Sh134bn Nairobi to Naivasha SGR phase II for money

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For example, the recently released Environmental and Social Impact Assessment (ESIA) for Phase 2A of the project initially predicts a carrying capacity of 13 million tonnes for 2030, but on the very next page states this to be 21.8 million tonnes! (Based on latest data this would require a consistent annual gross domestic product (GDP) growth of 10 per cent in all transit destination countries including DR Congo, Burundi and South Sudan and the Kenya SGR railway capturing all transit, nothing by road, nothing through Tanzania).

It is not clear what these numbers are based on. The figures contradict those in the East African Railways Masterplan, conducted by a reputable and independent consulting company in 2009.

These professional projections were done in three scenarios: Base (most likely), High and Low. This masterplan projects a Base of 7.5 million tonnes, with a high of 9.2 million tonnes and a low of six million tonnes.

This masterplan was prepared for the East African Community (EAC) and thus projection is for the whole of the Kenyan railway system.

If we assume that half of the freight traffic is for Nairobi, and half for Kisumu and export, then the High projection for the SGR Phase 2A comes to 4.6 million tonnes.

Therefore, a comparison of the figures between those in the ESIA and the well argued, evidence-based Masterplan projections, even if we take the high scenario, shows us that the ESIA figures are exaggerated between 283 per cent and 480 per cent.

Forecasts revenueForecasts expenditure
Construction costs

Many comparisons have been made in the Press about the cost of building railways in Africa, by comparing gross cost per kilometre of railway line.

In Ethiopia a 781 km railway was constructed at a cost of Sh290 billion ($2.8 billion) for 756 km, or Sh384 million ($3.7 million) per km.

Tanzania recently signed a contract for Sh934 billion ($9 billion) for 2,560 km, or Sh363 million ($3.5 million) per km. Here, the gross cost of SGR 1 is Sh3.8 billion for 609 km, or Sh643 million ($6.2 million) per km.

All three railways are constructed to Chinese standards and are standard gauge. We have no details about the Tanzanian line yet, but the Ethiopian line is up and running while Phase 1 in Kenya is 90 per cent complete.

The Ethiopian line is electric, which is more expensive per kilometre than the diesel line in Kenya. Moreover, in Ethiopia about 115 km is double-track, against all single-track in Kenya.

The terrain in Ethiopia is more rugged, as the line goes through the volcanic Rift Valley, and it has many tunnels. In Kenya there are more bridges, to allow the passing of wildlife.

However, it seems inescapable that Kenya did not get a very good deal at Sh643 million per km against Ethiopia at Sh384 million per km, moreover for a better product.

Ethiopia financed approximately 50 per cent of the railway out of its own resources, about 10 per cent from a concessionary Chinese loan, and 40 per cent out of a commercial loan at LIBOR + 3.75 per cent.

This allowed a competitive international tendering resulting in the best global price.

Kenya had to borrow 90 per cent, part at LIBOR + 3.6 per cent, part as a concessionary loan from the Chinese State-owned EXIM Bank.

As a consequence, our mandarins had to accept that one, State-controlled Chinese company did the design and the construction, and as it later turned out, the supervision and quality assurance.

This goes against the public procurement laws of Kenya, which according to the then managing director of Kenya Railways and later Transport Permanent Secretary, do not apply in State-to-State deals.

The contract for the SGR Phase 2A, from Nairobi to Naivasha, is also such a State-to-State arrangement. This time it seems to be a 100 per cent commercial loan, again with EXIM Bank.

Because of this Kenya was not able to negotiate a competitive tender, and a contract was signed with a single State-owned company for the design and the construction.

The contract does not include rolling stock or other extras, but the cost has gone up to Sh134.9 billion ($1.3 billion) for 120.8km, equivalent to Sh1.12 billion ($10.8 million) per km or almost three times as much as Ethiopia paid.

The reason for this high cost was said to be the terrain that required many bridges and tunnels, so that comparison was said to be impossible.

We indeed do not know how many bridges and tunnels there are in Ethiopia, but thanks to the ESIA we have a good idea how much of these there are in the proposed construction of Phase 2A in Kenya.

A paper by the World Bank in June 2014 (Ollivier, Sondhi, & Zhou, 2014), provides an interesting analysis of the recent construction costs of railways in China.

It isolates the civil works (bridges, tunnels, and embankments including stations, each separately), track, signalling, electrification, and land acquisition and resettlement. All of this is costed per km, and a range given.

The ESIA states the exact mix of tunnels, bridges and embankments, so this allows calculation of what the SGR Phase2A would cost if built in China under a competitive tender.

Terrain