China to release initial funding for railway project

The Treasury expects to receive the first tranche of cash from China for the construction of the standard gauge railway (SGR) this week as the government accelerates implementation of the Sh327 billion flagship project.

Treasury secretary Henry Rotich, however, did not disclose the amount of money to be received, but said the government had met all requirements for the cash to be released.

“We have fulfilled all the requirements – I believe the last ones were met on Thursday last week,” he said in an interview with the Business Daily.

READ: Kenya to get funds for new railway in two weeks

The Chinese government had pledged a loan of Sh213 billion for construction of the railway with the balance set to be funded by the Kenyan government.

To raise the funds the State introduced a 1.5 per cent railway development levy on imported goods from June last year.

As at the end of September, the Treasury had collected Sh19.7 billion against a target of Sh20.2 billion.

Construction works for the rail from Mombasa to Nairobi has begun. Residents in Kilifi, Kwale and Taita-Taveta whose land was compulsorily acquired by the government to pave way for the railway have started receiving compensation.

READ: Landowners receive Sh5.5bn in new rail payout

A total of Sh5.5 billion has been disbursed to pay 2,000 landowners in Kwale, Taita Taveta, Makueni and Kajiado. Construction is expected to create 30,000 jobs for locals and 5,000 for Chinese expatriates.

READ: Over 30,000 new jobs on Kenya railway project

Apart from land acquisition cash, the State has pledged that at least Sh130 billion, or 40 per cent of the project’s contract price, will be spent directly in local contracting.

The Chinese government will give an extra Sh106 billion to finance procurement of locomotives and wagons upon completion of the railway.

The Treasury has been pushing for an increase in the maximum amount that it can borrow from foreign markets in an effort to ensure it creates room to accommodate the new debt.

Parliament is set to continue deliberating on whether to raise the cap from the current Sh1.2 trillion to the requested Sh2.5 trillion.

UPDATE: MPs raise Kenya’s borrowing limit to Sh2.5trn

Mr Rotich said he was optimistic that Parliament would grant his wishes after explained to House team why the increase was necessary.

Cash inflow from the loan will also be welcome news for the Kenya shilling which has been under pressure in the past few months from a strengthening US dollar.

Last week, the Treasury received Sh68 billion ($750 million) from international investors who bought into its sovereign bond.

Conversion of the SGR funds to local currency— similar to that of the Eurobond — will boost the Central Bank of Kenya’s (CBK) dollar reserves, giving the regulator more muscle to support the shilling and react to shocks.

The move will also reassure the money market that CBK has enough resources to support the currency, discouraging speculative trading.