Sh650 billion project: Questions raised over Ruto's Naivasha-Kisumu-Malaba SGR expansion plan

President William Ruto breaks ground for the landmark construction of Naivasha-Kisumu-Malaba SGR at the Narok Teachers Training College Grounds. [PCS]

The Kenya Kwanza government came to power with heavy criticism of the Standard Gauge Railway (SGR) project, an undertaking that President William Ruto and his allies claimed was contributing to Kenya’s economic challenges and debt crisis.

Indeed, the KK coalition branded the SGR part of a “perfect economic storm” resulting from unsustainable debt. Some critics, then, and now in the current administration, described the Naivasha extension as a “railway to nowhere” as experts laid bare the high costs of the SGR compared to initial projections.

They faulted then-President Uhuru Kenyatta’s government for a project that failed to meet its projected revenue. That was in 2022. Today, President Ruto is defending the SGR project, saying all along, his administration had a strategic plan around it.  

 

Thursday this week, the President broke ground for what will be his government’s most expensive infrastructure project yet, the SGR extension from Naivasha to Kisumu and then Malaba. This was amid questions over the secretive nature characterising the project, high cost and financing mechanisms that could plunge Kenya deeper into debt and make worse an already bad debt situation.

Pundits have also questioned the recruitment that led to the hiring of China Road and Bridge Corporation (CRBC) to build the railway. President Ruto launched the project, estimated to cost between Sh500 and Sh650 billion and will be constructed by CRBC, the firm that built the first and second legs from Mombasa to Nairobi and later to Naivasha (Suswa).

At Sh650 billion to construct 371km of new railway, the per-kilometre cost will translate to Sh1.75 billion. This is more than double the Sh693 million per kilometre it cost to build the first leg of the SGR between Mombasa and Nairobi, which cost Sh327 billion. 

The project is already facing resistance with a petitioner having filed a court petition at the High Court in Kisumu, claiming that it is shrouded in secrecy and that the government had not met the threshold set by the Constitution. 

During the groundbreaking at Emurtoto village in Narok County, senior government officials, including the President and Transport Cabinet Secretary Davis Chirchir, did not get into details of the project cost and its financing. President Ruto only noted that the government was aware that it did not have room to borrow and that it would use innovative financing mechanisms. 

President William Ruto breaks ground for the landmark construction of Naivasha-Kisumu-Malaba SGR at the Narok Teachers Training College Grounds. [PCS]

The government plans to use Railway Development Levy as collateral to borrow money for the project while also tapping commercial loans, and expects to get concessional loans from China. “We are fully conscious that this is a major investment. This project will require significant resources, running into hundreds of billions of shillings, at a time when we are managing our debt prudently and consolidating our fiscal position,” said Ruto.

“Let me confirm to Kenyans that we have thought through this project and its financing. That is why this railway will be built for performance. It will be freight-driven, it will be phased and demand-driven, it will leverage innovative financing mechanisms, and it will be integrated with logistics hubs and multi-modal transport systems,” Ruto said.

The President did not go into details on financing what is one of the biggest projects to be undertaken during his tenure. This is among the factors that have driven Francis Owino, a rights advocate, to file a petition at the High Court in Kisumu. 

In court papers, Owino, besides terming the project unlawfully secretive, raises concerns about the lack of public participation and environmental threats. This is despite the magnitude of the project and far-reaching social, environmental and economic consequences.

“The respondents have proceeded in secrecy and without adherence to mandatory constitutional safeguards governing transparency, accountability, public participation, environmental protection and responsible public finance management,” said Owino in his petition, adding that the secrecy surrounding the financing model exposes Kenya to major liabilities that are also now known.

“The respondents have failed to table before parliament or the public any disclosure concerning loan conditions, repayment structures, currency exposure risks or default consequences associated with the project.”

Owino notes that despite the immense fiscal implications of the project, the government had failed to disclose the contractual framework that would govern the project. This includes the engineering contracts, concession agreements, financial arrangements or risk allocation matrices. The government has also not published the feasibility studies, value for money assessments or comparative economic justification. 

Owino noted that the hybrid model that the government is relying on to finance the railway remained hidden from the public, which is unconstitutional. The government will finance through a hybrid model that will use Chinese loans but also money accessed through securitising the Railway Development Levy and money from commercial lenders.

“No publicly available documentation exists showing approval of PPP structure by the statutory authorities include the Public Private Partnerships (PPP) Directorate as required by the PPP Act,” said Owino.

President William Ruto breaks ground for the landmark construction of Naivasha-Kisumu-Malaba SGR at the Narok Teachers Training College Grounds. [PCS]

He also said the recruitment of the contractor, CRBC, may not have adhered to constitutional requirements.

“There exists no publicly verifiable procurement process demonstrating compliance with Article 227 of the Constitution requiring fairness, equity, transparency, competitiveness and cost effectiveness in public procurement,” he said.

The first phase of SGR was implemented during the Jubilee administration when Ruto served as President Uhuru Kenyatta’s deputy and comprised of the first leg between Mombasa and Nairobi that cost $3.6 billion (Sh468 billion at current exchange rate) and a 150-kilometre extension to Naivasha at $1.5 billion (Sh195 billion). 

“The SGR was intended to improve the economy, but it has been hijacked by people who want to do business on their own land in Naivasha while the people of Mombasa suffer,” he said at the time, noting that the SGR had failed in its bid to make the Port of Mombasa more efficient and had instead been held hostage and benefitted a few,” Ruto said back then. 

“We have made a commitment that we are going to undertake both administrative and legal steps to reverse what has become the biggest impoverishment of the people of Mombasa and Coast in its entirety,” he said. 

Following his election in August 2022, he issued a directive giving importers freedom to choose their preferred clearing point, reversing an earlier order by Uhuru to have upcountry cargo cleared at Nairobi and Naviasha ICDs

While the project has reduced costs and travel time for both freight and passengers, it has courted criticism during the implementation phase, with some Kenyans arguing the cost was exorbitant when compared to the 756-kilometre Addis Ababa-Djibouti line that cost $3.4 billion (Sh442 billion). 

The government today faces the same question of seemingly high cost, with the 371-kilometre line (Naivasha – Kisumu 264 kilometres and Kisumu – Malaba 107 kilometres) set to cost an estimated Sh650 billion. 

A nearly similar amount of Sh663 billion was used on the Mombasa-Nairobi-Naivasha, despite the first two phases having a combined length of 592 kilometres.

In the petition, Owino said the processes used in the implementation of the project extending the SGR to Kisumu are similar to what Kenya witnessed in building the Mombasa-Nairobi-Naivasha SGR line. 

“The project threatens to repeat historical patterns where infrastructure investments are undertaken without demonstrable economic return, thereby creating public assets financed through sovereign borrowing,” said Owino.

After it started operations, SGR has been dogged by numerous challenges, including lukewarm uptake by cargo owners, many of them citing the inconveniences they have to go through in the transfer of cargo at Suswa, either to trucks or the metre gauge railway. The lack of a proper last mile or connection for cargo going further into the hinterland led many to dismiss SGR as a 'railway to nowhere’.

“The naysayers said it is a railway to nowhere; we are just confirming to them that we had a plan. We were reorganising ourselves. In the last three years, we have consolidated and stabilised our economy, allowing us to now undertake these major infrastructure projects alongside other transformational projects. Our economy is on sound footing,” said Ruto.

There have also been concerns that the government had used the Port of Mombasa as collateral to secure funding from the Exim Bank of China, which funded the first two phases of SGR. Following public pressure to make the contracts public and dispel the reports, the government made parts of the SGR contracts with China public in November 2022. Critical details, however, remained hidden. 

While the government never offered clarity but only denied that the port was used as collateral, a group of scholars scouring through available documents found that this was untrue and that the rumour had emanated from a “tiny but critical misreading by the AG. The AG mistakenly labelled KPA as a borrower, responsible for repaying the SGR loans”.

The government had expected to start the construction of the extension to Kisumu and Malaba earlier in 2019, but China refused to fund the project, citing viability concerns. The financing deal, which would have seen China advance $3.6 billion (Sh460 billion at current exchange rates) for the leg to Kisumu, was set to be signed in April 2019 at the Belt and Road Forum. 

China, however, made a U-turn at the time, noting the first phase was characterised by low cargo volumes but also insisting that regional countries, including Uganda, must be on board for the project to make economic sense. China told Kenya to undertake another feasibility study to establish the commercial viability before it committed more funds.

Kenya got a deal in 2024 during the Forum on China-Africa Cooperation (FOCAC) when Ruto met President Xi Jinping of China. The two countries agreed on a different funding model, bringing into the loop commercial lenders but also requiring Kenya to bring a significant chunk of the required project finance, unlike in the past, where it largely relied on loans. 

The project will now be financed partly by Kenya, through the securitisation of the Railway Development Levy, which contributes about 30 per cent of the required funds, as well as tapping into private sector lending, with both Kenyan and Chinese banks expected to participate. China also agreed to give concessional loans that will cater for about 30 per cent of the project costs.

President Ruto has recently put in motion the process of securitising the levy by assenting to a new law allowing the government to use future RDL collections as collateral to borrow money that will be used for the project.

RDL is applied on all imports at two per cent, raising about Sh40 billion annually. 

Chirchir recently said leveraging future RDL collections is expected to help the government raise more than Sh500 billion for project construction. “We want to raise about $3.9 billion (Sh507 billion) to build that link (to Kisumu and Malaba), and a lot has been done,” said the CS.

The government has, in the recent past, argued that borrowing against taxes to be collected in future is an innovative way to finance projects without increasing the country’s public debt. Critics, however, caution that securitisation is a roundabout way of going about borrowing and would hurt Kenyans in the coming years. 

Kiharu MP Ndindi Nyoro termed securitisation as “borrowing by another name”. 

Even as the President launched construction of the railway to Kisumu, his former deputy, Rigathi Gachagua, made major corruption allegations against him. He alleged a plot by Ruto to inflate the cost of the Nairobi Railway City, yet another landmark project expected to transform commuting in the city.

The railway city, a British-funded project, has allegedly been inflated by some Sh7 billion to fund his political campaigns.

According to Gachagua, the lowest bidder had quoted Sh22 billion, while the firm that clinched the contract is Sh29 billion, with Ruto directing the latter to be awarded the contract.

The Democracy for Citizens Party (DCP) leader, without giving evidence, claimed that when the directors of the firm with the lowest bid had filed their petition at the Public Procurement Administrative Review Board, they were arrested and deported.

“Next week, I will invite all media houses and expose the scheme and the commission that the President has negotiated with the company. Kenyans want to understand why the company in question is the one implementing all the major projects in the country,” he said.

Gachagua urged the British government to authorise and give instructions that the company that had won the tender be issued the contract.