How SGR could be a bane to economy of Coast counties

Pacific International Shipping Line workers flag off an SGR freight cargo wagon with 108 of their containers. This is the second shipping line to sign an agreement with SGR for transportation to Nairobi. [File, Standard]
Until six months ago, Andrew Katana believed he was gainfully employed at one of Mombasa’s container freight stations (CFS) as manager.

He was able to feed, clothe and educate his children and family and spare some money to live in a middle class estate in Mombasa. This term, his two sons will not report to school for lack of fees. Last month, he moved to a cheaper house in Majengo and has since transferred his wife to his rural home in Kilifi.

Everyday, he reports to the gates of his former employer - the CFS laid off most of its employees two months ago - expecting to be recalled “when finances improve” as promised at his termination in April.

Katana’s plight is replicated at several other CFSs, trucking companies and other logistics companies like clearing and forwarding agencies that have scaled down or moved to Nairobi due to the intended and unintended consequences of the introduction of the Standard Gauge Railway (SGR).

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Flouted rules

His plight is living proof of an expert report conducted by the Maritime Business and Economic Consultants on behalf of the Container Freight Stations Association.

The report shows that feasibility studies done to justify the viability of the SGR ignored the socio-economic impact of the fast and uncoordinated implementation of the new train freight services.

It documents that besides a deliberate policy to eliminate CFSs in the face of expert opinion to the contrary, authorities were eager to flout the Competition Act and the principles of the 2010 constitution (on public participation) in order to confer an illegal monopoly on the train service at the expense of other transporters.

This policy, according to the report, compels importers to use the train service to transport cargo principally “because the State signed an agreement with the Chinese financiers of the SGR that must be implemented to recoup the cost of the railroad”.

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“How can KPA compel owners of goods to use railways services?” poses the report which concludes that cargo belongs to the consignee or importer, not the government.

The report shows that the port cannot operate properly, reduce delays and congestion and foster efficiency without the support of CFSs, citing the experience of India and Nigeria. The 20 CFSs in Mombasa have invested Sh12.5 billion, according to the report which shows 800 trucks leave these stations daily.

The CFSA report opposes the “take or pay” agreement between the Chinese lenders and government for cargo at the port. This agreement compels Kenya Railway Corporation (KRC), which manages SGR, to guarantee an optimum volume of cargo on the new railroad to enable it recoup costs of its building. As a consequence, Mombasa’s economy, which is based on logistics, is experiencing a crunch.

The report says government’s favours to the SGR at the expense of other transporters amounts to unfair trade practice. These favours include concessionary rates for SGR users and indirect orders to importers to use SGRwhen goods land at the port.

“KPA is required to guarantee Kenya Railways that it will provide a minimum consignment of freight. Would this be subjecting importers and other transporters to an undue disadvantage whilst giving KRC an undue preference?” poses the report which says the Act allows the state to impose a monopoly of the nature enjoyed by SGR on “exceptional” circumstances of national security.

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Since the establishment of CFSs from 2000 to address congestion at the port, KPA has been allocating cargo to the private facilities. Preference now goes to SGRagainst the rules of fair competition, says the report. KPA only turns to the CFSs while facing threats of congestion and ignores the private facilities when the situation eases.

Section 21 of the Competition Act provides that agreements between undertakings which have as their object or effect the prevention or lessening of competition in trade in any goods or services in Kenya or part of Kenya are prohibited, unless they are exempt in accordance with the provisions of section D of part III of the Act.

Under section 26 (2) of the Act, the Competition Authority may grant an exemption if it is satisfied that there are exceptional and compelling reasons.  “Can the government promote the services of SGR to users of the port at the expense of other road haulers?” says the report.

Additionally, says the report, port authorities and the Kenya Revenue Authority (KRA) are eager to phase out CFSs which employ no less than 3,000 workers directly and tens of thousands indirectly.

As the SGR currently enjoys a cargo boom owing to government’s backing, the report done last year (and updated last month) questions the change of the original feasibility study of 2011 undertaken by the China Roads and Bridges that gave the new rail service advantage over other competing modes of transport. According to the report, the review of the earlier feasibility study disables an established operating system.

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“One interesting observation is that it appears that the feasibility study undertaken in 2011 by China Road and Bridges Corporation (CRBC) and veneered in 2012 is the only study on the SGR available,” says the report.

Cargo volumes

The focus of competition for cargo is based on the more than 26 million metric tonnes annually handled by the port where government has a say.

CFSA Chief Executive Officer Daniel Nzeki says 50 per cent of CFSs workers -- translating to 3,000 -- have been laid off following the impact of both the expansion of the port and the introduction of SGR.

 “The workers rendered redundant are mainly from Mombasa due the significant reduction in cargo volumes to the CFSs,” Nzeki said.

A reliable source at the Kenya Railways said SGRcontainer freight trains have hauled 1.5 million metric tonnes between January and August.

The number of trains have increased to seven per day. SGR will introduce breakbulk (loose cargo such as steel and rice) freight service next week.

“We intend have 16 trains per day at full capacity,” said the source.

Transport PS Paul Maringa told Sunday Standard opposition to hauling cargo on the SGR was expected as it would significantly change the business environment.

“It is awkward to be a shipper, a shipping agent, owner of a CFS and a tracker…if this is who you are then you do not want any business out of your hands,” Mr Maringa said.

While expressing concern over the heavy beating on the CFSs from SGR, Mr Nzeki, however, welcomed the expansion of the port to serve the increasing regional trade.

“The expansion of the port is a highly welcomed initiative that will improve capacity in line with the growing regional business,” Nzeki said.

Apart from CFSs, other businesses that have received the SGR heat in Mombasa include road transporters and clearing and forwarding agents as shift favours Nairobi where containers are landed at Kenya Ports Authority’s Embakasi Inland Container Depot (ICD).

Peter Otieno, chairman of the Car Importers Association of Kenya (CIAK), said the economy of Mombasa is currently experiencing a huge decline owing to the “relocation” of business and direct cargo haulage to Nairobi by SGR.

Hezron Awiti, a CFS operator and transporter, expressed fear of a huge decline in business as the government pushes cargo owners to use SGR.

“The government should allow for market forces to take root and give cargo owners a chance to choose which logistics to go for,” Awiti argues.

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MombasaCFSSGRStandard Gauge Railway