Uganda puts SGR on hold over unresolved issues with Kenya

Uganda has suspended the Standard Gauge Railway (SGR) venture and turned its attention to revamping the old metre-gauge railway network until unresolved issues with Kenya and China have been concluded, finance minister Matia Kasaija has said.

“It is apparent the SGR is going to take us a lot of time to complete. First, we have to wait for Kenya to reach at the Malaba [border] point then we can start,” Mr Kasaija told the Daily Monitor Monday.

He said government, in the interim, is refurbishing the old railway line as “an alternative” to lower transportation costs for traders.

Uganda and Kenya first agreed to construct the SGR in 2008 but the arrangements were only concretised in 2012.

Construction

Kenya is currently constructing the 120km line from Nairobi to Naivasha at $1.7bn to be followed by a 266km line from Naivasha to Kisumu port at $3.6bn, and later embark on the 107km line connecting from Kisumu to Malaba border with Uganda which is expected to cost $1.7bn.

The first phase of Kenya’s SGR line running from Mombasa port to the capital Nairobi, that cost $3.8bn, was commissioned last year and is operational. The trains’ daily tonnage has increased to more than 800 containers, out of the 1,700 that arrive at the port of Mombasa.

Uganda’s first phase of SGR, the eastern line running from Malaba to Kampala, about 273km (338km rail length), is expected to cost $2.3bn.

Mr Kasaija admitted that Uganda has currently taken a back seat on the SGR venture, but will resume “serious discussions once Kenya is about to reach” the Ugandan side.

President Museveni, according to sources familiar with the venture, in recent months had been directly involved in discussions on the project, and had hoped to secure financing for the first section of the railway line during his visit to China last month when he attended the seventh Forum on China-Africa Cooperation (FOCAC) summit. But he returned empty-handed.

However, Mr Kasaija revealed that during the discussions in Beijing, it was agreed that “Uganda and Kenya will embark on joint financing negotiations” after Kenya has completed the current Nairobi-Naivasha section.

“Kenya also has its own problems which we cannot speak about in public. We shall wait for them to settle but on our side, we have already compensated people from Tororo to Iganga. When they finish their part, we shall proceed with it,” Mr Kasaija said.

For some time now, Ugandan government officials have blamed Kenya for failing to commit themselves to financing the remaining two — Naivasha-Kisumu, and Kisumu-Malaba sections. Kenya’s non-commitment, according to sources, is mainly debt concerns but also the fact that there is little economic activity in Uganda to justify such an investment.

Kenya’s take

However, a Kenyan government official told the Daily Monitor Monday on condition of anonymity that Nairobi is “committed to the project” and said Ugandan officials were using Kenya to “cover” for what he called their “confusion.”

Uganda’s SGR project since conception has been subject of various controversies.

The Ugandan State Minister for Works and Transport, Gen Edward Katumba Wamala, told the Daily Monitor separately that government is “still on course, and is continuing to work with Kenya to tie up all the loose ends and synchronise the project.”

“We are even meeting in Kigali next week to continue discussions on the matter,” Gen Katumba said.

One of the key conditions made by the Chinese funders, EXIM Bank, is the seamless movement of the train from Mombasa to Kampala for it to make “economic sense.”

Early this month, the European Union offered Uganda €21.5mn for revival of the old metre gauge railway line from Tororo through the districts of Mbale, Kumi, Soroti, Lira to Gulu “to contribute to a better performance of the value chain for key products and the development of the private sector in Northern Uganda.”

The line is expected to open up an alternative route to the Northern Corridor, connecting strategic trade routes with South Sudan, which is now a major trade and investment destination for partner states of the East African Community.

Old rail

Once revived, the 500km old railway line could as well be key in transportation to Uganda’s oil belt—Albertine Graben—and ease the burden on the existing and yet to be constructed transport infrastructure required for developing Uganda’s oil sector.

Revival of the railway line has been attempted before by Rift Valley Railways (RVR), the concessionaire for the Uganda-Kenya railway line, which collapsed early this year after each party accused each other of reneging on the concessionary terms.

Is SGR worth the cost?

The entire SGR, to cover the whole country, is pegged to a cost $12.8bn. The government has been in constant back and forth engagements with Beijing to release the first tranche of funding for the eastern line, particularly with prospects of paying back when oil revenues start flowing in 2020 but is unlikely. Several experts have said while the SGR could be a game-changer in reducing transportation costs, it might do little service for Uganda which is import reliant.

The main concern is that because the government imports more and exports less, the government will have to charge more fees on imports to offset the cost of exporting; Uganda imports goods worth about $4b and exports just about less than half of that. However, the government has noted that the project is sustainable, insisting that it will generate enough revenues to repay the loan.

The SGR classification is in line with the African Union SGR protocol, of upgrading and linking the continent’s railway system to facilitate continental integration. Other countries that have upgraded to SGR include Morocco, Ethiopia, Algeria, Egypt, South Africa, and now Kenya and Uganda ongoing.