The Transport ministry has ruled out any State subsidy on train transport as Kenya prepares to launch its first China-built modern network in less than one month.
Transport secretary James Macharia said tariffs applicable on the standard gauge railway (SGR) trains will cover infrastructure loan, operator margins and public revenue.
The ministry says each SGR train, however, has to ferry a minimum of 1,200 passengers to break even. Similarly, a cargo train has to pull twice the length of its wagons — double-stack container loading — to turn a profit.
“Before embarking on this project, we did detailed feasibility studies that show SGR does not need subsidies but will actually contribute to the exchequer,” said Mr Macharia.
Kenya borrowed Sh327 billion from Chinese Exim Bank to build its new track. The national Treasury has also been leving 1.5 per cent on imports as railway development levy to raise funds for associated costs such as land acquisition.
“This is a profitable venture with limited overheads. So we expect it to produce profits to the Treasury.” said Mr Macharia.
The assurance is set to embolden other ground transporters — buses, trucks and the Rift Valley Railway and budget airlines — which had expressed fears of losing business in the case of State subsidy.
The government is expected to launch the SGR train service on June 1. The Kenya Railway has received a number of locomotives, coaches and wagons from China as preparations for commissioning of the SGR next month.
The passenger train is expected to move at a higher speed of up to 120 kilometres per hour while the cargo train will have a maximum speed of 80 kilometre per hour.
The China Communications Construction Company will initially manage the SGR vessels, a contract which the State intends to open up to the private sector in future.
So far, the Kenya Ports Authority (KPA) has indicated its plans to allocate 40 per cent of its yard containers to SGR trains. Last year, the KPA received 1.091 million containers. For passenger volumes, however, the SGR trains will have to compete with buses, budget airlines and the Rift Valley Railway, which have found a niche in the tourist dominated route.
On Friday, Mr Macharia said any SGR train would still turn a profit if they charged half the prevailing public transport costs as long as they got the right business volumes.
At the moment, buses charge an average of Sh1,500 to Mombasa. The Rift Valley Railways passenger coaches take Sh4,405 (first class), Sh3,385 second class and Sh680 third class.
A number of truckers, public passenger transports and budget airlines have warned the State against subsidising the SGR rains saying such a move could kill their business.
The follows experience at with Kenya Railways’ Syokimau line which was upgraded at a cost of Sh3.2 billion but has had to survive on State subsidy after users shunned its higher fares.
Last year, Auto dealer CMC Holdings said it would expand its heavy commercial vehicle assembly plant to cut unit costs in part of its preparation to handle competition from SGR.
Rongai Transport, a long-distance trucker, has also warned that subsidising the RVR vessels cut hurt private shipping companies.
Instead, the firm’s managing director Vanessa Evans has called for a fair play to ensure that it is run as a business and not a government enterprise.
The transport ministry has since hired the Aarvee of India to design a tariff structure that can enable the state to recover loan and generate public revenue.
The Indian consultancy firm is working in consortium with Wanjohi & Mutonyi Consulting Engineers, Equity Investment Bank and Amolo & Gacoka Advocates.