The government’s unilateral decision to transport all imports coming in through Mombasa port on the standard gauge railway (SGR) to Nairobi’s inland container depot (ICD) in Embakasi has renewed debate on sustainability of the railway project.
Importers who had not specified the final address of their cargo became the first casualties of the directive, which essentially locks out truckers in favour of the SGR.
The Kenya International Freight and Warehousing Association (Kifwa) last Friday wrote a strongly worded letter to the Kenya Ports Authority (KPA) management, protesting the purported issuance of a directive forcing its members to use the SGR.
“We were shocked to be informed this morning that on government directive your authority has stopped nominations of CFSs from Monday this week and that all un-nominated containers consigned to importers upcountry have to be railed to ICD Embakasi by SGR for final clearance,” Kifwa secretary- general Ahmed Shimbwa, said in a letter to the KPA managing director.
“Whilst our association is fully supportive of SGR becoming a success we … must point out that any business given to SGR should be on a voluntary basis i.e. ‘willing buyer willing seller’ and not by force.”
It has also emerged that the government has also stopped importers from choosing their cargoes’ destinations going forward, meaning some cargo that is not meant for inland transport could end up in Nairobi at the importer’s cost.
Phase One of the SGR, which covers the Mombasa-Nairobi section is being built at a cost of Sh447 billion, and appears to have started off to lower-than-expected demand for its cargo services, which were to be the main driver of the revenue needed to pay for the project.
The government built the multi-billion shilling line despite key partners such as the World Bank warning that the freight volumes at the Mombasa port made viability of the project doubtful .
In his letter to KPA, Mr Shimbwa demanded that the directive be suspended until Wednesday, arguing that its hurried implementation had put clearing agents in a bind.
He complained that the directive had heavily inconvenienced agents who had documented cargo for clearance through the port manager’s previously pre-nominated CFSs, but are now being informed that their goods have been railed to Nairobi where they have no offices.
Kifwa added that if its request to suspend the order is not granted, it will be forced to “look at alternative avenues to stop this illegal practice.”
Kenya Railways managing director Atanas Maina said the agency was not aware of any cargo that had been transported to Nairobi without the consent of their owners, adding that Kifwa’s complaint is being investigated.
“We are investigating this complaint. The focus for SGR is to reduce the overall cost of transport and logistics,” Mr Maina said.
Barring an official policy to make the SGR the sole option for transporting cargo inland, the choice of the railway or truckers is expected to be based on comparisons of cost and efficiency.
Truckers’ charges for loaded 20 and 40-foot containers from Mombasa to Nairobi range between Sh60,000 and Sh90,000 respectively, while the SGR launched operations with lower promotional tariffs that will end on April 5.
An importer, for instance, pays $300 (Sh30,600) for a 40-foot loaded container from the port to Nairobi and $250 (Sh25,500) on the reverse route.
Profitable or break-even prices for the SGR are expected to be implemented once the promotion is over.
A combination of cargo volumes and prices charged will reveal whether the project – which has been criticized for its high cost — is self-financing.
The Mombasa-Nairobi phase of SGR cost $9.2 million (Sh947 million) per kilometre of track, way above the World Bank estimate of $3.25 million (Sh331 million).
The World Bank made the estimate in a report that looked at the viability of building the modern railway in East Africa.
Other options would have been even cheaper, with refurbishment of the metre gauge line to SGR standards at $490,000 (Sh50 million) per kilometre of track and upgrading of the old railway line to SGR on the same line at $1.5 million (Sh153 million).
“Based on these assumptions, there is no economic or financial case for standard gauge in the EAC area at this time,” the World Bank wrote in the report published on August 8, 2013.
“A refurbished metre gauge network would appear to be the most appropriate option in economic and financial terms, and could easily accommodate forecast traffic up to 2030, with lower investment requirements.”