The Kenya Railways Corporation (KRC) has commenced a gradual takeover of operations on the standard gauge railway from Africa Star Railway Operation Company amid concerns of high costs of keeping trains moving.
KRC chairman Omudho Awitta said the corporation had already assumed ticketing, security and fuelling functions on the SGR passenger and cargo trains as part of a deal to fully run operations on the Chinese funded and built track by May next year.
“KRC has not terminated its contract with Africa Star Railway Operation Company (AfriStar). We have negotiated so that we take over the running of the standard gauge railway (SGR),” said Mr Awitta in response to the Business Daily queries Thursday.
“The contract between the two parties was to run for 10 years from 2017 with provision clause for review in the fifth year.”
KRC in 2017 contracted AfriStar, a subsidiary company of China Road and Bridge Corporation (CRBC), to manage SGR operations and maintenance. Under the contract, the operator has the right to manage the ticketing system and any associated software and hardware.
The Kenyan government in 2020, however, reached a deal with AfriStar to take over operations and maintenance by May 2022.
The gradual takeover was set to commence in July 2020 with some functions handed over from March 1, 2021.
“From March 1, 2021 KRC has taken over all staff working on ticketing function,” Mr Awitta said.
The cost of operating the SGR has been a concern with data by the Transport ministry showing that taxpayers spend an average of Sh1 billion per month on the operations of the Mombasa-Nairobi railway alone.
But the cost could rise up to Sh1.8 billion due to variables such as the price of lubricants and fuel, loading and unloading fees, maintenance charge and various other management fees.
Revenue collection by AfriStar has nevertheless trailed expenditure—exposing taxpayers to a huge bill for sustaining operations.
For instance, in the three years to May 2020 the SGR posted a combined operating loss of Sh21.68 billion, having netted Sh25.03 billion in revenue over the period against operational costs totalling Sh46.71 billion — a gap that taxpayers have to plug.
The operation loss has already caused KRC to default on an estimated Sh40 billion payout to AfricaStar.
The SGR operation agreement requires the government to foot a fixed service monthly payment, which is paid quarterly in advance at a rate of $28.8 million.
Apart from the operating fees, Kenya is obligated to honour repayment of the Sh324 billion it borrowed for the project from the Exim Bank of China in May 2014 and started repaying last year after expiry of the five-year grace period.
Parliament last year recommended that the SGR operating costs be cut by half and the terms of the loan taken to finance its construction renegotiated to ease pressure on taxpayers.