Kenya Railways Corporation (KRC) has not refunded a single penny of the debt it owes the Treasury for the repayment of the Sh566.12 billion Chinese loan to build the standard gauge railway (SGR) despite collecting billions of shillings in fees for more than six years of operation.
The Treasury says in the latest debt disclosures KRC is yet to start wiring money towards the SGR loan repayments, raising fears that the taxpayer may end up shouldering the entire burden of the expensive loan.
The parastatal, which oversees operations of the railway network, has a contract with the Treasury requiring it to refund the money the exchequer pays Exim Bank of China towards the SGR loan.
This is despite the SGR operations generating revenues of more than Sh70.13 billion from cargo and passenger business in six years since operations were launched in June 2017.
As a result of non-payment, the parastatal in June accounted for nearly 60 percent of the Sh983.20 billion loan arrears which the Treasury borrowed on behalf of strategic State-owned enterprises over the years.
“The total outstanding on-lent loan arrears for SOEs was Sh983,204 million as at end of June 2023; out of which Sh566,120 million accounting for about 57.6 percent of the total amount is on-lent to Kenya Railways Corporation in support of the standard gauge railway (SGR) project,” the Treasury wrote in the Annual Public Debt Management report for the financial year ended June 2023.
Kenya constructed nearly 700 kilometres of SGR line between Mombasa and Suswa near Naivasha under the previous administration of Uhuru Kenyatta, with China funding more than 90 percent of the estimated cost of $3.75 billion (Sh562.50 billion under the prevailing exchange rate).
The modern railway line was initially planned to run up to the Ugandan border at Malaba town but terminated at the sleepy Suswa area after China demanded that Kampala commits to construct its section before funds for the third phase could be released.
Details of when and how the KRC should reimburse the SGR repayments are secretive, just like the loan agreement Nairobi signed with Beijing for the construction of the single-most expensive infrastructure project since independence.
“The Exim Bank loan is being serviced by NT [National Treasury], while KRC is reimbursing NT for the payments made,” Dr Haron Sirima, the director-general for the Public Debt Management Office at the Treasury, told the Business Daily .
He could not divulge the details of the contracts as the terms of the loan agreement require confidentiality.
“The terms of the two agreements are distinct and not related, except for total liability,” Dr Sirima said.
The Treasury usually borrows cash from foreign and domestic lenders for on-lending to State-owned enterprises (SOE) which play a strategic role in the economy but cannot get their own funding partly because of their weak financial positions.
As a prerequisite, the Treasury should ensure the projects funded through on-lent credit “hold a top-level priority on the development agenda of the government”.
Freight services were the main economic justification for the $3.6 billion the former administration — in which President William Ruto served as a powerful Deputy until his powers were clipped in 2019 — pumped into the first phase of the project through loans contracted from the Exim Bank of China from May 2014.
The SGR line has struggled to hit targeted cargo volumes, with importers balking at the tariffs to transport goods from the Port of Mombasa to the Inland Container Depot (ICD) in Nairobi and Suswa for consignment largely destined for western Kenya and neighbouring countries like Uganda and Rwanda.
Kenya National Bureau of Statistics (KNBS) data show that the SGR operations have generated Sh59.08 billion from the cargo business since the launch in 2018, while passenger transportation between Nairobi and Mombasa has posted about Sh11.05 billion in tickets.
The SGR operations, run by Africa Star Railway Operation Company, are yet to break even.
Analysis of the SGR revenue data shows the operations generated an average of Sh1.02 billion a month between 2018 and 2022. That falls short of the Sh2.2 billion average monthly income that former Transport Cabinet Secretary James Macharia had projected back in 2018 as ideal in helping the SGR operations break even. At the time, Mr Macharia had put monthly operating costs at Sh1.8 billion on average.
“The macro effect of the SGR, which has a life span of 150 years, far outweighs the direct cost of construction over time,” KRC managing director Philip Mainga told the Sunday Nation in September.
President William Ruto has pledged to extend the SGR line to Malaba and has in the past talked of having held discussions with his counterparts in Uganda, DR Congo and the Republic of the Congo (Brazzaville) to extend the line, which runs from Mombasa (Indian Ocean) to the Atlantic.
“As countries, we are prepared to work together. That way, we can do our section in Kenya [while] Uganda are already working on their section,” Dr Ruto told government and private sector leaders attending an African Continental Free Trade Area (AfCFTA) forum in Nairobi on May 29.
