The Treasury has revised its budget to include Sh35 billion pay to China’s Exim Bank for a loan it gave Kenya for construction of the Mombasa-Nairobi Standard Gauge Railway (SGR).
The cash allocation is contained in the supplementary budget for the year ending June as taxpayers continue to subsidise the new passenger and cargo business.
Transport Cabinet Secretary James Macharia told Business Daily that the cash allocation will go towards paying the loan (Sh324.01 billion) Kenya borrowed from the Exim Bank of China in 2014.
“We are basically paying interest for the first phase of the standard gauge railway,” said Mr Macharia without giving more details.
Loan repayments to China will more than triple in the financial year starting July next year as the five-year grace period that Beijing extended to Kenya in May 2014 for SGR funds comes to an end.
Nairobi will pay Chinese State-owned lenders nearly Sh82.85 billion in the year starting July, from Sh36.24 billion in the current year ending June— made up of interest alone.
Kenya in May 2014 entered into a deal to borrow $3.233 billion (Sh324.01 billion) from China’s Exim Bank, comprising $1.633 billion commercial loan and $1.6 billion concessional to build a 385km modern railway between Mombasa and Nairobi.
The loan, whose interest is 3.6 percentage points above the six months average of London Inter Bank Offered Rate (Libor) which serves as an international benchmark, is to be repaid in 15 years with a grace period of five years.
The SGR passenger train service between the two cities was launched in June 2017, but the cash it is generating is not enough to meet its operations costs and pay the loans.
This means that taxpayers will need to top up the fees that cargo owners and passengers pay on the new line. The line is currently being operated by China Communications Construction Company.
Data from the Kenya National Bureau of statistics shows the Chinese company sold slightly more than 1.66 million tickets, earning Sh1.61 billion in revenue during the year. Kenya earned nearly Sh10.33 billion from the SGR in the first full year of operations, an indication that the mega project will take longer to break even.
The revenues were not enough to meet the operation costs, which were earlier estimated at Sh1 billion a month or Sh12 billion a year.
Freight services, which started in January 2018, generated nearly $86.32 million (Sh8.72 billion under) in the year to December, according to data from the Kenya National Bureau of Statistics.