For whatever reasons, termination of the standard gauge railway (SGR) at Naivasha was indeed premature as it should have gone all the way to Malaba or Kampala to maximise its cargo payload potential. A couple of weeks ago, the heads of state of Kenya and our neighbouring countries to the west agreed that transit imported cargo will be picked from the new Naivasha SGR Inland Container Depot(ICD) instead of Mombasa port.
Although it was expected that the transit cargo importers would accept to use Naivasha ICD as soon as it was completed, it has not happened that quickly. It has taken the intervention of Covid-19 crisis to prompt the heads of state to make it happen - one of the hundreds of situational changes that the virus has forced or persuaded the world to have to make.
From Mombasa to Kampala, and vice versa for the return journey, it has been a nightmare for Kenya and Uganda authorities to control the Covid-19 virus spread. Picking the cargo from Suswa, the exact location of the ICD, reduces transit distance by 552km, and this will significantly reduce inherent transit virus risks, not only for the drivers but also for communities along the highway.
However, the SGR company should not take this newly approved endorsement to use the ICD for granted. The SGR competitors are road transport companies who have argued that it is cheaper to haul transit cargo by road. And these companies can exert political pushback.
The rail company will therefore need to demonstrate cost benefits for using Naivasha ICD, for indeed SGR transport systems anywhere in the world should be cheaper. And I am sure this was the base case assumption when SGR investment was conceived.
The SGR company should genuinely go out of the way to seek options for improving import transit economics so that as much as possible they are competitive with the road transport. That is why it was encouraging to hear that the government is planning to re-open for review the SGR contractual arrangements, which I presume will include both the financing and operating deals.
The Chinese partners I am sure will see the benefits of a realistic partnership based on cost structures that assure sustainable cash flows in the long term which is a basic investment principle and expectation. Re-negotiating with the Chinese to bring costs down is a must for SGR competitiveness and business sustainability.
Back to Naivasha, the new ICD town at Suswa should be properly planned so that the sudden influx of transit actors does not turn it into a shanty location full of confusion. All the utilities and services required by a typical “port town” should be well planned and implemented sooner than later, to avoid Suswa being overwhelmed when most of the transit importers and exporters converge there.
Any such town planning should also take into account that at some time in the future the ultimate SGR termination will be either at Malaba or Kampala.
In the meantime, should Uganda still harbour the short term plan of using the old metre gauge railway (MGR) to bridge cargo to Kampala, then an MGR connection can be made from Suswa to the nearby Longonot MGR station.
A major transit cargo business opportunity is beckoning as thousands of tonnes of equipment and materials are imported by Uganda for the oil fields development, export pipeline and refinery construction in western Uganda. If project investment decisions are finalised this year, massive imports could start rolling in later next year.
This is why the Kenya’s Ministry of Transport should set up a technical task force to strategise how to maximise advantage for KPA and SGR to benefit from Uganda oil opportunities, especially for containerised and in-gauge cargo. The Dar transit route will be a formidable competitor for the same business.
Further, once the Naivasha ICD is fully operational, the SGR company will need to proactively woo western Kenya importers and exporters to commit to use the ICD. Simultaneously, SGR can organise and promote direct Naivasha to Mombasa passenger trains.
The Covid-19 pandemic has certainly given the Naivasha SGR a major boost which the rail company can now build on.