Tea companies give SGR wide berth over high transport costs

The Standard Gauge Railway (SGR) is losing out business from tea firms because of the exorbitant transport rates from Nairobi to Mombasa.

Tea firms, especially the multinationals, have now opted to use road in transporting millions of kilos of tea arguing that it is 60 percent cheaper than using the train.

The move is likely to further complicate the loan repayment for the SGR.

Apollo Kiarii, the chief executive of Kenya Tea Growers Association (KTGA), said the last mile connectivity involved in transportation of the tea and the revised cargo rates have made the use of SGR too expensive.

“We have reached a point whereby we have decided to abandon the use of SGR because it does not make any economic sense to us given its expensive nature,” said Mr Kiarii.

He added that they have to use trucks from Kericho to Nairobi and from Port Reitz in Mombasa to the warehouse saying that this cost, added to Sh40,000 that is charged on a 40-foot container, makes the use of train more expensive.

Every week more than 300 trucks haul over 130,000 packages of tea, equivalent to eight million kilos of the commodity, to Mombasa.

However, most of this cargo has now been shifted to the roads, meaning that the government is missing out on the much needed revenue that would help in meeting the loan repayment for SGR.

“If SGR was affordable, we would keep it busy throughout the year and this means they would generate a lot income from tea alone,” he said.

In essence, the volume of tea that the industry handles weekly is more than sufficient to provide the return cargo that the SGR requires to sustain its business.

The Kenya Railways Corporation (KRC) owes the Exim Bank of China Sh227 billion that was used in construction of the SGR between Mombasa and Nairobi.

There have been fears recently that the Chinese might auction the Port of Mombasa if the government defaults on repayment.

A report by Auditor-General Edward Ouko states that the payment agreement substantively means the revenue of the Kenya Ports Authority would be used to clear the debt.

The government in January introduced new rates for cargo following the coming to an end of the SGR’s promotional charges. The new rates are 79 per cent higher compared with the promotional rates that were in place since the advent of SGR cargo business.

The cost of transporting cargo by road currently ranges between Sh85,000 and Sh95,000 for a 40-foot container compared with the new charges that is now about Sh100,000 on average for the same quantity.

The Mombasa Tea Auction Centre is the largest tea auction in the world. In 2018, the facility, which is managed by the East Africa Tea Trader Association, handled more than 450 million kilos of tea, earning the country Sh130 billion in foreign exchange. Total tea production last year was 490 million kilos.

The crop is predominantly grown in two regions as defined by the industry. One is West of Rift that covers Kericho, Bomet, Nandi, Kisii and its environs that in 2018 had produced 320 million kilos.

The other region is East of Rift that covering the area around Mt Kenya including Kiambu, Muranga, Kirinyaga, Nyeri and Meru that produced about 170 million kilos. The two regions produce a combined total of 490 million kilos.

Apart from the 490 million kilos that is produced locally, another 100 million kilos are trucked to Mombasa from the neighbouring tea producing countries of Uganda, Tanzania, Rwanda, Burundi, Ethiopia and DR Congo, making the commodity a major business for SGR.