Truckers lose out under railway financing deal with China


Mr Henry Rotich, the Treasury secretary. FILE

Transporters face a massive cut in business under the terms of a controversial financing deal for the standard gauge railway agreed between Kenya and the China Export Import Bank.

A report tabled by the House committee on Transport, which investigated the agreements, shows that the Sh448 billion line will be protected from road transporters, especially for goods passing through the Inland Container Depot (ICD) at Embakasi in Nairobi.

“An appropriate policy directive will be issued by the government to ensure freight is shifted from road to rail transport,” Treasury secretary Henry Rotich says in annextures to the report made available on Friday.

Under the agreement Kenya Ports Authority (KPA) and Kenya Railways Corporation (KRC) will require that a minimum volume of cargo passing through the depot be moved by rail for the 609 kilometres between Nairobi and Mombasa.

“KRC and KPA signed the ‘Take or Pay Agreement’ whose main objective is to guarantee minimum cargo that will be transported using the rail with a view of ensuring that there are enough resources to repay the loan,” Mr Rotich says.

This is meant to guarantee that the line will raise adequate revenues to help service the Sh327 billion loan. But it is expected to stoke debate over whether the line should be given protection even after importers started paying the 1.5 per cent duty on all imports for domestic use to finance it.

The duty raised Sh10 billion in the first half of the year against a target of Sh6.2 billion.

The committee chaired by Starehe MP Maina Kamanda has since cleared the project set for construction by China Road and Bridge Corporation (CRBC) through a disputed government-to-government contract.

READ: MPs approve award of rail contract to Chinese firm

Phase one of the project will be undertaken through concessional loans amounting to $1.6 billion (Sh136 billion) and a preferential commercial loan of $1.63 billion (Sh139 billion) from China Exim Bank which is yet to conclude approval of the financing agreement.

“As part of negotiations between the governments of China and Kenya, the bank (Exim) indicated its willingness to fund the project under both Preferential Buyer’s Credit and commercial lending windows on condition that the government assures [it] that it will guarantee minimum freight demand for the standard gauge railway through execution of ‘Take or Pay Agreement’ between KRC and KPA,” Mr Rotich says in the report.

Exim Bank, he says, required a confirmation that the Railway Development Fund will be used to repay the loan as part of conditions attached to the release of the $3.23 billion loan.

Mr Rotich says the government “has now met all the requirements of the bank”, adding that the ‘Take or Pay Agreement’ would not affect the resources of the authority and its employees.

“Under the agreement, it will not be a problem of KPA and its employees to repay the loan. It will be the responsibility of the government and to this end the government will utilise money from the Railway Development Fund to repay the loan,” says Rotich.

Another condition of the loan is the creation of an escrow account into which revenues from the new railway operations will be deposited and from which loan repayments will be drawn.

Mr Rotich says the government will raise counterpart financing of $571 million (Sh49 billion) or 15 per cent of the total project cost from the Railway Development Fund.

“The cash flow from the fund will also cover other obligations in the project such as land acquisition, supervision consultancy, loan insurance, commitment and management fees,” the minister says in the report. These are estimated at Sh120 billion, including interest over the term of the loan.

The Treasury says the railway will help reduce the cost of transportation, protect the environment through reduced carbon emission, and accelerate

industrialisation as new industries are set up to service the railway.

It expects this to spur GDP growth by an additional 1.5 percentage points per year. Kenya is targeting double digit economic growth in its bid to become a middle income economy by 2030.