Making of a mega scandal? Why railway figures do not add up

President Uhuru Kenyatta with Deputy President William Ruto (2nd right) & Mombasa Governor Hassan Joho (right) at the launch of the standard gauge railway line inChangamwe, Mombasa County, on November 28, 2013. Top bureaucrats have offered contradictory bits of information on key features of the mega project, evoking doubts on whether the benefits will outweigh its burden on Kenyans. PHOTO | FILE

What you need to know:

  • The biggest problem is that the full cost of the project remains a mystery. Deputy President William Ruto in a recent television interview said it would cost “about $3.9 million (Sh331.5 million)” per kilometre
  • These figures differ substantially from those given by Transport Principal Secretary Nduva Muli who put the cost at “about $2.8 million (Sh238 million) per kilometre, indicating a cost of Sh222.6 billion to extend the railway line to Malaba. This leads to a variance of Sh15.9 billion
  • On a comparative basis, Kenya appears to have signed up for an imprudent deal, given that Ethiopia’s double track standard gauge railway cost it $3.8 million per kilometre
  • The Chinese loan attracts interest of two per cent over 20 years, making its terms substantially burdensome compared to those offered by alternative international financiers

The official reaction to the standard gauge railway saga has raised more questions than answers.

So far, top bureaucrats have offered contradictory and insufficient bits of information on key features of the mega project including its cost to the taxpayer.

It is now clear that standard procurement laws were ignored, and doubts have been cast on whether the project’s benefits will outweigh its burden on Kenyans.

The biggest problem is that the full cost of the project remains a mystery. Deputy President William Ruto in a recent television interview said it would cost “about $3.9 million (Sh331.5 million)” per kilometre.

This would put the cost of the venture at Sh160.8 billion for the Mombasa-Nairobi portion covering 485.3 kilometres and another Sh149.1 billion for the Nairobi-Malaba stretch measuring 450 kilometres.

This would bring the total cost to Sh310 billion for the 1,436-milimetre wide line to reach Malaba from where it will be extended to Uganda, Rwanda, Burundi and other regional states at their respective expense.

Mr Ruto said these cost estimates included ‘extras’ like locomotives and spare parts, making it difficult to arrive at the actual cost of the railway per kilometre.

DIFFERING FIGURES
The deputy president then said the pure cost of laying the railway line would be “about $2.6 million (Sh221 million)” per kilometre.

This would bring the infrastructure cost to Sh107.2 billion for Mombasa-Nairobi and another Sh99.4 billion for the Nairobi-Malaba section, bringing the total to Sh206.7 billion.

These figures differ substantially from those given by Transport Principal Secretary Nduva Muli who put the cost at “about $2.8 million (Sh238 million) per kilometre, indicating a cost of Sh222.6 billion to extend the railway line to Malaba. This leads to a variance of Sh15.9 billion.
It remains unclear why the two officials have only offered estimates and no precise figures for either the bundled cost or that of laying the railway line only.

The figure of $2.6 million per kilometre of infrastructure works offered by Mr Ruto implies that the extra features of the project would cost Sh103.3 billion or a third of the entire venture.

Ideally, the project cost per kilometre should exclude the separate procurement of supplies like locomotives, whose price should be itemised separately.

IMPRUDENT DEAL

Mr Ruto and Mr Muli have said they would include construction of a railway training institute, supply of an unknown number and make of locomotives and supply of spare parts for two years.

On a comparative basis, Kenya appears to have signed up for an imprudent deal, given that Ethiopia’s double track standard gauge railway cost it $3.8 million per kilometre.

This is significantly lower than the $3.9 million per kilometre for Kenya’s single track line.

China Roads and Bridges Corporation (CRBC), which was awarded the contract without competitive bidding, negotiated lucrative financing terms on the Sh375.8 billion Chinese loan that have raised the project’s cost even further.

Treasury Secretary Henry Rotich told a parliamentary committee that the Kenyan government would pay China’s Exim Bank at least Sh120 billion through charges meant to protect the lender from default and currency exchange rate risk.

Mr Rotich put the total project cost at Sh424.9 billion, adding that the Treasury would be providing Sh49 billion or 11.5 per cent of the money.

FUTURE BURDEN

The Chinese loan attracts interest of two per cent over 20 years, making its terms substantially burdensome compared to those offered by alternative international financiers.

The World Bank, for instance, offers a grace period of up to 10 years for long-term financing and charges interest of 1.4 per cent on 20-to-40-year loans.

But Mr Rotich said nobody else demonstrated an interest in financing the project.

Attorney-General Githu Muigai said the alleged government-to-government deal does not preclude the project from being subjected to normal procurement processes.

He said the venture “would still need to be crafted around a known tendering procedure.”

The fact that CRBC did the feasibility study, designed the railway and determined its cost all by itself has handed critics of the railway their most powerful ammunition in the matter that is under investigation by several parliament committees.

INTEGRITY QUESTIONED

Opponents of the railway project have also accused the government of failing to assess fully the integrity of the Chinese contractor.

Nandi Hill MP Alfred Keter told a parliamentary committee probing the controversial standard gauge railway tender that the World Bank had blacklisted CRBC.

CRBC, together with its designated successor China Communications Construction Company (CCCC) Limited, was barred from participating in World Bank-funded projects worldwide starting January 2009 until January 2017.

Construction of the railway line comes with additional monetary and social costs running into billions of shillings.

Mr Rotich said the government would spend another Sh22 billion on compulsory acquisition of 2,253 hectares of land for the rail corridor, development of Embakasi Inland Container Depot, and consultancy services.

POJECT GOOD AND BAD

The government is also expected to compensate Rift Valley Railways — which has a 25-year concession for the existing Kenya-Uganda railway that is one metre wide— should it lose business to the standard gauge railway.

While completion of the new railway would create jobs and cut the cost and time to transport cargo from the port of Mombasa, it would ramp up unemployment numbers by dismantling the trucking industry and its support services.

While the project has kicked up a major controversy in Kenya, neighbouring countries that are to build extensions to the railway on their end have kept quiet.

The question arises whether all the participating countries signed or are planning to sign a deal similar to that of Kenya, including the choice of contractor and financier.

The main justification for the project is that it would speed up the movement of cargo in the region at a lower cost.

If the railway line is not extended and used heavily in Uganda, Democratic Republic of Congo, Rwanda, Burundi and South Sudan as envisaged, it risks leaving Kenya with an enormous white elephant.

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