The newly built eastern terminus (SGR)

News

Debt fears as Kenya’s new Chinese railway fails to break even

29 May 2019 | By GCR Staff | 0 Comments

Kenya has slashed the reported earnings from its new standard gauge railway (SGR) between Mombasa and the capital Nairobi, raising fears over the profitability of the project and the ability of Kenya’s government to repay the $3.2bn it borrowed from China to get it built.

On Friday, 24 May the Kenya National Bureau of Statistics released data showing the SGR generated sales of $57m in 2018, its first full year of operations, down nearly 45% from the $103m figure it reported in March and far below the annual operating cost of $120m, reports Business Daily.  

The SGR opened to passengers in May 2017, and to freight in January 2018.

The bureau did not disclose the reasons for the downward revision, prompting Business Daily to question the accuracy of the mega project’s performance reporting.

The bigger-than-expected shortfall comes as concern mounts over Kenya’s ability to pay back its Chinese loan.

Earlier this month Business Daily noted that Kenya is is due to make bigger loan repayments to China as a five-year grace period for the SGR, set in May 2014, came to an end. 

On 21 May Business Daily reported that Kenyan exporters are not using the SGR to carry their freight because of “exorbitant rates” charged.

When the bureau gave the $103m revenue figure in March, China’s ambassador to Kenya, Wu Peng, praised the SGR, which China Communications Construction Company built and operates for an undisclosed management fee.

“We believe SGR is economically viable,” Wu said, reports Business Daily. “Note that in the first year of operations, Mombasa-Nairobi SGR has earned $103m, which is close to the operating cost of $118m. It’s never easy for a railway project to achieve nearly break-even in a year.”

The shortfall in revenue has prompted an increase in freight charges and a decision to double the price of fares for children.

Image: The newly built eastern terminus (SGR)

Further reading: