Kenya signs commercial contract to extend SGR to Uganda

Kenya has signed the commercial contract for the construction of the next stretch of the standard gauge railway (SGR) from Naivasha to Malaba, the Treasury has revealed ahead of next week's return to the Eurobond market.

The disclosure, contained in the Treasury prospectus to international investors, sets the stage for the extension of the line to the Ugandan border in the third leg of the project, commonly referred to as Phase 2B.

“The commercial contract in relation to Phase 2B has been signed and is awaiting funding,” says the Treasury prospectus.

Phase 2A of the project runs from Nairobi to Naivasha while Phase 1 runs from Mombasa to Nairobi.

From Malaba town, the SGR is supposed to be extended to Kampala, Uganda’s capital city, before terminating in Kigali, Rwanda, in Phase 3.

Another line is supposed to connect the lakeside city of Kisumu to Malaba, with the total cost of these extensions amounting to $13 billion (Sh2.08 trillion).

Feasibility and preliminary designs for Phase 3 are also being undertaken, the Treasury revealed.

China had reportedly expressed its doubts about the viability of the project, insisting on Uganda committing to being part of the project before releasing the funds to extend the SGR.

The initial plan for the Chinese-built SGR was for the modern railway to have a regional reach, enabling it to pick up higher traffic volumes from the three countries.

Roads and Transport Cabinet Secretary Kipchumba Murkomen in December 2022 revealed Kenya’s plan to extend the SGR to Uganda through a five-year plan. This, he said, would be achieved through a partnership with the Chinese government.

The extension of the modern railway from Naivasha’s Mai Mahiu to the border of Uganda will see the multi-billion dollar railway line run through Narok, Bomet, Nyamira, Kisumu, and finally Malaba.

“In the long run, we would like to complete the connection of the SGR from Suswa to Kisumu through Bomet, Nyamira, parts of Kisii, and later to Malaba. Later, we can think of upgrading the existing MGR via Nakuru to Kisumu and via Eldoret to Malaba,” Mr Murkomen said in a statement.

In its current state, the SGR, which gobbled up $5.1 billion (Sh818.5 billion) in loans from China’s Exim Bank, has not managed to suck significant cargo from the roads even as the country continues to shoulder heavy costs on the debt procured to build the line.

“With the construction of the SGR from Mombasa to Malaba, the government expects rail transport to handle 50 percent of the freight cargo throughput, thus easing the pressure on roads, lowering the cost of doing business, and enhancing trade and regional integration in East Africa,” says the Treasury in the prospectus.

While total freight haulage via the SGR was 6.09 million tonnes in 2022, this was less than a fifth of the 31.5 million tonnes of dry bulk, dry general, and bulk liquids handled by the Kenya Ports Authority (KPA), according to official data.

While using the SGR is efficient, safer, and even faster than roads, traders have been discouraged by high costs and the lack of last-mile connectivity to their businesses.

However, using its own funds, the government has been upgrading the existing metre gauge railway network to enable a seamless connection with the SGR.

An MGR rail link of 23.5km has been constructed from Mai-Mahiu to connect with the Malaba MGR from Longonot Suswa MGR station.

The Longonot Suswa – Malaba MGR is also being upgraded to provide a better network to Kampala.

Kenya’s plan to control East Africa’s logistics corridor was put to a fresh test after Tanzania last year moved to extend its SGR to neighbouring landlocked countries, months after Kenya’s line hit a dead end in Naivasha.

Last year, Tanzania inked a $2.2 billion (Sh352.63 billion) deal with two Chinese contractors that will see the final section of the 2,102 km SGR, the longest stretch of the modern railway line on the continent, completed by 2026.

Dar es Salaam port is a major competitor for Kenya’s Mombasa port.

Tanzanian President Samia Suluhu Hassan in the past noted that the completion of the SGR—which will eventually extend to the nickel sites in Burundi—will help her country utilise its geographic advantage.

“The main objective was to link Tanzania to Burundi and the Democratic Republic of Congo,” said President Suluhu, adding that they have already identified a contractor that will extend the line from Mwiza, Tanzania, to Gitega, Burundi, closer to the nickel sites.

“This is a railway that is going to open up Tanzania and link it to the eastern side of DRC where there is a lot of cargo that needs to be transported on the ports on the Indian Ocean to the global market.”

This mineral-rich area of DRC has the potential to offer 150 million tonnes of goods for transport.