Cabinet gives green light to Sh18b railway bond

By James Anyanzwa

The planned Sh17.8 billion bond issue by the Kenya Railways Corporation (KRC) has received a major boost after the Cabinet approved a proposal to raise funds through the local capital markets to finance the upgrade of the Nairobi Commuter rail system.

The latest sets a centre-stage for the issuance of the debt instrument whose proceeds will go towards financing KRC’s plans to build a seven-kilometre link from the Jomo Kenyatta International Airport to the city centre.

The move aims at easing Nairobi’s infamous traffic jams, which investors complain of choking commercial activities in East Africa’s largest economy.

The bond, which is being offered to both local and international investors, is expected to further excite Kenya’s fixed income market, which has been vibrant, buoyed by plenty of liquidity within the banking system.

Market players argue that issuance of bonds by government agencies and local authorities could be the next area of growth in a market that features government bonds and a few corporate issues.

Mr Mugo Kibati, Director General of Kenya’s Vision 2030 Delivery Secretariat, the Government’s long-term development plan, said the bond would go to the market within the first three months of next year.

BOND ISSUE

"The issue is likely to be launched in the first quarter of 2012," Kibati told the Financial Journal last week.

Dubbed the metropolitan rail transport system, the project is part of KRC’s Railway Masterplan, which seeks to overhaul the entire rail transport system in the country by 2050.

"Investors are ready and willing to take it up. We have showcased the bond to both local and international investors," said Kibati.

The Nairobi Commuter rail project would be fully financed by proceeds from the bond issue.

But the cost of purchasing train coaches estimated at between $120 million and $150 million would be incurred by the eventual operator of the system.

In this year’s budget, Deputy Prime Minister and Minister for Finance Mr Uhuru Kenyatta allocated an additional Sh1.9 billion towards the construction of a new branch line from Embakasi Railway Station to Jomo Kenyatta International Airport.

Uhuru said the completion of this line would make commuting to and from the airport faster, comfortable and cheaper.

It will also benefit urban commuters living in Kitengela, Athi River, Embakasi, Pipeline, Imara Daima and others residing along Mombasa road.

He also allocated Sh1 billion to initiate upgrade for the Nairobi – Ruiru via Makadara, Dandora, Githurai and Kahawa railway line to expand passenger services by at least ten fold, thereby making it affordable to many Kenyans commuting daily to work in the city and reduce congestion in the City .

Last year, the Treasury also allocated Sh1.9 billion for the upgrade of the Nairobi Commuter Rail system.

PARKING SPACE

The first phase of the project, which is being funded by the Exchequer, will see a commuter railway station built in Syokimau, and an acquisition of ultra modern locomotive engines and wagons to the tune of Sh1.6 billion.

The Sh250 million-Syokimau station which, will act as a link between the road and the railway system will have a parking space to hold up to 1,000 cars, where motorists will park and take trains to Nairobi’s central business district.

It will also be a dropoff and pickup point for commuters using public service vehicles.

The acquisition of new engines and wagons is expected to cost Sh300 million, while the railway line between the CBD and Jomo Kenyatta International Airport will cost Sh1 billion.

The rail project also includes an upgrade to 160-kilometres of existing track in Nairobi.

The Nairobi facelift will see the retiring of the current old and worn out commuter trains that mainly operate in the morning and evenings and ferry a mere five million commuters annually.

The inefficiencies of the existing network have been blamed for the transport disorder and overcrowding in Nairobi caused by Matatus.

The first phase of the Nairobi Commuter rail project was scheduled to begin in January but was delayed until February pending approval from the Environmental Management Authority.

The project has since kicked off with the Syokimau Station under construction.

The new rail system, which will connect Nairobi’s CBD with JKIA and a proposed Golf City along Uhuru Highway, will see the introduction of modern coaches commuting at the intervals of 30 minutes.