Kenya Railways Corporation MD Alfred Matheka contradicts PS on cost of railway

Kenya Railways acting Managing Director Alfred Matheka before the House committee where he answered questions on the railway tender. [PHOTO: STANDARD]
By PAUL WAFULA

NAIROBI: Kenya Railways Corporation has contradicted figures of its parent ministry on exactly how much it would cost to construct a kilometre of railway in Kenya.

The parastatal’s Managing Director Alfred Matheka told the Parliamentary Public Investment Committee that Kenyans will pay Sh342 million ($3.98 million) per kilometre of the 609.3km Standard Gauge Railway while the Transport PS had indicated that the railway would cost Sh318 ($3.7 million) per kilometre.

It also emerged that the Chinese company awarded the contract to build the railway from Mombasa to Nairobi, China Road and Bridge Corporation (CRBC), was also given the mandate to supervise itself.

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A Memorandum of Understanding (MoU), that was made public for the first time, shows how government officials locked Kenya into a contract that would have the same contractor carry out feasibility study design, source funding and supply the wagons and locomotives for the railway line.

“If the study was approved by the Ministry of Transport, CRBC would be the sole agent to design (engineering, procure and contract), construct and supervise all the works of the project,” the MoU which was signed by former Transport minister Chirau Ali Mwakwere and Mr Du Fei, a general manager of China Road and Bridge Corporation (Kenya) read in part. 

According to the MoU signed on August 12, 2009 between the government and CRBC, the initial railway line was to 500km long and was to be used by electric locomotives, and not the current line whose length is now 609.3km to be used by diesel-powered locomotives.

SUPERVISE PROJECT

Put to task, the Kenya Railways Managing Director told MPs that he was also not comfortable with the provisions of the MoU that would see the Chinese company supervise itself, adding that Kenya Railways would instead seek for an independent consultant to supervise the project.

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However, this would be in breach of the MoU as signed by the government.

But what stunned the MPs most on Monday was the realisation that Kenyans will end up paying three times more in insurance premiums for the loan, despite being a government-to-government contract.

Matheka said Kenyans will pay about Sh13 billion as insurance premiums for the loan from the Chinese government to construct the Sh327 billion railway line from Mombasa to Nairobi, at a rate of 6.9 per cent.

 However, our calculations show that at 6.93 per cent, Kenyans will pay Sh20 billion at the end of the 15-year repayment period. 

“What is this risk that the government of Kenya is insuring for this loan? There is no institution more secure to lend to than a government. The 6.9 per cent interest just goes to confirm that this was not a government-to-government contract but a com0mercial loan,” Eldas MP Adan Keynan, who is also the chairman of the Parliamentary Public Investments Committee, said.

His counterpart, Mithika Linturi, who said he had invested in the insurance industry, wondered why the Chinese government mistrusted Kenya so much that they demanded such premiums.   

Mr Matheka told the MPs that the total cost of the project would be Sh327 billion ($3.804 billion), and the Exim Bank of China would fund 85 per cent of the project, which translates to Sh278 billion ($3.233billion).

He also revealed that the loan was divided into two parts, where Sh137.6 billion ($1.6 billion) will be a concessional line that will attract an interest of 2 per cent per annum.

COMMERCIAL LOAN

The remaining Sh140.4 billion ($1.633 billion) would be provided through a commercial loan that will attract 4.1 per cent interest and has a repayment period of 15 years, including a five-year grace period. The commercial loan will also attract a 0.75 per cent management fee payable upfront, and a similar percentage as commitment fee on the disbursed amount. In total, this brings the total cost of credit to about Sh362 billion.

CRBC got the contract to build the first phase of the railway at Sh220 billion, but it was later expanded to Sh327 billion to allow it source for locomotives and wagons as well. 

Kenya Railways Corporation Alfred Matheka