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State to retain 1.5pc rail levy to fund new projects

By Macharia Kamau | June 17th 2014

Kenya: Kenyans will continue to pay the railway development levy over a longer term. This will be even after the Government has collected enough funds to pay for its obligation in the financing of the standard gauge railway (SGR) project.

Transport ministry expects to collect Sh20 billion in the 2013/2014 and a further Sh22 billion over the 2014/2015 year through the levy. The tax is way above the Sh32 billion that the State has in financing of the SGR project, from Mombasa Nairobi.

Transport ministry, however, said Kenyans would continue paying the 1.5 per cent levy on all imports, even in foreseeable future to finance other needs. The levy was contained in last year’s Finance Bill and had collected Sh10 billion in the first six months of being in place.

Transport and Infrastructure Cabinet Secretary Michael Kamau noted that while the money would be more than enough to meet the State’s obligation in financing the railway, Kenyans would continue paying the levy. This will enable the State meet other obligations, including cash to be spent on land acquisition and the commuter railway in Nairobi.

The agreement between the Government and the Exim Bank of China requires the State to chip in Sh32 billion— 10 per cent of the Sh327 billion required to build the railway line from Mombasa to Nairobi. The remaining Sh294 billion will be paid through the Chinese bank’s concessional loan to Kenya. “We could raise the money that the Government is required to chip in two years and have a surplus but we are also paying for land acquisition and the commuter rail project.

More opportunities

He noted that land acquisition was estimated to cost Sh10 billion. Kamau spoke yesterday at the SGR Symposium in Nairobi that was meant to expose local businesses and other stakeholders to the opportunities available during the construction of the railway line.

He noted that Local firms would have access to business in excess of Sh130 billion, once the construction of the SGR gathers momentum. This is mostly due to a 40 per cent local content rule, which will require the China Road and Bridge Corporation – the main contractor – to spend 40 per cent of Sh327 billion on sourcing goods and services from local firms.

Private sector players also want a pie of the railway deals. Kenya Private sector Alliance said transporters should be included in the running of the railway line including ownership of wagons, considering the railway is likely to take a chunk of their road business. It is also expected to reduce freight costs by 70 per cent.

Eng J M Matu, chairman infrastructure sector board at Kepsa said the 40 per cent rule should also be included in the procurement law and require all international contractors to give local businesses contracts when undertaking mega projects.

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