China dictated terms to Kenya in SGR contract, Supreme Court told

Madaraka Express Inter-County Service train leaves after it was flagged off by then Transport CS James Macharia at SGR Nairobi Terminus. [Boniface Okendo, Standard]

It was impossible for Kenya to wriggle out of the contentious multi-billion Standard Gauge Railway (SGR) contract, the Supreme Court heard.

Supreme court judges Philomena Mwilu (Deputy Chief Justice), Mohamed Ibrahim, Smokin Wanjala, Njoki Ndung’u and William Ouko on Tuesday heard that China placed a condition that shielded the project from competitive bidding.

China is said to have dictated in its Memorandum of Understanding with Kenya that it would finance the project, but only if China Road and Bridges Corporation (CRBC) would be the main contractor.

CRBC lawyer Kiragu Kimani faulted Court of Appeal for treating the MoU as a procurement project.

“The SGR was an enormous undertaking funded by Exim Bank, owned by the people of China. There were negotiations between Kenya and China which culminated in various documents, including an MoU between the National Treasury and Exim Bank of China which you will find on page 202 filed by the second appellant. From line 20 it becomes clear that the lender was imposing a condition for the financing and the condition was that the fourth respondent would undertake the project. It is not in doubt that Exim Bank dictated the fourth respondent was to be the contractor,” said Kiragu.

Meanwhile, Kenya Railways Corporation (KR) told the Supreme Court that it was not to blame for failing to float a bid for the tender as it was just implementing the deal signed between the Ministry of Transport and Exim Bank.

According to the corporation’s lawyer Albert Mumma, Court of Appeal judges Martha Koome (current Chief Justice), Gatembu Kairu and Jamila Mohammed failed to appreciate that the SGR project was sanctioned by the Cabinet.

“We wish to argue that the procurement of SGR was done on the basis of the Cabinet which gave directions to the procuring entity that the contract would be funded through government-to-government financing. The role of Kenya Railways was as an implementing entity. Its role was not the procuring entity,” argued Prof Mumma.

Busia Senator Okiya Omtatah -in his reply to the appeal filed by Kenya Railways and Attorney General- argued that KR cannot shift the burden to the ministry as the law does not give the Cabinet Secretary any powers to procure railways on behalf of the corporation.

According to him, the entire deal was sealed in less than 15 days. He asserted that it was unbelievable to have approvals, scrutiny of the contract, and the bill of quantities worth Sh220 billion and have the negotiating team in place within a short span.

Omtatah also stated that it amounted to conflict of interest for CRBC to declare that the project was feasible, then get the contract to construct the railway line.

Former President Mwai Kibaki, a pragmatist, had wanted Kenya to wait for at least 30 years before it could live the dream of a high-speed rail.

Kenya went ahead to ink a deal with Uganda to link their SGR system from Mombasa to Kampala with branch lines to Kisumu (Kenya) and Pakwach (Uganda). His successor, President Uhuru Kenyatta, an optimist, reckoned the multi-billion-shilling project could be completed sooner, and serve as a flagship project to be inscribed to his legacy.

He went full throttle to actualise the dream in record time, but unfortunately, that rush has turned SGR into one of the most controversial projects in Kenya.

On Tuesday, Omtatah told the court that the country got obsolete diesel-driven locomotives instead of what was intended.

“To the extent that the SGR project will operate obsolete diesel-powered locomotives and not modern electrical trains as earlier planned. It violates the rights in Article 46 of the appellants and other Kenyans to goods and services of reasonable quality and to the protection of their health, safety, and economic interests,” he argued.

In 2021, the Court of Appeal found that the procurement of the Sh500 billion project was flawed, handing even more ammunition to SGR critics, who maintained the mega-project is a ‘white elephant’. The ruling threw the entire project, already operating from Mombasa through Nairobi to Naivasha, into a tailspin. It also turned the spotlight on similar projects, which have been crystallisd through political expediency.

In the case, the Attorney General argued that arising from the government-to-government loan agreement, the SGR project was exempted from the requirements dictated in the Procurement Act.

The SGR project has been dogged by allegations of inflation of cost and not being economically viable with Uganda and Rwanda reported to have distanced themselves from it. 

The second phase of the project, from Naivasha to Kisumu and finally to Malaba, is also in limbo after China reportedly withheld funding.

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

Actually, it was China, through CRBC that offered to do a free feasibility study for the Kenyan government on the construction of SGR from Mombasa to Malaba.

It was after 2,000 that Beijing, hitherto largely a recipient of foreign direct investment, decided that it had amassed enough dollars, which it could deploy in different parts of the world 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 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.

In 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 was to open up different regions of the world to trade. One such area was Eastern Africa.

Around that time, 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. 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, said Gerrishon Ikiara, who served as the Permanent Secretary for Transport from 2003 to 2008.

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

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 enticing offers of building them roads, railways, sea-ports, airports, bridges, and dams had a better idea.

The Chinese even offered to do the feasibility study for free. In August 2012, CRBC was allowed to do the study. 

However, a World Bank report released a year later found a cheaper alternative of upgrading the oldest railway in East Africa 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 of Sh327 billion. It was a commercial loan, with Kenya expected to pay an interest of around six per cent.