SGR allocated Sh15.5bn ‘subsidy’ for operations

The Treasury has allocated Sh15.5 billion to support the commercial operations on the Nairobi-Mombasa standard gauge railway (SGR) line, signalling that taxpayers will have to subsidise the new passenger and cargo businessThe allocation comes in a year when commercial operations on the new rail is set to start with Chinese firm— China Communications Construction Company picked to run the business.


Kenya Railways managing director Atenas Maina says the Sh15 billion will be used to meet the operation costs once the rail transport becomes functional, and it will also be used to service the loans that Kenya took from China Exim Bank for the construction of the line.


This means that taxpayers will need to top up the fees that cargo owners and passengers will pay on the new line — which is expected to cut the cost of transport and boost trade, by replacing a narrow-gauge line that has slower top speeds.


“The train will be functional starting June and we are going to use this allocation to meet operational cost as well as servicing of the loan from China,” said Mr Maina.

This suggests the fares on the new track will be inadequate to meet the operation costs in the short term.


A consultant picked by the state to look at SGR fares talked of passengers fares of between Sh1,000 and Sh1,200 on the economy segment and Sh2,000 and Sh2,500 for the business class. The fares are almost at par with those of buses. But the government is keen on fares that much lower than those of buses.


Deputy President William Ruto hinted that SGR would charge half the amount that buses are charging currently. China Exim Bank is already financing the first phase running from Mombasa to Nairobi at a cost of $3.8 billion (Sh387 billion), excluding interest.


The 370km third section, which will include a branch to Kisumu next to Lake Victoria, will cost $4.9 billion (Sh499.1 billion) to build and supply with locomotives and rolling stock, Kenya Railways said.


In October, Kenya Railways launched the second phase of the SGR, a $1.5 billion (Sh152.5bn) 120km section linking Nairobi to Naivasha. The Treasury has allocated Sh59.6 billion for the Naivasha route in the next budget. It set aside Sh400 million for relocation of people living along rail lines in Kibera and Mukuru slums.


The SGR will cut the journey between Nairobi and Mombasa to four and a half hours from 13 hours or more currently and reduce freight costs to 8 US cents (Sh8.14) per tonne per kilometre from the present average of 20 US cents (Sh20.37).