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The SGR windfall: Firms cash in on mega rail project

By Dominic Omondi | January 26th 2016 at 00:00:00 GMT +0300

The projections for 2016 are largely positive, which is welcome news for a country that faced headwinds for the better part of 2015. Analysts expect the economy to grow at over 5 per cent this year on the back of on-going infrastructure projects.

Prominent among these projects is the standard gauge railway (SGR). The Sh350 billion high-capacity railway line is the largest project in Kenya in half a century, and is supposed to run from the port city of Mombasa to the border town of Malaba.

And while the project might have left a gaping hole in the country’s current account, analysts believe the project will make up for this once it starts running — or even before it is completed through the ‘multiplier effect’, as more people get employed and suppliers get paid.

Indeed, local suppliers of SGR hired by the project’s contractors, China Road and Bridge Corporation (CRBC), have started to cash in. They include manufacturers of cement and steel, sand harvesters and suppliers of explosives.

One such happy supplier is Nitro Chemicals. The firm was contracted in mid-2014 to supply explosives for all phases of the project.

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Pratik Sanghrajka is a senior manager at Nitro Chemicals, and although he would not say the exact amount his company has made from the project, he admits that it is the best deal they have ever clinched.

In fact, it is worth more than double the amount of business the firm has had to date, he said.

New hires

As a result, the company, which also supplies blasting materials to virtually all major cement manufacturers in the country, has had to double its imports of materials.

This has required the outsourcing of more trucks for transport, hiring of more personnel, and, due to the sensitivity of the products, hiring of more police officers to escort the explosives to SGR sites.

“Before, we only needed two officers for a simple delivery from Mombasa to Nairobi,” said Mr Pratik.

The railway project is also compelling local suppliers to re-align their business practices to those of the Chinese, which so far appears to be a good thing.

Daniel Muriithi Migwi, the founder of construction firm Techno Aid, said he has had to learn to keep up with the working rate and ethic of the Chinese.

Mr Migwi’s company was sub-contracted by CRBC to carry out stone pitching, that is, providing a hard-wearing surface for steep paths, as well as doing drainages.

He admits the margins are not very good, but the huge volume of work makes up for this.

“There is a lot of work, and you have to work very fast like the Chinese, otherwise you will delay the project. Your presence at the site is also very critical,” he said, adding that some sub-contractors have quit along the way as the work load was just too demanding for them.

In a recent interview with Business Beat, Bamburi Cement Country Manager Bruno Pescheux said his firm had to change its standards to clinch the deal to supply SGR with cement.

“[CRBC] wanted products that would comply with Chinese standards. Bamburi also has its standards. We were, therefore, forced to change our standards. We did not want to lose the market to imports, so we adopted their standards,” he said.

Steel Makers, one of the largest steel suppliers in the country and a major player in several high-profile infrastructure projects, is among five companies contracted to supply SGR with the structural alloy.

Bobby Johnson, a director at Steel Makers, said he is happy with the fact that other local steel companies have got an opportunity to participate in the project.

“A project of this magnitude cannot rely on one supplier,” he said, adding that multiple suppliers assure a contractor that there will be no disruptions in supply.

For Steel Makers, the contract may not have changed operations in a significant fashion, but it has added another enviable feather to its cap.

Mr Johnson added that Kenyan firms are not supplying all the steel for the project. For instance, steel rails are not produced locally. Local firms are, however, supplying steel for bridges and civil works such as culverts.

Further, the sleepers — rectangular support for the rails — for the SGR, unlike in the current gauge line, are made of concrete, reducing the amount of steel needed.

Migwi, who has about 140 employees, is also pleased with the fact that CRBC payments come on time.

The local contractors and their staff have also had an opportunity to get lessons on doing business with people from diverse cultures.

“One thing you learn when you work with the Chinese is that you have to be very hands on,” added Pratik.

To get the job, the companies that submitted bids underwent stringent quality control tests and background checks to ascertain their capability to handle large projects, said Johnson.

More opportunities

In the third quarter of 2015, all the companies that met the threshold of SGR requirement were invited to submit bids during an open tender process.

Johnson said Steel Makers has supplied steel for several infrastructure projects that demand high standards of quality, and SGR is no exception.

The project, which is 60 per cent complete, with 50 kilometres already under rail, also needs construction aggregate, timber and ballast, meaning there are more business opportunities for interested entrepreneurs.

But there is a catch.

“If you want to supply anything to the SGR, make sure you understand and meet the requirements of the project,” said Johnson, adding that the contractor has very specific standards.

Migwi added that it is also important that you are available and have the time to go to project sites.

Pratik thinks Nitro Chemicals was chosen to supply the project with explosives because of its superior supply chain. The firm gets its materials from India, France and China, which means it can be relied on to bring in goods every two weeks.

“You have to be really aggressive when you are working with the Chinese,” he said.

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standard gauge railway China Road and Bridge Corporation
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