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EAC Panics As China Refuses To Finance Railway Project

Technocrats in Rwanda, Uganda, Kenya and South Sudan are pacing up and down to digest a sudden shift by China to suspend funding for the regions signature project- the Standard Gauge Railway highly hoped for profitable integration, TAARIFA writes

The Chinese government has reliably asked Kenya to provide “sufficient proof of viability” before it could authorize money for construction of the SGR railway beyond Naivasha-Kisumu-Malaba.

This shocker emerged during the Chinese-Kenya Business Forum at Crown Plaza Hotel in Beijing, China on April 26.

President Uhuru Kenyatta was in China with high hopes that he would secure funding for the construction of SGR linking Naivasha-Kisumu-Malaba.

The Chinese insist they want collateral which Kenya doesn’t want to provide. China has traditionally used grants and interest-free loans to rope in least developed countries to its Belt and Road Initiative.

However, Kenya government argues, “forced by unfavourable financing by the Chinese we can then move goods from Naivasaha SGR to Naivasha MGR [metre-gauge railway].”

Kenya needed almost Sh368 billion financing to extend the line to Kisumu before extending it to Malaba.

With this kind of lugubrious news, South Sudan, Uganda and Rwanda will remain landlocked and continue forking deep into the national coffers in dealing with high cost of transport to the sea by road before this project materializes.

Rwanda may have already had prior knowledge of China’s plan to suspend funding and instead look towards prospecting a rail link to the sea through Tanzania.

In simple terms Uganda’s planned SGR extension to Mirama Hill [Kagitumba] border linking to Rwanda may not materialize and is already less economically viable because Rwanda looks towards Tanzania.

China’s Export-Import (Exim) from which these countries borrow to fund most of their mega infrastructure projects is skeptical that their debts are so huge and there is no proof that they could repay.

Uganda alone owes Exim Bank a huge chunk of cash worth Shs41 trillion, according to official statistics.

Most of this money went to build Isimba and Karuma hydro dams, Entebbe expressway, Entebbe International Airport upgrade, the National Backbone and E-Government Project, and establishment of four industrial parks.

Those familiar with the negotiations for the SGR project say that Beijing is unsure of the capacity of both Uganda and Kenya to service the colossal debt it is extending.

Uganda is looking for $2.3billion to finance construction of all SGR segments on its territory planned to connect to South Sudan and Rwanda through Nimule and Mirama Hills border points, respectively.

China Says Railway is Not Making Profit

According to China this SGR is not economically viable and for example the first completed section running from Mombasa to Nairobi is a loss making venture.

Since it was launched in June 2017, it has ferried 2.6 million passengers and 3.6 tons of cargo. But it made a loss of Sh10 billion in the first year.

In reference to this dilemma, Kenya’s Transport secretary James Macharia, “things have changed we are looking at the perspective of having a corridor which is very viable both socially and economically.”

Economic observers argue that there is also concern about the business viability of the investment after Kenya recorded Shs400b loss last financial year due to less-than-projected cargo volumes on SGR.

Reverting to Colonial Railway

Kenya has already started mobilizing local funds to revive and improve the railway line left behind by the colonialists very many years ago. It is slow, although it may be cheaper to revamp.

This colonial era railway is technically referred to as the metre-gauge railway (MGR) while the Standard Gauge Railway (SGR) is a classification of modern railway agreed upon under the African Union SGR protocol, of upgrading and linking the continent’s railway system to facilitate continental integration.

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