution.
President Museveni wondered why $12.6 million was spent on used locomotives “instead of new ones from China.”
“There were even cheaper ones of six years at $9.4 billion but they went for the ones of eight years at Ush48 billion,” he said.
Uganda was betting on the locomotives to increase rail freight cargo, reduce transit time from Malaba to Kampala from 48 hours to 12 hours, increase volumes from 600 tonnes to 1,500 tonnes and increase the anticipated volume per month to 40,000-60,000 tonnes.
Miriam Tumukunde, deputy co-ordinator of SGR project says currently, there are more than 18 million tonnes of cargo on Malaba-Kampala route, projected to grow to about 30 million tonnes by 2028 when the rehabilitation of the MGR will be completed. But she argues that the MGR will not be able to move even 10 per cent of the available cargo onto rail by then.
Uganda’s water transport, which would have facilitated seamless flow of railway cargo, is also sinking, weighed down by lack of marine vessels.
While Uganda has four vessels, only MV Kaawa MV Pamba are operational.
Uganda’s section of standard railway (SGR) launched 10 years back by EAC heads of state has not moved an inch, sparking many questions from civil society.
In 2013, Kampala embarked on the 273km line from Malaba to Kampala, as the first section that it would develop in its SGR network, contracted to China Harbour Engineering Company, with Chinese Exim Bank funding 85 percent of the project while Uganda government met 15 percent of the cost. But Uganda government says the Chinese keep dillydallying, forcing Uganda to hunt for alternative financing.
Meanwhile, Tanzania has been on a fundraising spree to extent its SGR to the Great Lakes. Tanzania's 1,637km SGR line is being built in phases by contractors from Turkey and China. The first phase from Dar es Salaam to Morogoro (300km) is expected to start operating next year following successful test runs. Works and Transport Minister Prof Makame Mbarawa said this week that the government plans to put Kigoma on the Standard Gauge Railway (SGR) network through a link from Tabora.
“We will then build another 282km line linking Uvinza and Gitega in Burundi as we also target to grow our trading with the Democratic Republic of Congo,” he said.
In August Dodoma invited bids for the construction of the Uvinza-Gitega line. In an August 12 notice, interested parties were given until November 15 to place their bids with the Tanzania Railways Corporation, to design and build the line from western Tanzania to the Burundi administrative capital.
The TRC said funds have already been set aside by both governments for the bilateral project to take off within the 2022/2023 financial year.
“It is intended that part of the proceeds of the funds will be used to cover eligible payments for contracts under the D&B [Design and Build] arrangement,” TRC said in the notice.
The project will involve 282km of the main line and 85km of siding/passing loops. Lot 1 will cover 180km from Uvinza to Malagarasi within Tanzania, and Lot 2 will cover 187km across the border to Musongati and then Gitega.
The project has been in the pipeline since January, when the two countries signed a memorandum of understanding on initial cost estimates of $900 million.