Kenyans face a huge bill sustaining services on the standard gauge railway (SGR) after positing a combined operating loss of Sh21.68 in the last three years.
According to the report issued to Parliament by the Ministry of Transport, the SGR netted Sh25.03 billion in revenue in the same period against the operational cost amounting to Sh46.72 billion – a gap that taxpayers have to fill.
The loss has already caused the Kenya Railway Company (KRC) to default on an estimated Sh40 billion payout to China’s Africa Sar Railway Operation Company, which operates both passenger and cargo services on SGR.
The loss has been attributed to the reduced limited storage capacity at the Embakasi Inland Container Depot (ICD), the rail charges, and minimum use of the Nairobi Freight Terminal that handles cargo, not in containers.
The Standard Gauge Railway has struggled to attract enough cargo volumes, with investors balking at the tariffs for transporting goods from, the Port of Mombasa to the Inland Container Depot (ICD) in Nairobi.
The freight services became the main economic justification for the $3.2 billion (Sh323.20 billion) the government has pumped into the project through loans largely procured from the Exim Bank of China.
Kenya needs more cash from the railway business to relieve the taxpayers from the burden of paying the Chinese SGR operator. The Chinese operate the SGR cargo and passenger business at an undisclosed management fee. At the same time, the Treasury also expects the SGR to generate more revenue to help offset loans taken to build the railway.
In the first seven months to December 2017, the SGR’s operating costs were at Sh7.398 billion against Sh969 million in sales revenue.
The operating cost moved up to Sh14.051 million in 2018, more than double the Sh5.6 billion raised in sales.
A year later the cargo and passenger trains’ operational cost was Sh17.976 billion while sales increased to Sh13.581 billion.
From January to May 2020, the operating cost was at Sh7.229 billion at the time when the operation of passenger services was suspended after the outbreak of the Covid-19 pandemic. Sales stood at Sh4.8890 billion mainly from the cargo train whose operation was not affected.
The losses have dimmed the hopes that the SGR would generate enough revenues to finance its operations and pay the Chinese loans.
Kenya took a loan from a Chinese bank – Exim Bank of China in May 2014 and started paying the loan in 2019 after the expiry of the five-year grace period.
In June, the parliament warned that Africa Star may pull out of operating the SGR if the government did not clear the outstanding debt.
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Faced with the challenges of breaking-even the SGR business, the government has come up with several strategies such as a failed attempt to have all cargo ferried on the railway from the Mombasa port.
The government’s plan was stoped after truckers and freighter resisted the order. The u-turn on the directive was further propelled by Uganda’s stance that cargo haulage on the SGR remains optional. Uganda accounts for about a third of transit cargo landed at the Mombasa port.
KRC also increased the passenger fees from Sh700 to Sh1,000 for first-class travel in 2018 and abolished the subsidy offered to children between ages three and eleven in a bid to ramp up revenues.
