Rail should create cash flows to pay its debts, fund expansion toward the western border.
The standard gauge railway (SGR) is a critical and strategic national infrastructure fully justified on many fronts, key among them transportation efficiency and synergy that adds value to the expanded port of Mombasa to support the Kenyan and regional economies.
Rail is energy- and time-efficient, cost-effective, saves road maintenance costs, and reduces safety exposure on our roads.
The SGR project is funded through public funds, debts and even special taxes on imports. Now that the Mombasa/Nairobi phase is in place and extension to the west ongoing, the public have vested interests in seeing the SGR promptly “enabled” to move into full capacity utilisation by shifting imports and exports from road to rail.
This is a national obligation and priority to enable SGR create sufficient cash flows to pay its debts, fund ongoing expansion toward the western border while moving towards economic independence away from public subsidies and levies.
The government has the fiscal and regulatory means to increase SGR cargo utilisation, and I believe that is exactly what they have been doing.
The recent government orders on transfer of cargo from road to SGR are a correct effort to protect a critical public investment.
All along, it was known that the SGR would result in “collateral damage” to road transport companies, clearing and forwarding companies, and also highway markets and towns that rely on patronage from truckers.
These stakeholders have to adjust their businesses to fit a new national transport model which has the SGR as the main artery.
On their part, the authorities have to make this transition as smooth as possible, while accommodating the existing stakeholders in the new SGR transport systems.
To the Kenyan and regional cargo owners, cost-effective ‘last mile’ solutions must be finalised as early as possible to trim down incremental costs and transit time.
Yes, Kenya went through a similar transport transition when in the mid 1970s the government made a policy decision that primary transportation of oil was more efficient and safer by pipeline than by rail and road.
The Mombasa-Nairobi oil pipeline was commissioned in 1978 and the phase two extension to Western Kenya was accomplished in 1993.
And there were business casualties when oil pipelines came, with cries of stranded and redundant investments and quest for compensation, which, of course, was not entertained.
Although there was no law or regulation to enforce use of the oil pipeline, the government had other indirect authority to “persuade” oil stakeholders to use the new national assets. The pipeline tariffs were, however, pegged as near as possible to rail/road equivalents.
Today, about 20 per cent of petroleum fuels from Mombasa to upcountry are still transported by road, and this is partly what has advised the ongoing investments to increase Mombasa-Nairobi pipeline capacity.
It remains a government objective to shift long distance oil transportation into pipeline systems.
In respect of SGR, the ultimate prize is to link it with a future Ugandan counterpart rail system to maximise transit value of our port and corridor with the possibility of linking with Rwanda.
There is, however, potential competition for the Rwanda destination from a planned Tanzanian SGR.
In the short term, the design and construction of the Naivasha Inland Container Depot (ICD) should aim at addressing all the shortcomings associated with the Nairobi ICD, and make it attractive and convenient for regional and Western Kenya importers and exporters.
Naivasha will be critical in relieving pressure on Nairobi ICD and the city traffic systems.
We need to remove politics out of the SGR project and let it prosper. Yes it is a ‘mega project’ because SGR projects anywhere are mega. Such projects are also funded mostly through debt that can be public, private or both.
The SGR economic returns are both current and in the future. There is, therefore, nothing awkward in future generations sharing carried forward debts. We need to ensure that each shilling of debt is properly used, and that borrowing terms and costs are reasonable.
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