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Economy

Kenya to repay Chinese loan at floating rate

A huge chunk of the Sh425bn Chinese loan negotiated during the recent visit by President Uhuru Kenyatta will go towards building a standard gauge railway. Photo/File
A huge chunk of the Sh425bn Chinese loan negotiated during the recent visit by President Uhuru Kenyatta will go towards building a standard gauge railway. Photo/File 

Kenya will be banking on stable global conditions to keep its financing costs low after pegging the Sh425 billion concessionary loan advanced by China to an international benchmark.

Transport secretary Michael Kamau said last month’s loan for the standard gauge railway (SGR), energy and wildlife protection was negotiated at a floating interest rate of 360 basis points above the London Interbank Offered Rate (Libor).

The Libor — currently at 0.5 per cent — is the average interest rate at which a select group of large, reputable banks that participate in the London interbank money market can borrow unsecured funds from other banks.

This would translate to an annual interest rate of 4.1 per cent (Sh17.5 billion) if the government were to begin the repayment today.

“The government negotiated for a grace period of 10 years which is long enough to complete and start generating income from the projects after which the loan repayment will be spread over 30 to 40 years,” said Mr Kamau.

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Of the Chinese loan, a total of Sh319 billion will be spent directly on railway construction with Sh213 billion going to SGR and the rest for buying the rolling stock (locomotives and wagons).

Other than the Chinese loan, the remaining part of Sh340 billion railway modernisation project will be financed by the recently introduced railway development levy.

In the long run, the government will limit its role to maintaining infrastructure as the private sector takes up the task of buying and operating the trains, Mr Kamau said.

Under a regional infrastructure deal championed by Uganda, Kenya has committed to a tight timeline of constructing a SGR from Mombasa to Malaba in five years beginning November.

“As the starting point for the regional project, Kenya has finalised the plan to start the construction on its side as scheduled,” said Kenya Railways Corporation chairman Jeremiah Kianga.

For Kenya, the plan to upgrade the rails comes as part of official campaign ease pressure on the road network which is currently handling 93 per cent of the region-bound cargo.

Data from Kenya Highways Authority shows that about 2,200 cargo trucks pass through Mariakani each day, raising the cost of maintaining transnational roads.

With a projected 10 per cent cargo growth at port of Mombasa and the need to ferry heavy oil drilling rigs and equipment across East Africa, officials have increasingly focused their attention on rail transport lately.

Kenya’s part of the project will run alongside pave Malaba-Kampala-Kigali railway line with which are also scheduled for completion by March 2018 according the calendar drawn by Presidents Uhuru Kenyatta, Yoweri Museveni and Paul Kagame.

The plan has since been extended to cover Burundi and South Sudan.

On the Kenyan side, the SGR will incorporate 37 crossing stations to enable high speed trains to operate with ease, the officials said.

Mr Kamau said the 25-year concession agreement that allows Rift Valley Railways to run the Kenya-Uganda railways is also set for second review in February 2015 that could see the state bring in new players.

The regional project is being implemented alongside the Nairobi Commuter Rail project which is aimed at decongesting Nairobi.

On Monday, Mr Kamau toured Syokimau, Imara Daima and Makadara stations where he announced that domestic component of the railway upgrade programme would be complete by 2017.

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