Uganda and Kenya are seeking at least $6 billion from multiple lenders to jumpstart construction of the joint standard gauge railway (SGR) project, which stalled after the pull-out of the initial financier, China.

Last week, the two partners announced their intention to start construction of the line by December this year to improve flow of cargo and make the Northern Corridor competitive against Tanzania’s Central Corridor.

Transport ministers from the two states signed a deal to finalise a joint resource mobilisation drive in the next four months that will fund the railway line from Naivasha to Malaba to Kampala and from Kampala to Kasese to Mpondwe near Congo, with a branch line from Bihanga to Mirama Hills, near Rwanda.

Once the project is completed, goods from Mombasa to the Ugandan border with DRC, to Rwanda and South Sudan will be ferried by rail.

Now, the Northern Corridor partner states have tasked Kampala and Nairobi to ensure the project is on track.

In Kampala’s plan, the first phase will be Malaba-Kampala and the subsequent legs are supposed to be fast-tracked to link the capital with the borders of its neighbours DRC, Rwanda and South Sudan, to guarantee the project’s viability.

The search for financiers is on and Kenyan and Ugandan officials say financiers from Europe and the Middle East are being drafted into the project although they did not immediately name the targeted lenders.

Hunt for cash

During the announcement of the deal between the two governments in Mombasa on July 28, Kenya’s Transport Cabinet Secretary Kipchumba Murkomen said Nairobi has already done a feasibility study of the project.

“We are now going for financiers either from Europe or United Arab Emirates, or whoever comes with a good deal for our people in East Africa,” Murkomen said.

Kenya’s hunt for cash to build an extension of its SGR from Naivasha to Malaba may see it tie down related facilities, including the Port of Mombasa.

According to the people in the know, the UAE is being considered as a suitable candidate, as it has also offered to improve the port, the main gateway of goods destined for the Great Lakes region.

The EastAfrican has learnt that the UAE has dangled an offer to construct the line to Malaba as long as it is also allowed significant stake in the Port of Mombasa to operate.

Sources said Nairobi had not yet agreed to the deal, as there are political implications – akin to the now controversial Dubai deal with Dar es Salaam.

Yet frustrations over finding a suitable financier may see Nairobi go for UAE as Kenya continues to grapple with high debt, downgraded credit rating and a struggling economy.

Turkey deal

In Kampala, things are smoother, with Yapi Merkezi, the Turkish firm that was exclusively selected as contractor for the Kampala-Malaba line, having submitted its technical and financial bids to the SGR project, to lead towards evaluation, negotiation and contract signing, which is expected to be concluded by November 1.

Yapi Merkezi is also one of the companies building Tanzania’s 754km SGR line. The others are two Chinese firms – China Civil Engineering Construction Corporation and China Railway Construction Company – and Portugual’s Mota-Engil Africa.

"Uganda’s financial bid includes a proposal for a changed model of financing that brings on board a number of export credit agencies (ECAs)," officials said.

“The details on financing are with the Ministry of Finance. The financiers have made contact [with the ministry],” said Eng Perez Wamburu, SGR project coordinator, who confirmed that a number of ECAs have come together to bankroll the Ugandan section, which has been in limbo for years.

Finance Minister Matia Kasaija confirmed that some ECAs “have approached us,” but added that his ministry has also approached other financiers to come into the project during the later phases of development.

Kenya’s State Department of Transport has picked up the Uhuru Kenyatta government SGR plan, which proposed two phases at a cost of about $3.6 billion. The government intends to prioritise Phase 2B, from Naivasha to Kisumu estimated to cost $2.68 billion, while the last leg, 2C, from Kisumu to Malaba, will take another $896 million.

The Kenya-Uganda SGR line has a chequered history.

In November 2022, Uganda formally terminated its contract with China Harbour Engineering Company (CHEC) awarded in 2015, to build the first phase of SGR, a 273km stretch from Malaba to Kampala. The deal was tied to the contractor securing financing from China Exim Bank.

But after years of no progress with the Chinese, President Yoweri Museveni directed his officials in 2021 to open up the project’s financing and seek new lenders, pitching the viability of the railway connecting all the countries of the Northern Corridor.

At the back of the Chinese reluctance was doubt that Kenya would build its SGR – also funded by the China Exim Bank – all the way to Malaba, to link with the Uganda line. Kenya and Uganda have now both ditched Beijing.

Under pressure to tie up its end of the deal and clear the way for other Northern Corridor partner states to get their plans off the ground, Uganda has now set January 2024 as the tentative date for start of construction, Wamburu said.

The attention now turns to securing the required financing.

First off, the blocks were UK Export Finance (UKEF), which Ugandan officials approached in 2021 to consider financing the 273km Kampala-Malaba leg.

People familiar with the deal told The EastAfrican that UKEF will lead the project ECAs and provide the biggest chunk of financing, estimated at $2.6 billion, for the critical Kampala-Malaba section.

Contacted, the lender did not deny nor confirm its funding for the rail projects.

“We do not comment on speculation about potential transactions,” said Patrick Lillie, its press officer. “Previous speculation about loan requests and loan values did not originate from UKEF.”

Besides UKEF, European, Chinese and Middle East-based lenders are also understood to be in the picture, to provide loans that will help Uganda extend its SGR to Mpondwe at the border with DRC, Mirama Hills to connect with Rwanda and Elegu to South Sudan.

This corroborates what Gen Katumba Wamala and Kipchumba Murkomen said in the joint communiqué issued in Mombasa.

“The Republic of Kenya, the Republic of Rwanda, the Republic of South Sudan and the Republic of Uganda signed on 11th May 2014 and ratified the Standard Gauge Railway Protocol for the development and operation of the (SGR) connecting the Port of Mombasa to Kampala, Kigali and Juba,” said the communique.

Connecting to Rwanda

People involved in the project say that once the commercial contract for construction of the Malaba-Kampala section is signed, Kampala will embark on the next phase to extend the SGR to the DRC border, and to Bihanga-Mirama Hills to Rwanda.

“It’s our desire to have financing for the western route as soon as possible, but the reality is that we shall start seeking funds for Kampala-Kasese after signing the contract for the first phase this year,” an official who is not authorised to speak on behalf of the government told The EastAfrican this week.

Last week, Katumba and Murkomen noted that it was crucial for Uganda to ensure the SGR is extended to the border with Rwanda, South Sudan and DR Congo as soon as possible to improve the viability and attractiveness for financing.

Observers argue that the tight timelines suggest both governments are confident about reaching financial close this time round.
Indeed, in his budget speech for 2023/24, Finance Minister Kasaija said 49 percent of the right of way for the Kampala-Malaba SGR had been acquired and construction would commence this financial year and provided Ush535 billion ($146.7 million) as compensation for project-affected persons.

In 2014, Kenya, Uganda and Rwanda entered into a tripartite agreement to construct a railway from Mombasa through Kampala to Kigali.

Kenya built its line in two phases but abruptly terminated it in Naivasha after China declined to finance the last leg after failing to strike an agreement with Uganda and fearing that Kenya was also now saddled with too much debt.

In April 2019, then Kenyan president Uhuru Kenyatta went to Beijing hoping to secure $3.68 billion — in loans and grant — to take the SGR line from Naivasha to Kisumu and Malaba but China declined. Nairobi henceforth started looking for funds to upgrade the metre gauge railway segment as a priority.

The new administration of President William Ruto has rekindled the plans to complete the SGR project and Kampala is upbeat that this time it will not be derailed.

Lapsset railway line

Still, Kenya plans to link Mombasa and Lamu ports and Isiolo in the north with a modern railway line by end of June 2027. As per plans by the previous government, Kenya plans to build a $24.9 billion Lamu Port South Sudan-Ethiopia Transport (Lapsset) railway line to open up northern Kenya and connect Kenya with South Sudan and Ethiopia.

The planned line will move from Mariakani in Mombasa to Lamu then onward to Isiolo and Moyale, which borders Ethiopia.

Meanwhile, against steep competition from Tanzania’s Dar es Salaam port, Kenya has agreed with Uganda to increase the usage of rail to haul Uganda cargo using the SGR from Mombasa to Naivasha and the metre gauge line from Naivasha to Malaba border in coming months.

Uganda’s commitment is a relief for Kenya as it will shore up its rail revenues, crucial to repaying its loan with China. The SGR from Mombasa to Naivasha was financed by the Chinese at a cost of $4.7 billion.

Kenya signed a 15-year agreement “take or pay” loan with the Exim Bank of China where the Kenya Ports Authority undertook to “take” cargo on the new railway every year failure to which it would draw from its revenues to “pay” for the shortfall.

Kenya’s loan repayment to Exim Bank of China this financial year has jumped to $800 million, an increase of over 126 percent compared with the last financial year.

According to data from the Kenya National Bureau of Statistics for 2022, in the five years that the SGR has been in operation, it has generated $4.6 billion from cargo freight. Passenger trains generated $760 million over the period, indicating cargo is keeping it afloat. - ANTHONY KITIMO/JULIUS BARIGABA, Additional reporting by Aggrey Mutambo, The EastAfrican

Kenya and Uganda have revived the near-dead project to build the standard gauge railway between them, signalling renewed efforts to upgrade infrastructure on the Northern Corridor for better trade. But the joint declaration issued on Friday by the two governments is highly dependent on how soon a financier comes on board. It is lack of money that killed the earlier plans, rendering the SGR the “railway to nowhere.”

This time, ministers in charge of transport said they had renewed a joint search for the money, which could include loans or an arrangement for the public-private partnerships. If all goes to plan, the contractor should be on site from December to build the SGR extension from Naivasha to Kampala, in the immediate term, before extending to Uganda’s frontier towns with Rwanda and South Sudan.

The two governments signed the deal to finalise joint resource mobilisation in the next four months to fund the line from Naivasha to Malaba to Kampala and from Kampala to Kasese-Mpondwe with a branch line from Bihanga to Mirama hills.

Once the project is completed, goods from Mombasa to Uganda border with Rwanda and South Sudan will be ferried by SGR.

The deal signed by Ugandam Minister of Works and Transport Katumba Wamala and his Kenyan counterpart Kipchumba Murkomen will see increased use of rail to haul Uganda-bound cargo using the SGR and the meter gauge rail from Naivasha to Malaba border in the coming months.

“The commercial contracts for Naivasha-Kisumu and Kisumu-Malaba SGR section in Kenya have been signed while the commercial contract for Malaba-Kampala SGR section in Uganda will be signed soon and the two government are in the process of mobilising the financing for construction.

“The two governments acknowledge the importance of synchronisation of the construction of the SGR section to achieve viability,” read the joint communique issued at Mombasa SGR terminal after signing the agreement.

Mr Murkomen said they have already placed their offers to different financiers from Europe and in Middle East who have shown interest in investing. This kind of project was in fact envisaged 8 years ago but fell through as Uganda and Kenya failed to raise financing from China.

In January, Uganda signed a memorandum of understanding (MoU) with Turkish firm Yapi Merkezi to pave way for the construction of SGR from Malaba to Kampala.

That was after eight years of non-execution despite talks with China Harbour Engineering Company (CHEC) to build the country’s first phase of a 273km SGR line from Malaba to Kampala.

Gen Wamala said Uganda is working with a Turkish Company on a feasibility study from Malaba to Kampala and to Kasese and Tororo.
“We are in the final stage of getting financier and we are weighing which will give us best deal and the two government hope to start this before the end of this year through joint funding,” said Mr Murkomen.

The line, starting from the Malaba border post between Uganda and Kenya, was expected to cost $2.2 billion, but the Chinese financiers did not fund the project after casting doubt on Kenya’s SGR reaching the border to link with Uganda’s and making the project viable. Funding had been conditioned on a joint bid, which both countries couldn’t mount.

In 2019, then Kenyan President Uhuru Kenyatta on his fourth trip to China failed to secure $3.68 billion to fund the third phase of his signature SGR project to extend to Kisumu, then on to Malaba.

Instead, Kenya bagged some $400 million to be used to upgrade its 120-years old metre-gauge-railway to Malaba on the border with Uganda. Beijing’s assessment indicated at the time that without Uganda, whose participation is key to connecting South Sudan and Rwanda to the Indian Ocean port of Mombasa, the SGR’s viability would be undermined

Now Kenya and Uganda say the SGR will improve in efficiency and reduction of transportation costs. The project is to be undertaken as the Northern Corridor Integration Projects Initiative, which will include Rwanda and South Sudan in future, and Burundi and even Democratic Republic of Congo.

“The two governments recognise the importance of addressing challenges that would impact negatively on attracting financing for the sections and which would as well disadvantage Uganda and Kenya in terms of reaching Rwanda, South Sudan, DR Congo and Burundi,” said the two governments in a communique.

“As we wait for the construction of the SGR, we have agreed on how to support existing infrastructure where we have to use SGR to Naivasha to transport cargo from Mombasa port and forward cargo to Uganda using MGR from Naivasha to Malaba for ease transfer of cargo,” said Gen Wamala.

According to the Kenya Ports Authority (KPA) data, Naivasha Inland Container Depot (NICD) has continued to receive increased cargo, both containerised and conventional cargo, for the last three months despite President William Ruto’s government reversing an earlier policy that had forced importer to clear goods in Naivasha, rather than the Port of Mombasa.

The NICD recorded 1,670 tonnes of conventional cargo which included wheat, maize, and fertilizer in March. Its throughput reached 3,662 tonnes. In May, cargo handled at Naivasha increased to 4,530 tonnes.

Kenya has been enticing neighbours to use of the Naivasha facility for storage of cargo, with initial free storage, to relieve the Mombasa Port of congestion. The facility has capacity to hold two million tonnes of cargo annually.

“The high average inflation rate in East Africa in 2022 was largely due to the hyperinflation in Sudan (139.0 percent), galloping inflation in South Sudan (43.5 percent), and high inflation in Ethiopia (26.6 percent),” the report says.

“The current conflict between Sudan’s military and the country’s main paramilitary force is a threat to regional stability and is likely to lower these projected growth rates, ” says the report.

It also mentions the conflict in Ethiopia’s Tigray area as a threat to economic growth in the region.

“In Ethiopia, the high inflation rate in 2022 was primarily driven by high global food and oil prices and the Tigray War which threw the country into turmoil.,” says the report.

“The domestic conflict in Tigray exerted pressure on the central government finances, widened the current account deficit, and exacerbated capital flight from foreign investors, and thereby dwindled foreign exchange reserves.”

The conflict has been going on since November 2020, resulting in many casualties and leaving millions of internally displaced people.

The rise in global food and energy prices in 2022 can be largely attributed to Russia’s invasion of Ukraine.

“These shocks have had profound effects on our economies, increased the cost of living and constrained the fiscal space in the region, like elsewhere on the continent,” said Prof Njuguna Ndung’u, Kenya’s Cabinet Secretary for the National Treasury and Economic Planning.

“What appeared to be a promising post Covid-19 economic recovery is now overshadowed by new shocks and vulnerabilities.”

The external risks include a global economic slowdown, rising commodity prices, persistence of Russia’s invasion of Ukraine, international trade policies, tightening of global financial conditions, exchange rate depreciation, and a resurgence of Covid-19.

The domestic risks include gaps in infrastructure, domestic conflicts and political instability, macroeconomic imbalances, and adverse impacts of climate change. - ANTHONY KITIMO, The EastAfrican

The Kenyan passport has improved six places in the global mobility ranking to position 67, up from the 73rd place it ranked in January while moving one step up in the continent to occupy the seventh most powerful position.

The Henley Passport Index Report released on Wednesday further shows that the number of countries that Kenyans can visit without a visa, or obtain one on arrival, increased to 76 from 73 in January.

The mobility score measures the number of countries that a person holding a given country’s passport can visit without possessing a visa or the nations where they can get a visa on arrival.

Mauritius, which has maintained its top position on the continent, improved five places in the global rank to hold position 29, showing that holders can visit 148 countries visa-free.

It was followed by South Africa (51), Botswana (58), Namibia (62), Lesotho (64) and eSwatini, with Kenya toppling Malawi which came 68th position in the globe. Tanzania emerged position 69 while Zambia and Uganda came positions 70 and 72 respectively.

Singapore dislodged Japan from the world’s top rank, allowing visa-free users to access 192 countries, followed by Germany, Italy and Spain, which all came position two at 190 each.

Afghanistan’s passport ranks the lowest, only allowing holders to visit 27 countries visa-free. It comes immediately below Iraq, Syria, Pakistan, Yemen and Somalia, among others, in that order.

Kenya’s document’s boost is attributed to a government deal inked with its South African and Eritrean counterparts to remove visa travel restrictions.

The strength is set to improve after the Senegalese government this week agreed to allow Kenyans to tour the country without visa requirements.

In 2015, Kenya first made public the decision to roll out new chip-embedded passports for its citizens in efforts aimed at taming rampant forgery and impersonation of holders.

The electronic passport was initially to be launched in December 2016, but the unveiling was over the years extended several times.

The government, however, finally set last December as the deadline for phasing out the old generation passports, with the move being part of a binding commitment to migrate to the new East African e-passport. - NATION AFRICA