Kenya: Standard Gauge Railway: No China, Not Much Economic Sense?
Tuesday, 18 February 2014
Not such a good week for the planned standard gauge railway, already under heavy criticism that it was an overpriced project:
First there were allegations that the Chinese company that had been awarded the multi-billion dollar tender to build the railway, the China Road and Bridge Corporation, was not, in fact, the Chinese state-owned company, but a local company, Kenyan owned, with the same name. The Registrar of Companies told parliament’s Public Investment Committee (PIC) that the two registered directors were Peter Gateri and Leonard Mwangi. Also in response to PIC queries, Transport Principal Secretary Nduva Muli then argued that this was merely the local branch of the Chinese parent firm.
More confusion arises from the f act that there may also be two companies with the same name, one registered with Chinese directors.
Economist David Ndii then redirected attention from allegedly corrupt procurement to the fundamental question whether the second railway made sense in the first place. In an op-ed in the Nation, he argued that, assuming a capital cost of 7.5% per year:
‘(…) the railway would have to have a turnover of at least KES120 billion. Assuming that it charges the prevailing tariff of USD1,000 per container, it would need to carry 1.4m 20-foot containers a year, 4,000 a day. That would take about 48 very long trains every 24 hours. The busiest single line railways in the US, for instance, run 20 trains a day.
What about cargo? The Mombasa port is now handling containers about one million TeUs (twenty feet unit equivalent). That means the new rail would have to enjoy a monopoly of Mombasa port cargo to pay its way. This is probably why the Chinese financiers are asking for guaranteed cargo. But what they do not seem to appreciate is that the Kenya state does not have the same command and control power that the Chinese state has.
One can argue that the cargo volume will grow. That is true. But we are not demolishing the old line. And the new one comes only to Nairobi at first. It does not make sense to load cargo going beyond Nairobi on the new line only to transship it to the old line that could have carried it from Mombasa in the first place.’
He also points out that the most immediate competition comes from Tanzania’s central line that runs from Dar es Salaam to Isaka, and is being extended to Kigali. China has agreed to build a new port in Bagamoyo in Tanzania. If this materialises at the size discussed, then Mombasa stands to lose business – and will lose more to the new Lamu port if that indeed does happen. His conclusion? ‘It is a lose, lose, lose project. We lose, the President loses, the Chinese lose. It is not worth it.’

That the public procurement process in Kenya would be flawed is pretty much a given, and the increase in the budget as well as the single sourcing certainly already raised eyebrows. Given the magnitude of the venture, there are concerns that this will turn into the Goldenberg or AngloLeasing of the Kenyatta administration. However, whether any of the recent disclosures were really made in good faith is also an interesting question:
‘Some Kenyan commentators say the political noise surrounding this issue is not so much about the contract as such, but is part of a broader battle among factions in the new ruling alliance for the opportunity to broker multibillion-dollar Chinese-funded infrastructure projects.
The theory goes that government officials and high-level business people linked to them, who lost out in this behind-the-scenes battle for a slice of the rail contract pie, are encouraging those shouting loudest about ethical problems related to it.’

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