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Service expected to take huge chunk of business from cargo owners

BUSINESS
By Macharia Kamau | November 5th 2017
Members of the public watch as the first Standard Guage Railway (SGR) line passenger train snails out of the Mombasa Terminus Station in Mombasa after it was launched by President Uhuru Kenyatta, May 31, 2017. The passenger train will be operating once in a day. [PHOTO BY [GIDEON MAUNDU/STANDARD].

Beginning January next year, cargo owners will start using the Standard Gauge Railway (SGR) to move goods between Mombasa and Nairobi.

The start of the SGR freight service is expected to take a huge chunk of business from cargo owners. The new service could also be the proverbial final straw that breaks the camel’s back that is the century old metre gauge railway, as SGR will probably take all customers still using the old line.

The passenger service on the metre gauge line was discontinued following the launch of the Madaraka Express, the SGR service that ferries passengers between Mombasa and Nairobi.

Questions abound as to whether the same fate will befall the cargo service using the old railway. The freight service on SGR will be an addition to the myriad challenges the metre gauge is facing including capacity constraints as well as employees that remain unsure of their terms.

The old railway reverted to Kenya Railways Corporation (KRC) following the termination of Rift Valley Railways’ (RVR) concession to run the line for 25 years starting 2007. KRC has in the past said it would operate the old railway as it weighs what options are available including bringing another concessionaire on board.

Indications are the metre gauge will be adversely affected by the SGR cargo service and probably fall into further disuse, with the possibility of eventually fading away. However, the Government said it would not let the line go to waste and that the Ministry of Transport is evaluating the possibility of rehabilitating or refurbishing it.

Transport Cabinet Secretary James Macharia said the Government is keen on continued operations of the old railway. It is not clear what the Ministry intends to do to salvage the century old railway or whether there is still a business case for SGR, which is being extended to Naivasha and later Kisumu.

Mr Macharia said the Government has commissioned a Chinese firm to do a study on the line with a view of reviving it. He added that the railway services areas that the new railway will not reach, even when the entire project between Mombasa and Kisumu is complete.

“The metre gauge railway is a major investment and a strategic asset for the country and it will not go to waste. We are trying to see how we can turn it around and are working with our friends from China. We have commissioned a study to see what we need to do on the line so that it can continue serving the country,” he said.

“The line goes into areas where the SGR will not be able to reach, it will come in handy in offering the last mile solution for cargo owners that will be using the SGR.”

According to the CS, the old railway has a network of 2 000 kilometres, of which only 1,000 kilometres are in use, which were being managed by RVR but have since reverted back to KRC following the termination of the concession agreement.

A lot of the segments that are not in use lead directly or close to premises such as factories and warehouses, where owners of cargo would have their goods delivered to their places of work.

REFURBISH METRE GAUGE

The position held by Macharia, and by extension the Government, can be looked at as contradicting the Government’s take on the standard gauge vs metre gauge railway debate a few years ago. The Government had pressed on with the SGR project despite varied opinions from institutions such as World Bank advising it would have been a lot cheaper to refurbish the metre gauge and achieve similar results, including speeds and capacity, as with the SGR.

The World Bank in August 2013 had presented different scenarios on rehabilitating, refurbishing and upgrading the metre gauge line, with all the options offered appearing to moving the old railway to being at par with SGR but at a substantially lower cost compared to SGR.

These include a Sh23 billion refurbishment, which would have been enough to refurbish and modernise the Mombasa-Nairobi segment of the old railway such that it could achieve 120 kilometres per hour and ferry 60,000 metric tonnes of cargo per year.

From the World Bank 2013 analysis, one can deduce that the Sh327 billion spent on constructing the Mombasa-Nairobi SGR phase would have been more than enough to refurbish the entire 2,000 kilometre metre gauge railway network and have change to develop inland ports.

Once it starts operating, the SGR freight service, KRC said it would cost Sh50,000 ($500) to move a 20 foot container from Mombasa to Nairobi on the new line while other cargo will attract Sh7 ($0.07) per tonne per kilometre. KRC said the charges would be periodically reviewed depending on demand.

This is in comparison to the current fees by trucks, that charge between $860 (Sh86,000) and $970 (Sh97,000) to ship a 20 foot container from Mombasa to Nairobi.

The old line also charges higher fees on account of inefficiency due to years of under-investment and according to reports, charges between Sh67,000 and Sh145,000 depending on the size of the container.

 

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