Importers fight state plan to use railway levy for loans

The Standard Gauge Railway cargo train arrives at the Naivasha Inland Container Depot in Mai Mahiu, Nakuru County, from Mombasa. [Kipsang Joseph, Standard]

Logistics industry players have expressed concerns about the government’s plan to use up to 90 per cent of funds received through the Railway Development Levy as collateral to secure additional funding.

A new bill has proposed the use of up to 90 per cent of the money coming into the Railway Development Levy Fund (RDL) “to secure additional funds,” which will be used to finance railway developments such as construction and rehabilitation of railway lines.

The proposal, which is contained in the Miscellaneous Fees and Levies (Amendment) Bill, is in line with the government’s new policy on securitisation, which focuses on using future taxes as collateral to raise money for development projects. The securitisation policy has already faced opposition from different stakeholders on concerns such as a lack of transparency, but also arguments that the country has adequate resources but lacks proper governance. In the case of securitising the RDL, the Shippers Council of East Africa (SCEA) said the 90 per cent threshold is too high and instead proposed lowering this to 75 per cent. 

“Allowing 90 per cent of the Fund to be used as security for further borrowing could lead to over-leveraging and leave insufficient liquidity for the Fund’s primary operational purposes. A lower cap promotes better fiscal sustainability,” said SCEA Chief Executive Agayo Ogambi.

“We propose 75 per cent that can be used to secure additional funds and not 90 per cent as proposed.” The government has, in recent months, said it plans to raise Sh175 billion through the securitisation of the Road Maintenance Levy (RML) to clear pending bills for road contractors and enable them to complete stalled road projects. The levy is financed by motorists every time they fuel at Sh25 per litre of either diesel or super petrol. It has recently been increased from Sh18 per litre, with the government explaining the additional Sh7 is what has been used to raise additional funds. 

The government has also securitised gaming tax revenues to raise Sh45 billion that has been used to construct the Talanta Stadium. 

In addition to the securitisation of the RDL, the Bill also seeks to improve the management of the funds collected through the levy through the formation of the Railway Development Fund, which will receive proceeds of the levy. It also proposes the formation of the Railway Development Levy Fund Board, which will administer and manage the Fund. It also proposes the use of 0.5 per cent of the money in the Fund for administration purposes.

RDL is levied on all imports at two per cent.

Ogambi noted that while SCEA supported the levy, there was a need to balance between high costs for businesses and funding Railway infrastructure to support the efficiency and reliability of transport competitively.

He, however, noted the critical role that the levy could play in improving railway infrastructure and connectivity in Kenya, but also its neighbours that account for about a third of all cargo that passes through the port of Mombasa.