Kenya plans to privatise rail services

The Government plans to privatise rail services to repay funds borrowed for the construction of the proposed Kenya, Uganda and Rwanda railway network.  The projected is expected to be completed by 2018.

The railway network will cost Sh1.16 trillion. This is close to 40 per cent of the value of Kenya’s finished goods and services (GDP), according to a statement issued by ministers of the three east African States.

The 2,937km of standard gauge rail makes it easy to interchange or use a standard type of locomotive on the tracks.   “This is business and the railway line can pay for itself. People can come with their locomotives and run them on the track,” said Transport Cabinet Secretary Michael Kamau.

“We might privatise the services and own the track.”  Business people can buy and own locomotives, which transport goods from the port of Mombasa to Uganda and Rwanda.

The Government will charge the business people for running the locomotives on the rail tracks. It is the same model used on roads where different business people own trucks, which ferry goods from Mombasa to the rest of the region.

Mr Kamau added that Government can raise money because of a sharp rise in the volume of cargo transported by rail. “We can raise a lot of money if you consider the fact that by 2017, the volume of cargo will be 32 million tonnes and railway will account for 22 million and Rift Valley Railways (RVR) two million tonnes,” Mr Kamau said.

He cited strong economic growth and the need to transport the oil discovered in Kenya and Uganda as the key in increasing the volumes.

25-year concession

Currently, the 20 million tonnes of cargo is transported with 96 per cent of it on road. RVR has a 25-year concession of running the railway.

While the three countries will be responsible for jointly sourcing the funds, each country will have to bear the burden of repaying its portion of the borrowed amount.

Analysts from Standard Investment Bank estimate Kenya will foot Sh438 billion, the largest share, to construct its share of the railway line that runs from Mombasa-Malaba/Kisumu.

The Kenyan portion of the Mombasa-Malaba/Kisumu is 1,300 km and likely to cost close to $5.1 billion by our estimates,” said Standard Investment Bank analysts.

The estimation is based on each kilometre of rail costing $3.9 million.

A proposal passed in the 2013/2014 budget to levy 1.5 per cent on imported goods to fund the railway line construction might be a drop in the ocean for the whole railway line.

“While Kenya introduced a levy of 1.5 per cent on imported goods, this is only expected to raise a paltry $250million (Sh21.5 billion) per year. The rest would have to be sourced by debt,” Standard Investment Bank analysts said.

There are strong indications that Kenya, Uganda and Rwanda might turn to China for a concessional loan to fund the project. The Asian nation has been big on infrastructure in the region. In March, China announced it will finance and build a port in Bagamoyo Tanzania at a cost of $10 billion (Sh870 billion).

This includes 65 kilometres of railway connecting Bagamoyo to the Tanzania-Zambia Railway.

The railway will have the capacity to transport cargo at speeds of up to 80 km  per hour and is expected to relive burden of moving of goods using roads.

“It save our roads if the railway takes 50 per cent of cargo,” said Kenya National Highways Authority Director-General Meshack Kidenda.

The regional governments have expressed frustration at the rate at which RVR is working. RVR won a 25-year concession to run cargo business on the 2,352km Kenya-Uganda railway and another five-year contract to run the passenger service train.

But the concessionaire has, been struggling to meet performance targets. It is way behind schedule to revamp the existing line to international standards.

Meeting in Nairobi on Wednesday, the regional ministers faulted RVR over its dismal performance since taking over the management of locomotives from Kenya Railways Corporation (KRC) in 2005.

Of note is the fact that to date, RVR is carrying only 900,000 tonnes of cargo annually compared to 1.5 million tonnes the Kenya Railways Corporation (KRC) was doing at the time the concession was signed.