State to cough up extra Sh8.3b to fund SGR Phase II

The funding, representing a five per cent increase, is higher than the contribution it made to the initial section linking Mombasa to Nairobi.PHOTO:COURTESY

The Government will now fork out an additional Sh8.3 billion towards Phase II of the Standard Gauge Railway (SGR) project.

The funding, representing a five per cent increase, is higher than the contribution it made to the initial section linking Mombasa to Nairobi.

China provided project loans covering the entire direct construction costs for the 472km line, while the State only made compensation for land – equivalent to only 10 per cent.

Phase IIA of the railway project, which terminates near Narok town, is estimated to cost $1.483 billion (Sh153 billion), with Kenya forking out Sh23 billion in cash contribution.

The planned upfront expenditure is more than the Sh15.3 billion that the State had planned to spend in its 90 per cent and 10 per cent combination of borrowing and own cash respectively.

Officials said the slight reduction in the proportion of borrowed funds was informed by a desire to hasten the loan repayment period as the terms of the facility were purely commercial.

Transport Permanent Secretary Irungu Nyakera said funds had been allocated in the current and next financial years to fund the second phase of the project, whose construction begins in April.

“We will provide more of our own cash for the project, investing 15 per cent of the project funds from the earlier 10 per cent,” Mr Nyakera told The Standard last week.

He was on a tour of the yet-to-be-completed Inland Container Depot (ICD) in Nairobi where the SGR will terminate and the freight destined for Nairobi received.

Nearly Sh62 billion has been allocated for railway operations in the next financial year, most being directed to operationalising the SGR – including subsidising the initial months of freight and passenger transport.

Kenya Railways Corporation Managing Director Atanas Maina said said the terms of the funding for Phase II is purely commercial.

“It was necessary to reduce the loan part for the project financing,” said Mr Maina, adding that the terms of the earlier loan were part-concessionary.

He, however, did not specify the exact borrowing terms as he said he was out of office to be able to five further details.

International commercial loans are, however, priced at a specified margin, such as four per cent above the London Interbank Offered Rate (Libor) - a benchmark rate that some of the world’s leading banks charge each other for short-term loans.

Commercial loans are priced at market rates, making them more expensive. 

Repayment of the first SGR loan alone has squeezed the country’s finances as it is the single biggest credit facility from China.