Why higher SGR tariffs could hit Chinese loan repayments

Higher tariffs on cargo transport by the standard gauge railway are likely to have a negative impact on repayment of Chinese loan as road carriage now becomes cheaper than use of train following implementation of new rates.

Logistics firms, which had mainly been reduced to offering last mile connections, are worried that SGR cargo business will now become uncompetitive with the new rates, which will cut the volume of cargo transported by railway in favour of road, hence impacting on revenue.

The new rates, which are now 79 percent higher compared with the promotional charges that have been in place since the advent of SGR cargo business, will also have a negative effect on consumers as manufacturers are going to increase the cost of goods in line with the higher tariffs.

Meshack Kipturgo, managing director of Siginon Logistics, says 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 of SGR that will now be Sh100,000 for the same quantity.

“The new tariffs will simply make SGR uncompetitive considering that road transport will now be much cheaper, hence getting the bulk of goods meant to be ferried by road,” said Mr Kipturgo, whose firm uses both road and SGR in cargo transportation.

The cost of ferrying cargo on SGR will rise from Sh40,000 for a 40 foot container to Sh70,000.

However, there are other charges such as the last mile connection and return of an empty container that increases the fees to Sh100,000.

Rongai Workshop and Transport Limited Managing Director Vanessa Evans says the new tariffs implies that the cost of transporting cargo by SGR will now be higher.

“Shippers who have been using SGR will have to look at it differently given that the cost is going to be higher following revised tariffs,” said Ms Evans.

Move with speed

At the same time, Ms Evans urged the government to move with speed and address inefficiencies at the Inland Container Depot (ICD) in Embakasi, Nairobi which are costing truckers a lot of money in wastage.

“We support SGR but inefficiencies at the ICD are costing us a lot. We take close to 24 hours to get cargo out of the facility because of the slow process in clearance,” she said.

The government now seems to have backtracked on its earlier promise that indicated the cost of transporting cargo by SGR would be much cheaper than using roads.

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.

The government has, however, dismissed them as unfounded.

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.

“Exim Bank would become a principal over KPA if KRC defaults in its obligations and the Chinese bank exercises power over the escrow account security,” states a management letter sent to the KPA, that Mr FT Kimani signed on behalf of Mr Ouko.

The letter says, “KPA assets are exposed since the authority signed the agreement in which it has been referred to as a borrower under clause 17.5."

Manufacturers have protested over the increase in rates pointing out that it will make the cost of doing business more expensive in the country.

"We propose the ministry to consider extending the implementation of promotional rate to June, 2019 and thereafter gradually increase at a rate of five per cent every six months.

"This is to allow the agencies in the industry to streamline their services," said KAM chief executive Phyllis Wakiaga.