Premium
Kenya seeks China’s funding waiver in Sh582bn Malaba SGR plan
A Standard Gauge Railway (SGR) train at the SGR Nairobi Terminus Syokimau on August 14, 2024.
What you need to know:
- There is talk of placing the project under public private partnerships where an investor will fund the high-speed rail project and recoup their investments.
- Officially, the two sides said they had agreed on a memorandum of understanding (MoU) to review railway sector laws, regulations and policies.
Kenya is seeking a reversal of the proposal that demands it raises 30 per cent of the Sh581.6 billion ($4.5 billion) required to extend SGR to Malaba, a hurdle that could delay the mega project amid a cash crunch in government.
National Treasury Cabinet Secretary John Mbadi says Kenya is pushing for a funding model where the full funding will come from the Chinese.
At 30 per cent, Kenya was expected to raise Sh174 billion — an obstacle in a setting where the country revenues are consumed by debt repayments and salaries, leaving little for infrastructure projects.
Alternatively, there is talk of placing the project under the so-called public private partnerships where an investor will fund the high-speed rail project and recoup their investments through tariffs over a 30-year period.
The details of the earlier deal that raised the 30 per cent funding requirement emerged after President William Ruto met with his Chinese counterpart Xi Jinping in Beijing for bilateral talks as part of the Kenyan leader’s State Visit to China.
Officially, the two sides said they had agreed on a memorandum of understanding (MoU) to review railway sector laws, regulations and policies, along with the development of railway technical and operation standards.
Kenya has been navigating a tough fiscal space where revenues have fallen short of the target in a soft economy and in the absence of aggressive tax measures following the withdrawal of the Finance Bill last year.
Expenditure pressures from the recent signing of collective bargain agreements with trade unions and the rollout of a new education system and the universal health care has meant that the country would struggle to fund development projects running into the hundreds of billions of shillings.
The uncertainty in funding implies that the project which had been allocated Sh16.5 billion in the 2025/26 budget would likely face further delays.
“There was an initial proposal put forward by China Road and Bridge, the China Development Bank and China Exim Bank that the parties would fund 30 percent of the project, Kenya would raise 30 percent and then a consortium would do 40 percent,” said Treasury Cabinet Secretary John Mbadi in an interview with the Nation.
“The discussion has now changed, and we are looking at a model of procurement where we get funding exclusively outside of the government of Kenya,” he added.
At least Sh581.6 billion ($4.5 billion) is required to link the SGR with the border town of Malaba from Naivasha to raise the viability of the project, which seeks to connect Kenya with its regional neighbours Uganda, Rwanda and the DRC which are working on their own sections of the line.
The National Treasury proposed to allocate Sh16.5 billion in the new fiscal year starting July 1 making it the first instance for the exchequer to allocate money for the construction of the 369-kilometre railway line which would bring closer the dream of having a seamless rail connection from the Port of Mombasa to the border town.
The completion of the line is expected to ease cargo movement between Kenya and Uganda, and onwards to South Sudan, the Democratic Republic of Congo (DRC) and Rwanda.
The extension of the line has been previously plagued by uncertainties around funding even as concerns mount that failure to extend the line would greatly hurt economic viability given that Uganda heavily relies on the Mombasa Port to import goods.
The extension of SGR from Naivasha to Kisumu is expected to cost Sh380 billion while the last leg from the lakeside city to Malaba will take up a further Sh122.9 billion.
The time taken to complete the extension of the line remains undisclosed amid prolonged discussions on funding.
CS Mbadi says the financing of the project could still take another form as all options remain on the table at present.
“The discussions are still ongoing, and the project can be funded through PPP, a concessionary loan or whichever method that would be more appropriate. The Ministry of Roads is still looking at all the possibilities and that proposal will come to the National Treasury for concurrence,” he added.
The previously proposed deal to have Kenya fund the project would have required the country to review its laws on the railway development levy and land ownership to make it part of the funding security as the project would require a special purpose vehicle to possess the assets during construction and operation until financiers recoup their money.
The government initial plan to partly fund the extension of the line from the budget would have seen Kenya prevent the accumulation of more debt from China.
The Chinese on the other hand have wanted more convincing from Nairobi that the extension of the project would yield adequate revenues to refinance loans procured towards the project.
Loans due to China stood at Sh692.6 billion as of December 2024 and mostly comprised financing for the Mombasa to Nairobi section of the SGR.
The termination of the line at Naivasha raised scrutiny on the utility of the line, drawing sharp criticism with news headlines such as ‘the Railway to nowhere’.
The National Treasury has insisted on the viability of the project saying the link to Malaba would open more dividends from the line.
“The value of extending the SGR to Malaba through Kisumu cannot be overstated because the initial intention was to open up a bigger market for this economy and you can only do that if you open Uganda, Rwanda, DRC and the whole region,” CS Mbadi said.
“Uganda has asked us to fast track moving the SGR to Malaba because they want to start (SGR works) on their side. Rwanda is also interested, and I have had meetings with Ministers from both countries,” he added.