Chinese railway builders deny locals 40 per cent contracts

Kenya has paid foreign suppliers Sh167 billion for the ongoing construction of the standard gauge railway (SGR), leaving only a small share for locals in the multi-billion shilling project.

The amount represents 72 per cent of the money so far spent on the mega project whose civil works are 80 per cent complete.

Transport secretary James Macharia said the 28 per cent share that local businesses have earned from the multi-billion shilling project came through deliberate push, signalling a determination by the Chinese contractor to enjoy its full benefits.

“From Mombasa to Nairobi, there have been complaints that the contractor did not meet the obligation of taking up materials from local suppliers and even the 28 per cent has been won through a big push,” Mr Macharia said.

He added that the second phase of the project would make it a contractual obligation that 40 per cent of the supplies be sourced from local businesses.

The minister spoke when he met the National Assembly’s Transport Committee chaired by Starehe MP Maina Kamanda to update them on SGR’s progress.

The multi-billion shilling SGR outflows are what Kenya needs to reduce its negative balance of payments position that stood at more than Sh6 billion in the year to November 2015, having deteriorated from a surplus of Sh87.2 billion a year earlier.

Mr Macharia said Kenyan businesses supplying SGR’s civil works have so far earned Sh65 billion and will hopefully make more money in the second phase that covers the Nairobi-Naivasha section and whose construction will begin in September.

The 120km stretch is expected to consume large volumes of steel and other raw materials with its 74 bridges and seven tunnels in the rugged terrain of the Rift Valley.

“We estimate about $600 million will be paid to local suppliers and this is not just for sand and timber, but also materials such as spare parts that the contractor will require,” Mr Macharia said.

The huge share of the payments already taken up by foreign suppliers leaves only Sh94 billion of the SGR’s Sh327 billion budget for the Mombasa-Nairobi section of the project.

READ: Chinese firm says nearly 20,000 Kenyans working on rail project

Devki Group, the Kenyan conglomerate that manufactures steel products, roofing sheets and cement, has, however, disputed even the 28 per cent share that Mr Macharia claims has been paid to locals.

Narendra Raval, the company’s founder, said contribution from locals has been diluted through the purchase by locals of foreign goods to supply the SGR project.

“Almost everything is imported in this project and if they are referring to the local content as Kenyans importing goods from China, then we are missing the point,” Mr Raval said, adding that local content has not amounted to even five per cent of materials used to build the SGR. 

He said his company’s supply to the project has not exceeded Sh100 million and wondered how Mr Macharia had arrived at the Sh65 billion figure that he quoted.

The businessman’s position is, however, in stark contrast to China Road and Bridge Corporation’s (CRBC) claims that it had signed contracts worth Sh50 billion with local suppliers last year.

CRBC’s  2015 Social Responsibility Report on the Mombasa-Nairobi rail project  says that contracts signed with local suppliers had  accounted for half the total contract amount spent so far on the project.

The report states that by the end of 2015, goods and materials purchased from local markets accounted for 63 per cent of the total goods purchased.

Last year, the Chinese contractor found itself in a tight spot after President Uhuru Kenyatta faulted it for failing to honour an agreement to purchase up to 40 per cent of materials and services locally.

READ: Uhuru raps Chinese SGR firm over local contracts

In a statement read by State House spokesperson Manoah Esipisu, the President questioned why local companies have not fully benefited from the supply of goods and services needed for construction of the railway line.

CRBC last year claimed it had established a materials procurement plan with 360 major local suppliers and over 40 local subcontractors.

The foreign contractor is expected to run the railway transport network once it begins operations next year, further tilting the benefits in its favour.

The Transport secretary also defended the government’s choice of the Chinese contractor to operate the new railway line for at least five years, saying it was meant to hold them accountable in case any segment of railway infrastructure fails to work according to agreed standards.

“If you have a contractor, they do the railway, you pay them all those billions they take off, and you are left with something that does not work … it is like having a mechanic repair your car and not testing it,” the minister said.

The International Monetary Fund (IMF) had projected that Kenya’s foreign direct investment (FDI) is expected to fall by nearly a quarter this year, thanks to a decline of inflows into oil and gas exploration as well as adverse global economy.

Additional payments going out of the country may worsen the balance of payments, which slipped into a deficit position in February following a drop in financial inflows, in the absence of the Eurobond and strong tourist numbers.