Pushed to build new railway for China, Kenya is paying the debt

The delegation loved the four-and–half-hour ride, though one thing unsettled them.

A few months ago, this writer accompanied senior Government officials on a ride in the Standard Gauge Railway (SGR) passenger train from Nairobi to Mombasa.

The delegation loved the four-and–half-hour ride, though one thing unsettled them.

"It is a shame that such small jobs can’t be done by Kenyans,” they said in low tones, as though afraid that the Chinese man who ushered them to the First Class coach would hear them.

A lot has changed since then, with locals taking charge of most of the non-technical jobs at the SGR. But the Chinese flag, boldly sitting next to the Kenyan just above the angle of elevation in every train, is a stark reminder that the Asian country’s stake in the modern railway is far from diluted.

That is why some critics have insisted that the SGR, whose passenger service from Nairobi to Naivasha was last week unveiled by President Uhuru Kenyatta, is for China  - with Kenya mostly left to shoulder the debt as it falls due.

Government officials and proponents of the SGR have dismissed these claims as conspiracy theory but history seems to vindicate the critics of the railway. China, more than Kenya, needed to have the SGR built.  

It was China, through the China Road and Bridge Corporation (CRBC), that offered to do a free feasibility study for the Kenyan Government on the construction of SGR from Mombasa to Malaba.

Around 2000, Beijing, hitherto largely a recipient of foreign direct investment, decided that it had amassed enough dollars which it could deploy in different parts in what has come to be known as its ‘going out strategy’.

The Chinese were holding onto a huge cache of US dollar reserves which had worryingly started giving them low returns. The global financial crisis of 2008 only added to the unease as many Chinese investors feared that the huge dollar reserves would lose value as the American economy sunk.

It was generally agreed that China would be better off investing in other types of assets overseas that had better returns.

A gang of Chinese state corporations, fired up by the massive dollar reserves, invaded Africa and other developing countries in a manner that was not so dissimilar to that of the European missionaries and explorers in early 20th Century.

There was even a clever way of China concealing what was a purely commercial crusade as ‘foreign aid’.

Since 2013, the Chinese government started pushing for a new One Belt, One Road (OBOR) initiative in which the Asian country tried to retrace the ancient Silk Road on the global map.

The objective, according to China, was to open up different regions of the world to trade. One such area was Eastern Africa.

Around that time, President Mwai Kibaki had already been looking for money to revamp the Northern Corridor by decongesting the port of Mombasa, widening the Mombasa-Nairobi highway and upgrading Jomo Kenyatta International Airport (JKIA). 

Kibaki’s idea by then was not to build a new railway. According to Ali Mwakwere, Minister for Transport from 2005 to 2010, the term ‘Standard Gauge Railway’ was neither in Vision 2030 nor in the Lamu Port-South Sudan-Ethiopia-Transport (Lapsset) Corridor project, a gigantic regional infrastructure project.  

Earlier efforts in 2004 by the NARC administration to get funding from traditional financiers such as the World Bank to revamp the Northern Corridor had already hit a wall.

The World Bank only had Sh20 billion to extend to Kenya, remembers Gerrishon Ikiara, who served as the Permanent Secretary for Transport from 2003 to 2008.

The Sh20 billion was only enough to a section of the Likoni-Lunga Lunga road and part of the JKIA.

A controversial concession of the old metre-gauge railway to a consortium led by a nondescript South African company was already failing. The port of Mombasa was still in a mess, and trucks turned the dilapidated Mombasa-Nairobi highway into a parking lot.

Nonetheless, Kibaki’s government reckoned that Kenya would have to wait until the end of the 30-year concession that had been given to the Rift Valley Railways (RVR) before the country could think of the expensive SGR.

But the Chinese, who were already all over Africa paying homage to every other African leader willing to accept their juicy offers of building them roads, railways, sea-ports, airports, bridges, and dams had a better idea.

They could build the railway, not in 30 years, but immediately. They were also in Kenya already, building roads and infrastructure.

"I remember visiting China as the Minister of Foreign Affairs and learnt of their expertise and good work upon seeing their railway infrastructure. I, therefore, identified them, since they were already working in Kenya in road construction,” Mwakwere told the Ethics and Anti-Corruption Commission during investigations on the railway tender.

“I also visited China as a member of President Kibaki’s entourage. Thereafter, I invited CRBC to my office for further discussions.”

Money was the least of Chinese company’s problems. Their government was willing to bankroll any deal they closed as long as the returns were good.

There would be no such pesky conditions involving extensive background checks whose effect was to delay the implementation of the projects.

They even offered to do the feasibility study for free. In August 2012, CRBC was allowed to do the study and having in the first place mooted the idea of building a new SGR line, their finding was predictable.

"Because the existing railway line adopts the metre-gauge standard, consisting of low-grade lines and serious ageing equipment, if for rehabilitation, the work amount and investment is nothing short of building a new line,” said CRBC in the feasibility report.

"Therefore rehabilitation of the existing railway is unfeasible.” 

Cheaper alternative

But a World Bank report released a year later found the alternative of upgrading the oldest railway in East Africa a much cheaper alternative compared to building the SGR.

The SGR line from Mombasa to Nairobi, which was supposed to then extend to Kigali by March 2018, was built at a cost Sh327 billion. It was a commercial loan, with Kenya expected to pay an interest of around six per cent, almost the market rate.

This for the Chinese was a far more decent return than what they could have got from investing in US Treasury securities.

With the grace period of five years coming to an end, Kenya will from January next year start paying Sh35 billion per year for a period of 10 years.

"They (Chinese) targeted grey areas. Where they were going to harvest abnormally in terms of profits,” says Samuel Nyandemo, an Economics lecturer at the University of Nairobi.

Dr Nyandemo does not blame the Chinese, “if you can get the better of the other party in a commercial transaction, why not?”. But he feels that Kenya’s negotiators have been poor.

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