SGR Sh10 billion revenues revealed

Kenya earned nearly Sh10.33 billion from the standard gauge railway (SGR) in the first full year of operations, signalling that the mega project will take longer to break even.

Freight services, which started in January 2018, generated nearly $86.32 million (Sh8.72 billion under) in the year to December, data from the Kenya National Bureau of Statistics (KNBS) indicate.

The data shows China Communications Construction Company, the operator, sold slightly more than 1.66 million tickets, earning Sh1.61 billion in revenue during the year.

The revenues were not enough to meet the operation costs, which were earlier estimated at Sh1 billion a month or Sh12 billion a year.

This prompted an increase in freight charges this year and decisions to increase in passenger fares for children on trains from Mombasa to Nairobi by 100 per cent in a bid to raise more revenue to pay the Chinese operator.

The SGR line has struggled to attract adequate cargo volumes with investors balking at the tariffs to transport goods from the Port of Mombasa to the Inland Container Depot (ICD) in Nairobi.

The freight services formed the main economic justification for the $3.2 billion (Sh323.20 billion) President Uhuru Kenyatta’s administration pumped into the project through loans largely procured from Exim Bank of China from May 2014.

Some 5,039,988 tonnes were ferried from Mombasa to Nairobi between January and December 2018, the KNBS data shows, with a tonne costing $ 17.13 (Sh1,707).

Kenya requires additional cash from the railway business to ease the taxpayers’ burden of paying the Chinese SGR operator.

China Road and Bridge Corporation (CRBC) runs the SGR cargo and passenger business at an undisclosed management fee.

The Treasury also expects the SGR business to generate more revenue to help offset loans taken to build the multi-billion shilling railway line.

It will pay Sh36.24 billion in the current year, which will rise to Sh82.5 billion from July when loan becomes due.

Kenya borrowed Sh324 billion for the project from from China Exim Bank in May 2014, to be repaid in 15 years, with a grace period of five years.

Kenya’s key strategic assets at home and abroad will not be protected by “sovereignty” and risk being seized by the Chinese government should there be a default in repaying the SGR loan, a copy of the contract says.

“The key problem (for freight services) is cost. This is partially because truckers offer door-to-door service whereas the SGR ends in suburban Nairobi, forcing firms to pay an additional Sh15,000-20,000 (US$150-200) to move their goods to final consumers across the capital,” UK-based research firm Capital Economics said in a recent note.

“All told, we estimate that it’s about 50 percent more expensive to move a container using the SGR than to do so by road.”

The government has been marketing the freight services, revealing the determination to keep the service on track.

Passenger ticket for economy seats shot up to Sh1,000 in January 2018 following the lapse of seven-month promotional Sh700 charges, a 42.86 percent increase. Data shows revenue from passenger tickets in the June-December 2018 increased to Sh1.05 billion compared with Sh627.66 million in the corresponding period in 2017 when promotional tariff was in place.

Kenya Railways has also proposed to scrap the discounted fares for children, who pay half of the seat charges, in a bid to raise more revenue.

Source: Business Daily

Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of TradeMark Africa.