High wagon costs lock local transporters out of rail deals

The Sh1.3 billion investment required to own wagons and locomotives is shutting out transporters from partnering with operators, Kenya Railways Corporation (KRC) has said.

To participate as a wagon owner, a private transporter requires not less than 100 wagons, costing about Sh1.3 billion since the cost of each stands at Sh13 million (110,000 euros).

For a locomotive, one requires at least five, costing Sh1.3 billion in total or Sh263 million ($3 million) each.

KRC infrastructure manager Maxwell Mengich Tuesday said previous engagements with the private transporters showed they were not keen on moving goods and often used the wagons for storage.

Mr Mengich was responding to concerns from participants at a seminar on the railway development held at the Nairobi’s Stanley Hotel.

The seminar was organised by the Institute of Economic Affairs (IEA) and attracted senior executives from the KRC, Rift Valley Railways (RVR) and policy analysts.

“What we have in Kenya are small operators in the road transport sector. You have to invest 110,000 euros for each wagon for a minimum of 100 of them and $3 million for each locomotive for a minimum of a five,” said Mr Mengich.

He said the trend worldwide was for the private transporters to partner with the railway operators as owners of wagons and locomotives, which eases the financing burden on the main operators.

“We have tried this in the past and we ended up losing freight capacity and we realised it wasn’t working,” said Mr Mengich.

In future, it may be possible to partner with the transporters as the economy expands and the number of the super-rich increases, according to Solomon Ouna, the project manager in charge of the Standard Gauge Railway (SGR).

READ: 1,620 freight wagons to ease cargo movement

At the same time, Mr Ouna said the KRC was working with the Treasury Public-Private Partnership Unit on getting a transaction advisor for an operator for the SGR once it is completed by December 2017.

RVR is currently the operator for the main line from Mombasa with a concession of 25 years ending 2031. KRC operates the commuter rail between Syokimau and Nairobi.

Mr Ouna said KRC would engage a consultant to advise on the necessary changes to the KRC Act in order to separate the roles of the rail operators from that of the regulator.

Participants noted that the KRC was operating the commuter railway to Syokimau, yet it was supposed to be a regulator.

“The regulator should ideally not be the operator. That is why we intend to separate to the two roles by creating an independent regulator and leaving operations to private entities. This is the case in South Africa,” said Mr Ouna.

Mr Ouna said a major challenge facing railway development in Kenya is the lack of adequate bulky goods in many parts of the country to justify regular usage of and investment in the routes.

Transportation of coffee used to be a regular business with more than 100,000 tonnes moved per year, but when the industry reduced its production, there was hardly any more rail transport business in the areas where the crop was grown, Mr Ouna said.

“The link with farmers will depend on whether the crop they produce will be bulky. We have done it in the past with coffee, but the industry no longer produces the bulky amounts,” he said.

Coffee industry produced a historic high of 130,000 tonnes in the 1988/89 season, but has since then fluctuated between 40,000 and 60,000 tonnes annually.