Uganda: SGR Future in Doubt, Govts Revert to Old Rails

Kampala — When Uganda, Kenya and Rwanda conceived the idea of a high-speed standard gauge railway linking the three countries at a summit in Kampala in 2013, there were hopes of socio-economic transformation.

The transformation visualised well spread impact that would go beyond East to Central Africa.

The rail project, measuring about 1,500 kilometres, which had been expected to be completed last year, had among others hoped to increase competitiveness and lower the cost of doing business.

A tripartite agreement to develop and operationalise the SGR between Mombasa-Kampala-Kigali, with branch lines to Kisumu (Kenya) and Pakwach/Gulu-Nimule (Uganda) was subsequently signed.

In May 2014, convinced about the benefits of the high speed train, South Sudan acceded to the agreement to extend the line to Juba.

However, six years later, way beyond the 2018 completion date, the grand rail project appears to be in abeyance only hanging by a thread.

Although Kenya has completed its initial phase of the project linking Mombasa to Nairobi, and has embarked on the second phase from Nairobi to Naivasha, the subsequent phases from Naivasha to Kisumu and then to Malaba at the Ugandan border have stalled due to funding hiccups.

Kenya obtaining funding for the Malaba-Kisumu section was critical to Uganda's plan to close a $2.3b funding deal with the Chinese government for the Malaba-Kampala section.

Chinese Exim Bank was expected to foot 85 per cent of the budget.

Kenya completed the initial phase of the 487km SGR line from Mombasa to Nairobi at a cost of $3.8b, with 90 per cent of the funding coming through a loan from Exim Bank in May 2014.

The loan had a grace period of five years and a repayment period of 15 years.

Kenya also secured a further $1.5b from the same bank to extend the SGR network to Naivasha, 120 kilometres west of Nairobi.

However, attempts to obtain another loan of $3.6b for the third phase from Naivasha to Kisumu from Chinese lender flopped in April, when China turned down Kenya's request for additional funds. The completion of the SGR line on the Kenyan side is critical to Uganda, Rwanda and South Sudan, which are closely monitoring the performance of both passenger and cargo business on the Mombasa-Nairobi phase that was launched in June 2017.

While financing of the multibillion-dollar project has been a major issue amongst the participating countries, the question of the viability of the railway continues to enlist debate among economists, policy makers and analysts.

Kenya is expected to start repaying its SGR loan in the next fiscal year (2019/20). But this might prove a hard task given that the Madaraka Express operating between Mombasa and Nairobi is not generating enough revenue to cover operational costs and repay the loans.

During the first year of operation, the SGR recorded a loss of $100m.

In an attempt to generate traffic, government directed that all imports through Mombasa port use the railway.

However, according to the International Railway Journal, rail freight's share of the market remains below 5 per cent across East Africa, and there are concerns about the economic value of ongoing and recently completed rail projects.

Failure to generate enough revenue prompted the China Road and Bridge Corporation, the operator of the SGR, to increase freight charges and double the fares for children.

However, importers and exporters have been reluctant to use the SGR because of its high freight charges.

And without funding for the subsequent phases of the SGR, the Kenyan government has said it will start upgrading the 120-year-old metre gauge railway from Naivasha to Malaba at an estimated cost of $400m.

delays force Uganda to revert to the old railway line

Meanwhile, Uganda has invested $205m in restoring the old railway line linking Kampala to Malaba on the Kenyan border.

Delays in securing funding for the 273 kilometre Malaba-Kampala section of the SGR also informed Kampala's decision on the grand Northern Corridor infrastructure project.

Uganda estimates that its upgraded metre gauge railway line will boost monthly freight capacity to 120,000 tonnes from the current 20,000 tonnes by 2026, further casting doubts on the future of SGR.

Last year, Finance Minister Matia Kasaija said Uganda had put the SGR plans on hold and would instead invest in revamping the old metre gauge railway.

Uganda's section of the SGR was launched in October 2014 after completion of the feasibility study and designs of the railway line. But work has been held back by lack of critical financing and Kenya's failure to complete the section to Malaba.

The financing agreement for the Naivasha-Kisumu, Kisumu-Malaba, and Malaba-Kampala sections was to be completed by September 2018.

Still on course: I Meanwhile, Uganda has invested $205m in restoring the old railway line linking Kampala to Malaba.

However, Kenya's Transport Cabinet Secretary James Macharia told Daily Nation yesterday he had met the Chinese Minister for Commerce, Exim Bank officials, President Museveni and Uganda's Transport minister on Tuesday in China to conclude talks on securing funds for the project.

"In fact the funds had been approved by the Chinese Ministry of Commerce and are now with Exim Bank, which is looking into financial dynamics of lending according to the structure of each country," he told Daily Nation.

"SGR was conceptualised by heads of four countries; that is Kenya, Uganda, Rwanda and South Sudan and they signed a document called SGR Protocol, which contains commitments that require every country to complete its bit. However, Kenya is going on with completing its part and at no point did China give ultimatums that this country needs to do this and that to get funding."

Mr Macharia dismissed claims that Kenya signed a secret agreement with China allowing a mystery company with unknown local shareholders to run the SGR.

Source: Allafrica.com

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