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Economy

Nairobi signs Sh6.4 billion bus deal with China firm

From left: Beijing Municipal Commission of Transport director Zhou Zhengyu, Nairobi Governor Evans Kidero and Beiqi Foton Motor general manager Wang Jinyu during the signing of an MoU for public transportation at City Hall on July 14, 2014. Photo/SALATON NJAU
From left: Beijing Municipal Commission of Transport director Zhou Zhengyu, Nairobi Governor Evans Kidero and Beiqi Foton Motor general manager Wang Jinyu during the signing of an MoU for public transportation at City Hall on July 14, 2014. Photo/SALATON NJAU 

The planned modernisation of Nairobi’s public transport system has moved closer to fruition with the signing of a Sh6.4 billion financing deal with Chinese automaker Foton.

Nairobi governor Evans Kidero has signed a memorandum of understanding (MoU) with Foton and Beijing Municipal Commission of Transport for the supply of buses, paving the way for purchase order contracts.

City Hall said the MoU is for the supply of the first 266 buses to launch the planned metro transportation system and diminish the role of the chaotic matatus in the Kenyan capital.

Though not legally binding, the MoU is a document of expression of intent whose execution could leave rival dealers such as GMEA, CMC and Toyota with a significantly reduced share of the buses market.

The MoU seen by the Business Daily says that the investment is the first phase of the 2,000 buses that Foton is expected to deliver in five years.

“In Phase 1, a basic system with a fleet of 266 Foton high capacity buses will be built to cover the core area and main roads. The total investment for this Phase 1 is around $73 million,” says the agreement.

The amount includes the cost of design, development of termini and fleet management systems.

A 62-seater bus costs on average Sh10 million meaning that a large part of the total money allocated will be used to build the infrastructure.

Foton East Africa chief executive Calvin Guo said bus specifications were yet to be determined. City Hall did not disclose whether Foton was picked through a competitive bidding process or hand-picked for the multi-billion-shilling contract.

Foton further said it had not decided whether to assemble the buses locally or import readymade units from China.

“We are only starting this project and are careful in choosing which integrated model to use,” Mr Guo said.

Evans Ondieki, the county executive for Transport, said City Hall would only deploy the buses after studying Chinese capital Beijing’s traffic management system and upgrading the roads to standards that can support it.

“What we’ve done today is the beginning. We want our engineers to be trained before any deployment occurs,” said Mr Ondieki, adding that City Hall was in the process of creating procedures, and the regulatory and legislative framework for the planned transport system.

City Hall watchers, however, warned that the heavy financial cost is likely to be the determining factor of the transport system’s success.

The county government is required to pay in 15 per cent or nearly Sh1 billion of the total project cost to kick-start the process.

Foton is facilitating City Hall’s access to a loan for the purchase of the vehicles from a Chinese financier on condition that Nairobi makes a downpayment of 15 per cent of the total cost (Sh952 million).

“Under the agreement, Foton is helping the Nairobi government to secure an international soft credit to buy the buses. Access to the facility is, however, tied to payment of the 15 per cent of the agreed cost and provision of a sovereign guarantee,” City Hall said in a press statement. 

There is no budgetary allocation for the project, leaving City Hall with no money to kick-start the programme this financial year. The deal also requires the county assembly’s approval that sources said has so far not been sought.

Getting sovereign guarantee for the loan may also prove difficult given City Hall’s dire financial state that has rendered it incapable of servicing current debts.

If successful, the full impact of the deal will be felt beyond the motor vehicle dealerships into the city’s wider public transport system. Private operators will be forced to terminate outside the central business district (CBD) from where the buses will pick and drop passengers to and out of the city centre.

Kenya Bus Service managing director Edwin Mukabana said his company has not been consulted on the impending changes, adding that they will not accept any plan that pushes them out of business.

Mr Mukabana, however, said he did not expect the metro transport system to take off immediately, arguing that setting up such an operation requires a lot of technical expertise and planning.

An effective bus rapid transit (BRT) system also requires facilities such as dedicated bus lanes that are not available.

“If someone tries to invest in this transport sector as it is with Foton vehicles, they are likely to fail. We have not known Chinese buses to be robust in this environment,” he added.

Buses operating under the BRT system are expected to charge Sh35 fare on all routes, promising Nairobi a solution to the current public transport crisis.

The MoU with Foton comes as City Hall continues to face a Sh100 million demand from a businessman who claims to have been duped into signing a deal that sought to establish a similar transport company in Nairobi.

Guleid Mursal recently told a county assembly committee that Mr Ondieki had made him sign a deal that saw him lose eight buses and three lorries to a bank.

He is seeking compensation for arrears due to First Community Bank and lost earnings since September 2013 when his fleet was taken for refurbishment in preparation for the launch of the transport company in February.

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