Cost comparison SGR Kenya vs SGR Tanzania


Geza Ulole

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Tanzania secures $7.6 billion financing deal from Chinese lender to build new railway
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President John Magufuli with China Exim Bank president Liu Liang after holding talks at Chamwino State Lodge in Dodoma this week. PHOTO | COURTESY

In Summary

  • Dar es Salaam is positioning itself as a regional hub, upgrading its port to attract more business from its neighbouring landlocked countries.
  • The EAC railways master plan incorporates the standard gauge railway’s Northern and Central Corridors, which are both commercially viable for landlocked countries in the region as they give them strategic access to the ports of Mombasa and Dar es Salaam.
  • The Northern Corridor Integration Projects championed by Rwanda, Kenya and Uganda spearheaded the establishment of a railway link from Mombasa to Kigali.
  • In June 2013, a Northern Corridor Integration Projects Heads of State Summit held in Kampala put in place mechanisms for fast-tracking the development of the SGR.


Tanzania has secured a $7.6 billion loan from China’s Export-Import Bank (Exim) for the construction of a railway line that will link it with Burundi, Rwanda and Democratic Republic of Congo.

President John Magufuli secured the concessional loan after meeting with the Exim Bank’s president Liu Liang.

President Magufuli, while announcing the funding, alluded to a preferential deal without providing details.

Oil and gas discoveries have turned Tanzania into an exploration hotspot, but the country’s transport infrastructure has suffered from decades of under investment. The country is also positioning itself as a regional hub, upgrading its port to attract more business from its regional landlocked neighbours.

According to Mr Liu, China Exim Bank will offer Tanzania technical support.

READ: China Exim sets terms for financing Uganda’s SGR

ALSO READ: Rwanda looks to Tanzania for rail transport as Uganda falters on SGR

Last year, Tanzania announced that it had awarded rail contracts to a consortium of Chinese firms led by China Railway Materials (CRM), which included the standard gauge rail project.

The Exim Bank is also financing a $1.2 billion, 532km natural gas pipeline in Tanzania.

On Wednesday last week, Finance and Planning Minister Dr Philip Mpango after a meeting with Dr Alberic Kacou, African Development Bank vice-president for human resources and corporate services, announced that Tanzania had secured a further $200 million loan from the AfDB to finance transport infrastructure projects.

“We will use some of this funds towards the construction of the SGR project to transform the country’s infrastructure,” Dr Mpango said.

In an interview with Bloomberg, Gerson Msigwa, a spokesman for Tanzania’s presidency, said the construction will start by July next year. Before then, Tanzania and Exim Bank China will be expected to have finalise technical issues on the contract and sign the financing deal for the 2,190km project.

Tanzania Transport Minister Samuel Sitta said the SGR will have a main line that will connect the port city of Dar es Salaam to Rwanda and Burundi, with additional branch lines running within the country.

“We expect to have two offshoots: One of them to Mwanza, which will open up the lakeside port city and link it with Uganda, while the second one will link to the coal, iron ore and soda ash mining areas in the south. Through this, we expect an increase in cargo on this route,” Mr Sitta said, adding that will be at an additional cost of $6.6 billion.

Already, Tanzania has signed contracts with China Railway No 2 Engineering Group to build a rail link between the southern port of Mtwara, which is rich in coal, iron ore and natural gas. The contract will see China Railway No 2 Engineering Group provide 10 per cent of the funding with the rest provided by the government.

Kenya is also constructing a $3.27 billion 609km new standard gauge railway line between Mombasa and Nairobi to boost the movement of cargo from the port.

However, queries have been raised over the economic viability of SGR, after key landlocked states indicated their intention to connect to the Indian Ocean through Tanzania.


The issue of cost is also bound to arise now that Tanzania’s SGR is four times longer than Kenya’s but only two times as expensive.

In a previous interview with The EastAfrican, Kenya Railways managing director Atanas Maina said that the cost of the Kenyan SGR was high because of the design adopted, which will see the train maintain an average speed of 80 kilometres irrespective of the terrain.

“We have built bridges, and raised the track in areas where we would have had corners to achieve the average speed we expect the wagons to travel at. This has increased the costs immensely as compared with the neighbouring Ethiopia and Tanzania SGER designs that haven’t taken this into account,” Mr Maina said.

Recently, a confidential World Bank report cast doubt on the region’s push for the SGR projects, saying they would only be viable with increases in cargo of between 20 tonnes and 55 million tonnes per year.

The report done by the Africa transport unit at the World Bank titled The Economics of Rail Gauge in the East Africa Community showed that the volumes of the forecasts undertaken for the EAC railway master plan and central line in Tanzania, are unattainable over the medium to longer term.

“Based on these assumptions, there is no economic or financial case for standard gauge in the EAC area at this time. A refurbished meter gauge network would appear to be the most appropriate option in economic and financial terms, and could easily accommodate forecast traffic up to 2030, with lower investment requirements,” the report concludes.

The World Bank team highlighted the rehabilitation of the existing railway network as the best alternative, which would allow a phased approach to the regions development, consistent with current and projected demand and the financing envelope available.

The SGR alternative, which the regional governments chose, involves the construction of a standard gauge railway on a new right of way, an option the World Bank team said required additional investment in land acquisition and structures, and new right-of-way construction.

“This alternative predicates axle loads in the order of 25 tons per axles and a maximum operating speed of up to 120 km per hour. Again, based on these assumptions, the estimated maximum carrying capacity of the current network would exceed 60 million tonnes per year. The estimated investment cost per km will be $ 3.25 million,” the report said.

From the estimates provided, the Tanzanian new railway line will cost an average of $3.4 million per kilometre.

MY TAKE

It is time now to look at the cost of the two rails as we know cost of construction is very important for prospect of any infrastructure! i welcome bright minds to contribute and not some propaganda in here!


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BlietzKrieg

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Kwa wale ambao hawajui, Phase 2 ya Ethiopia SGR masterplan imefika mbali, sehemu hio ya reli inajengwa na Yepi Merkezi kwahivyo watz mnaeza mkaangalia finished product, mkingojea yenu iishe...

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Systra Team in Ethiopia - AKH Railway Project - An important milestone has been achieved with the laying of the last track panel, completing the track connection between Awash and Kombolcha - the 270km of the project's first phase. Congratulations to Systra MD team and to the Contractor Yapi Merkezi!


ALOX1GJ.jpg?1
SGR ya Kenya ni very SUPERIOR by far.
Usicheze na Chinese...Hawa waturkey ni bure sana
 
Geza Ulole

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Geza Ulole

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Washed away during construction! Nyinyi SGR yenu mliwacha kujenga Kwa miezi mitatu sababu ya mvua, wachina huendelea kujenga hata mvua ikinyesha
And this?
No it was already working! Mind u that section had already been launched! Now show me any collapse for Ethiopia's SGR by Yapi Merkezi!
 
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Ww vp.. mbona unayumba! Taharifa zote zipo kwani ww hizo picha ulitumiwa na mkandarasi. Wewe tafuta habari za speed na axle load mbona zote zipo online!! Ata taharifa ulizo post hujazi soma! Maana kwenye moja ya picha zako wameandika speed itakua kama yenu, halafu una niambia speed huezi ona kwa kuangalia picha! Miradi kama hii kabla haijaanza specs zote zinakua zinajulikana. Ilikua haina haja kuleta mradi wa sgr ya Ethiopia coz specs ni tofauti. Tz tunajuwa tutakacho kipata coz sisi ndiyo tume wapa kazi acha kuranda randa mitandaoni na kujifurahisha. Halafu utasemaje Tz peke yake ndiyo tumewapa kazi ya heavy rail, wewe jamaa haupo makini kabisa! Ebu wafuatilie vizuri Yepi, kwa kuanzia pitia vizuri hizo picha ulizotuma. Maana kwa mujibu wa details za hiyo project ya Ethiopia ni Heavy rail, Labda ungesema siyo heavy kama wanayo jenga Tz. Ila ata tungempa mchina aliewajengea nyie bado tungempa masharti ambayo hajawahi kutana nayo kabla kama kuto tumia nondo nyembamba kama alizo tumia Kenya, kuweka systems kwa kizungu siyo kichina, ku install mifumo ya kisasa ya umeme (european standard), workers more than 90% wawe wazawa. Material more than 65% itoke ndani na itakayo toka njee iwe the best siyo kupeana tender na wachina wenzao kama walivyo fanya Kenya, ku train wazawa e.t.c.

You just sit and take notes from us on the advantages of following the procurement regulations and skipping tenderpreneurship, Kenyans you missed this lesson.
Wdewe haujui unachokiongelea , taarifa zako unaziyoa Kwa PR speeches ndo maana....
Reli ya 120km/he na reli ya 160km/HR hauwezi ukatofautisha Kwa kuangalia picha.... Intact, kama zimejengqa na kampuni hip hio, pia huko Yepi anafwata same procurement standards za locol content kwahivyo pia hapo Pana tofauti.....
Alafu speed au axle load si kitu pekee kinacho angaliwa Kwa reli.... Kuna city kama designed capacity na carrying capacity ambavyo pia ni muhimu.... Just because speed ya reli Yao itakua kama yeti haimaanishi reli Yao no kama yetu, na just because reli yenu ni 40km/hr faster au iko na axle kubwa haimaanishi reli yenu superior..... Reli Kuwait superior ni all about striking the right balance between speed axle load, frequency, capacity, availability, durability.... .... Na hapo ndo Yepi anachomolewa nachina...tena mbali Sana...

Mchina ako na more rail network than China, ako na standard guage kuliko Europe, anabeba mizigo mingi na abiria wengi kuliko EU combined! Ako na reli modern kuliko nchi yoyote ... Sasa sijui unanisifia nini na European standard...
 
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Kafrican

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And this?
No it was already working! Mind u that section had already been launched! Now show me any collapse for Ethiopia's SGR by Yapi Merkezi!
Maimahiu is in phase 2A, where suddenness strong winds forced an SGR pillar that hadnt been renforced in to position fell on workers..... Abnormal winds to blame for collapse of SGR wall in Naivasha - KR » Capital News


There have been two floods ever since msa-nrb was finished... Show me any incidents on this completed section...
 
thisdayes

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thisdayes

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Wdewe haujui unachokiongelea , taarifa zako unaziyoa Kwa PR speeches ndo maana....
Reli ya 120km/he na reli ya 160km/HR hauwezi ukatofautisha Kwa kuangalia picha.... Intact, kama zimejengqa na kampuni hip hio, pia huko Yepi anafwata same procurement standards za locol content kwahivyo pia hapo Pana tofauti.....
Alafu speed au axle load si kitu pekee kinacho angaliwa Kwa reli.... Kuna city kama designed capacity na carrying capacity ambavyo pia ni muhimu.... Just because speed ya reli Yao itakua kama yeti haimaanishi reli Yao no kama yetu, na just because reli yenu ni 40km/hr faster au iko na axle kubwa haimaanishi reli yenu superior..... Reli Kuwait superior ni all about striking the right balance between speed axle load, frequency, capacity, availability, durability.... .... Na hapo ndo Yepi anachomolewa nachina...tena mbali Sana...

Mchina ako na more rail network than China, ako na standard guage kuliko Europe, anabeba mizigo mingi na abiria wengi kuliko EU combined! Ako na reli modern kuliko nchi yoyote ... Sasa sijui unanisifia nini na European standard...
Sasa naona huelewi.. nakujibu kitu kile kile mara 3!! Bado huelewi. Tufanye hivi, Your SGR is the best in whole of Africa and Europe. TZ SGR ikiisha nguzo ambazo zinajengwa kwa zege ghafla zitabadika nakua za chuma na speed badala ya 160 itaenda 100 na itakua inabomoka mvua ikinyesha. Happy Now
 
Geza Ulole

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Wdewe haujui unachokiongelea , taarifa zako unaziyoa Kwa PR speeches ndo maana....
Reli ya 120km/he na reli ya 160km/HR hauwezi ukatofautisha Kwa kuangalia picha.... Intact, kama zimejengqa na kampuni hip hio, pia huko Yepi anafwata same procurement standards za locol content kwahivyo pia hapo Pana tofauti.....
Alafu speed au axle load si kitu pekee kinacho angaliwa Kwa reli.... Kuna city kama designed capacity na carrying capacity ambavyo pia ni muhimu.... Just because speed ya reli Yao itakua kama yeti haimaanishi reli Yao no kama yetu, na just because reli yenu ni 40km/hr faster au iko na axle kubwa haimaanishi reli yenu superior..... Reli Kuwait superior ni all about striking the right balance between speed axle load, frequency, capacity, availability, durability.... .... Na hapo ndo Yepi anachomolewa nachina...tena mbali Sana...

Mchina ako na more rail network than China, ako na standard guage kuliko Europe, anabeba mizigo mingi na abiria wengi kuliko EU combined! Ako na reli modern kuliko nchi yoyote ... Sasa sijui unanisifia nini na European standard...
Peleka upumbavu design differs from cant and gradient angle, to curvature diameters for a rail that can support a 160km/h can never be the same as a rail that support 120km/h! Hata embankment has to be different. Usifikirie sisi ni Wapumbavu kama wewe!
 
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From specifications alone one can see our SGR is completely different from Ethiopia's the speed for Ethiopian SGR is 120km/h PAX while Tanzanian SGR is over 160km/h. Second none of our bridges will be steel structures alone! Pretty sure ours will be superior to Ethiopia's!
And their rail in that route is cheaper per km than yours.... Now you should be starting to get the idea of how different specifications like in this case bridge structures can alter the overall costs of a project.....
Just like in the Kenyan section we have bridges spanning across national parks and higher embarkments that significantly affect overall costs
 
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And their rail in that route is cheaper per km than yours.... Now you should be starting to get the idea of how different specifications like in this case bridge structures can alter the overall costs of a project.....
Just like in the Kenyan section we have bridges spanning across national parks and higher embarkments that significantly affect overall costs
 
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Peleka upumbavu design differs from cant and gradient angle, to curvature diameters for a rail that can support a 160km/h can never be the same as a rail that support 120km/h! Hata embankment has to be different. Usifikirie sisi ni Wapumbavu kama wewe!
Hahaha, manake 120km/he ni tofauti Sana na 160km/hr ?
 
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Geza Ulole

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Stop being bitter already Yapi has started kuchoronga the tunnels that will look like that on the picture. BTW there are plenty of bridges on sgr including overpases in every town they cross! Wait for month November update!
 
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Kwa wale ambao hawajui, Phase 2 ya Ethiopia SGR masterplan imefika mbali, sehemu hio ya reli inajengwa na Yepi Merkezi kwahivyo watz mnaeza mkaangalia finished product, mkingojea yenu iishe...

1200px-Awash-Weldiya_Railway.svg.png





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zkctRWY.jpg?1


XpN4nLr.jpg?1


Systra Team in Ethiopia - AKH Railway Project - An important milestone has been achieved with the laying of the last track panel, completing the track connection between Awash and Kombolcha - the 270km of the project's first phase. Congratulations to Systra MD team and to the Contractor Yapi Merkezi!


ALOX1GJ.jpg?1
That tunnel picture was taken before completion see the difference in the clip below!

 
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Geza Ulole

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Hahaha, manake 120km/he ni tofauti Sana na 160km/hr ?
Yap n the other thing is a consideration of speed above 160km/h has already been in the works from onstart therefore with slight improvements especially on the corners our SGR can go over 200 km/h! A reason our SGR is pretty straight with no sharp corners n flat embankment.
 
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And their rail in that route is cheaper per km than yours.... Now you should be starting to get the idea of how different specifications like in this case bridge structures can alter the overall costs of a project.....
Just like in the Kenyan section we have bridges spanning across national parks and higher embarkments that significantly affect overall costs
Why the Sh134bn Nairobi to Naivasha SGR line may not give Kenyans value for money
As the debate about the Standard Gauge Railway (SGR) in Kenya continues, a review of the facts and figures raises more questions than answers

BY Akshay Vishwanath

IN SUMMARY
  • The initial report justifying the massive project greatly exaggerates the potential return to Kenyans and as such Nema should only issue a construction licence once the economic issues are clarified in a robust manner, in a much-improved report.


As the debate about the Standard Gauge Railway (SGR) in Kenya continues, a review of the facts and figures raises more questions than answers.

The economic justifications used by the government to promote the necessity of this massive project depend on highly questionable assumptions and sources of information.

For example, the recently released Environmental and Social Impact Assessment (ESIA) for Phase 2A of the project initially predicts a carrying capacity of 13 million tonnes for 2030, but on the very next page states this to be 21.8 million tonnes! (Based on latest data this would require a consistent annual gross domestic product (GDP) growth of 10 per cent in all transit destination countries including DR Congo, Burundi and South Sudan and the Kenya SGR railway capturing all transit, nothing by road, nothing through Tanzania).

It is not clear what these numbers are based on. The figures contradict those in the East African Railways Masterplan, conducted by a reputable and independent consulting company in 2009.

These professional projections were done in three scenarios: Base (most likely), High and Low. This masterplan projects a Base of 7.5 million tonnes, with a high of 9.2 million tonnes and a low of six million tonnes.

This masterplan was prepared for the East African Community (EAC) and thus projection is for the whole of the Kenyan railway system.

If we assume that half of the freight traffic is for Nairobi, and half for Kisumu and export, then the High projection for the SGR Phase 2A comes to 4.6 million tonnes.

Therefore, a comparison of the figures between those in the ESIA and the well argued, evidence-based Masterplan projections, even if we take the high scenario, shows us that the ESIA figures are exaggerated between 283 per cent and 480 per cent.

Forecasts revenue
Global rail freight charges vary between $0.02 per ton per kilometre (tkm) in India to $0.08/tkm in Italy. The ESIA predicts a freight charge of $0.13/tkm.

For the 120 km of SGR Phase2A, this would create gross revenue of Sh21 billion ($202.8 million) using the ESIA’s lowest mentioned growth projection of 13 million tonnes. With the higher projection of 21.8 million tonnes, it would be Sh34 billion ($325 million).

The High projection of the EAC masterplan (9.2 million tonnes), using the same $0.13/tkm rate, yields gross revenue of only Sh7.4 billion ($71.8 million).

Forecasts expenditure
The capital costs of the SGR Phase2A are very high. Kenya took out a commercial loan of Sh134 billion ($1.3 billion). The grace period for repayment is likely to be 10 years.

This means that until 2026 only interest is payable at today’s rate of about one per cent at 4.6 per cent, or about Sh622 million ($6 million) per year. This calculation uses LIBOR, an international benchmark used to calculate interest rates on loans.

By 2026, however, we will have to start repaying the principal over 10 years, or Sh1.3 billion ($130 million) per year, plus interest. LIBOR2 is low now, but tends to go in roughly 10-year cycles with peaks at around five per cent.

If that were the case in 2026, interest would be Sh11.6 billion ( $112 million), or a total payment of Sh25.1 billion ($242 million). Only with the highest projections of tonnage, and at a very high projection of revenue per tkm, would the railway be able to pay capital cost.

In addition, there will also be operational costs. Track and rolling stock will have to be maintained, and locomotives fuelled, staff will need salaries, and the whole management system will need financing.

According to the World Bank most railways in developing countries have roughly 30 per cent operational cost, 70 per cent capital cost.

In our example above, that would be Sh10.7 billion ($104 million), making total annual expenditure Sh35.9 billion ($346 million).

As demonstrated previously, the most optimistic scenario described in the ESIA would create revenues of Sh34 billion. Even in this scenario, for which sound basis is lacking, the SGR will need huge subsidies until 2036.

Construction costs
Many comparisons have been made in the Press about the cost of building railways in Africa, by comparing gross cost per kilometre of railway line.

In Ethiopia a 781 km railway was constructed at a cost of Sh290 billion ($2.8 billion) for 756 km, or Sh384 million ($3.7 million) per km.

Tanzania recently signed a contract for Sh934 billion ($9 billion) for 2,560 km, or Sh363 million ($3.5 million) per km. Here, the gross cost of SGR 1 is Sh3.8 billion for 609 km, or Sh643 million ($6.2 million) per km.

All three railways are constructed to Chinese standards and are standard gauge. We have no details about the Tanzanian line yet, but the Ethiopian line is up and running while Phase 1 in Kenya is 90 per cent complete.

The Ethiopian line is electric, which is more expensive per kilometre than the diesel line in Kenya. Moreover, in Ethiopia about 115 km is double-track, against all single-track in Kenya.

The terrain in Ethiopia is more rugged, as the line goes through the volcanic Rift Valley, and it has many tunnels. In Kenya there are more bridges, to allow the passing of wildlife.

However, it seems inescapable that Kenya did not get a very good deal at Sh643 million per km against Ethiopia at Sh384 million per km, moreover for a better product.

Ethiopia financed approximately 50 per cent of the railway out of its own resources, about 10 per cent from a concessionary Chinese loan, and 40 per cent out of a commercial loan at LIBOR + 3.75 per cent.

This allowed a competitive international tendering resulting in the best global price.

Kenya had to borrow 90 per cent, part at LIBOR + 3.6 per cent, part as a concessionary loan from the Chinese State-owned EXIM Bank.

As a consequence, our mandarins had to accept that one, State-controlled Chinese company did the design and the construction, and as it later turned out, the supervision and quality assurance.

This goes against the public procurement laws of Kenya, which according to the then managing director of Kenya Railways and later Transport Permanent Secretary, do not apply in State-to-State deals.

The contract for the SGR Phase 2A, from Nairobi to Naivasha, is also such a State-to-State arrangement. This time it seems to be a 100 per cent commercial loan, again with EXIM Bank.

Because of this Kenya was not able to negotiate a competitive tender, and a contract was signed with a single State-owned company for the design and the construction.

The contract does not include rolling stock or other extras, but the cost has gone up to Sh134.9 billion ($1.3 billion) for 120.8km, equivalent to Sh1.12 billion ($10.8 million) per km or almost three times as much as Ethiopia paid.

The reason for this high cost was said to be the terrain that required many bridges and tunnels, so that comparison was said to be impossible.

We indeed do not know how many bridges and tunnels there are in Ethiopia, but thanks to the ESIA we have a good idea how much of these there are in the proposed construction of Phase 2A in Kenya.

A paper by the World Bank in June 2014 (Ollivier, Sondhi, & Zhou, 2014), provides an interesting analysis of the recent construction costs of railways in China.

It isolates the civil works (bridges, tunnels, and embankments including stations, each separately), track, signalling, electrification, and land acquisition and resettlement. All of this is costed per km, and a range given.
The ESIA states the exact mix of tunnels, bridges and embankments, so this allows calculation of what the SGR Phase2A would cost if built in China under a competitive tender.

Terrain
Building in Kenya can be more expensive than building in China, for example because equipment has to be mobilised. For the SGR Phase2A that is not an issue, as the equipment is already in place from SGR Phase 1.

Labour cost is an issue, as the senior staff has to be flown in and paid more than in China. A lot of low-skilled labour is required for construction, and in China the minimum monthly wage is Sh31,143 ($300), while in Kenya low skilled labour is around Sh20,762 ($200).

We assume that this evens out. Cement and sand prices are roughly the same in both countries, but steel is more expensive in Kenya at Sh41,524 ($400)/tonnes against China’s Sh31,143 ($300).

Track is only five to seven per cent of total cost, and includes labour, so this is of limited impact.

In the table (shown left) we show costing for an SGR equivalent in China, on basis of the highest cost to the client in very remote places with extremely difficult terrain.

This cost typically includes a profit margin of between five and 10 per cent for the construction company which is not unusual in large-scale projects. The actual cost to the company is probably not higher in Kenya, than in very remote regions of China.

Kenya, however, pays $1,300 million, giving the company an additional profit of Sh49.7 billion($479 million) in this model.

Interestingly, this China costing is not for a single-track cargo line such as our SGR. It is for a double-track mixed cargo and high speed line, with speeds of 200 km/h for passengers and 120 km/h for cargo!
Double-track is usually 150 per cent of the price of single-track with high-speed specifications adding 30 per cent.

That would mean that the cost to the company for this low speed single-track line would be Sh43.7 billion ($421 million) or Sh363 million ($3.5 million) per km, but sold to Kenya at a price of Sh134 billion ($1,300 million) or Sh1.1 billion ($10.76 million) per km.

It is significant that the costing model used above comes to a km cost of Sh363 million. This is almost the same as Tanzania and Ethiopia are paying under competitive international tendering with some rolling stock added in.

This strongly suggests that Kenya is paying Sh134 billion for a product with a value of Sh43.7 billion an over-payment of $879 million (Sh90.5 billion). Put differently, we are paying a price that is three times the value.

While it is not the mandate of any Environmental and Social Impact Assessment to analyse value for money in detail, it must look at socio-economic impact.

A grossly exaggerated cost, as suggested to be the case by this analysis, would have a negative impact on the economy and thus socially.

The final version of the ESIA should therefore include some analysis of value for money, the more so as in this case, it also threatens the viability of the whole railway, and thus the wellbeing of all concerned.

These issues gain more prominence due to the current cuts in development spending by Treasury and the current projections estimating that 40 per cent of our tax revenue is to be spent on servicing loans.

The Kenyan population however deserves to have insight in the source of the data presented in this ESIA. Kenya deserves a realistic assessment of the socio-economic impact to be expected.

Nema should only issue a construction licence once these economic issues are clarified in a robust manner, in a much-improved ESIA.

As it stands now, the ESIA approves a considerable environmental sacrifice, but there is no robust analysis whether any benefits are to be gained.

Vishwanath is a Kenyan environmentalist with international experience in the fields of water resource management, landscape and wildlife conservation, community participatory approaches, advocacy and lobbying, strategic planning, and communications. He currently works at the International Union of Conservation of Nature in the People and Landscapes Programme, and is also the Acting Chair of the Friends of Nairobi National Park. He has a background in Environmental Studies.

Why the Sh134bn Nairobi to Naivasha SGR line may not give
 
thisdayes

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thisdayes

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Why the Sh134bn Nairobi to Naivasha SGR line may not give Kenyans value for money
As the debate about the Standard Gauge Railway (SGR) in Kenya continues, a review of the facts and figures raises more questions than answers

BY Akshay Vishwanath

IN SUMMARY
  • The initial report justifying the massive project greatly exaggerates the potential return to Kenyans and as such Nema should only issue a construction licence once the economic issues are clarified in a robust manner, in a much-improved report.


As the debate about the Standard Gauge Railway (SGR) in Kenya continues, a review of the facts and figures raises more questions than answers.

The economic justifications used by the government to promote the necessity of this massive project depend on highly questionable assumptions and sources of information.

For example, the recently released Environmental and Social Impact Assessment (ESIA) for Phase 2A of the project initially predicts a carrying capacity of 13 million tonnes for 2030, but on the very next page states this to be 21.8 million tonnes! (Based on latest data this would require a consistent annual gross domestic product (GDP) growth of 10 per cent in all transit destination countries including DR Congo, Burundi and South Sudan and the Kenya SGR railway capturing all transit, nothing by road, nothing through Tanzania).

It is not clear what these numbers are based on. The figures contradict those in the East African Railways Masterplan, conducted by a reputable and independent consulting company in 2009.

These professional projections were done in three scenarios: Base (most likely), High and Low. This masterplan projects a Base of 7.5 million tonnes, with a high of 9.2 million tonnes and a low of six million tonnes.

This masterplan was prepared for the East African Community (EAC) and thus projection is for the whole of the Kenyan railway system.

If we assume that half of the freight traffic is for Nairobi, and half for Kisumu and export, then the High projection for the SGR Phase 2A comes to 4.6 million tonnes.

Therefore, a comparison of the figures between those in the ESIA and the well argued, evidence-based Masterplan projections, even if we take the high scenario, shows us that the ESIA figures are exaggerated between 283 per cent and 480 per cent.

Forecasts revenue
Global rail freight charges vary between $0.02 per ton per kilometre (tkm) in India to $0.08/tkm in Italy. The ESIA predicts a freight charge of $0.13/tkm.

For the 120 km of SGR Phase2A, this would create gross revenue of Sh21 billion ($202.8 million) using the ESIA’s lowest mentioned growth projection of 13 million tonnes. With the higher projection of 21.8 million tonnes, it would be Sh34 billion ($325 million).

The High projection of the EAC masterplan (9.2 million tonnes), using the same $0.13/tkm rate, yields gross revenue of only Sh7.4 billion ($71.8 million).

Forecasts expenditure
The capital costs of the SGR Phase2A are very high. Kenya took out a commercial loan of Sh134 billion ($1.3 billion). The grace period for repayment is likely to be 10 years.

This means that until 2026 only interest is payable at today’s rate of about one per cent at 4.6 per cent, or about Sh622 million ($6 million) per year. This calculation uses LIBOR, an international benchmark used to calculate interest rates on loans.

By 2026, however, we will have to start repaying the principal over 10 years, or Sh1.3 billion ($130 million) per year, plus interest. LIBOR2 is low now, but tends to go in roughly 10-year cycles with peaks at around five per cent.

If that were the case in 2026, interest would be Sh11.6 billion ( $112 million), or a total payment of Sh25.1 billion ($242 million). Only with the highest projections of tonnage, and at a very high projection of revenue per tkm, would the railway be able to pay capital cost.

In addition, there will also be operational costs. Track and rolling stock will have to be maintained, and locomotives fuelled, staff will need salaries, and the whole management system will need financing.

According to the World Bank most railways in developing countries have roughly 30 per cent operational cost, 70 per cent capital cost.

In our example above, that would be Sh10.7 billion ($104 million), making total annual expenditure Sh35.9 billion ($346 million).

As demonstrated previously, the most optimistic scenario described in the ESIA would create revenues of Sh34 billion. Even in this scenario, for which sound basis is lacking, the SGR will need huge subsidies until 2036.

Construction costs
Many comparisons have been made in the Press about the cost of building railways in Africa, by comparing gross cost per kilometre of railway line.

In Ethiopia a 781 km railway was constructed at a cost of Sh290 billion ($2.8 billion) for 756 km, or Sh384 million ($3.7 million) per km.

Tanzania recently signed a contract for Sh934 billion ($9 billion) for 2,560 km, or Sh363 million ($3.5 million) per km. Here, the gross cost of SGR 1 is Sh3.8 billion for 609 km, or Sh643 million ($6.2 million) per km.

All three railways are constructed to Chinese standards and are standard gauge. We have no details about the Tanzanian line yet, but the Ethiopian line is up and running while Phase 1 in Kenya is 90 per cent complete.

The Ethiopian line is electric, which is more expensive per kilometre than the diesel line in Kenya. Moreover, in Ethiopia about 115 km is double-track, against all single-track in Kenya.

The terrain in Ethiopia is more rugged, as the line goes through the volcanic Rift Valley, and it has many tunnels. In Kenya there are more bridges, to allow the passing of wildlife.

However, it seems inescapable that Kenya did not get a very good deal at Sh643 million per km against Ethiopia at Sh384 million per km, moreover for a better product.

Ethiopia financed approximately 50 per cent of the railway out of its own resources, about 10 per cent from a concessionary Chinese loan, and 40 per cent out of a commercial loan at LIBOR + 3.75 per cent.

This allowed a competitive international tendering resulting in the best global price.

Kenya had to borrow 90 per cent, part at LIBOR + 3.6 per cent, part as a concessionary loan from the Chinese State-owned EXIM Bank.

As a consequence, our mandarins had to accept that one, State-controlled Chinese company did the design and the construction, and as it later turned out, the supervision and quality assurance.

This goes against the public procurement laws of Kenya, which according to the then managing director of Kenya Railways and later Transport Permanent Secretary, do not apply in State-to-State deals.

The contract for the SGR Phase 2A, from Nairobi to Naivasha, is also such a State-to-State arrangement. This time it seems to be a 100 per cent commercial loan, again with EXIM Bank.

Because of this Kenya was not able to negotiate a competitive tender, and a contract was signed with a single State-owned company for the design and the construction.

The contract does not include rolling stock or other extras, but the cost has gone up to Sh134.9 billion ($1.3 billion) for 120.8km, equivalent to Sh1.12 billion ($10.8 million) per km or almost three times as much as Ethiopia paid.

The reason for this high cost was said to be the terrain that required many bridges and tunnels, so that comparison was said to be impossible.

We indeed do not know how many bridges and tunnels there are in Ethiopia, but thanks to the ESIA we have a good idea how much of these there are in the proposed construction of Phase 2A in Kenya.

A paper by the World Bank in June 2014 (Ollivier, Sondhi, & Zhou, 2014), provides an interesting analysis of the recent construction costs of railways in China.

It isolates the civil works (bridges, tunnels, and embankments including stations, each separately), track, signalling, electrification, and land acquisition and resettlement. All of this is costed per km, and a range given.
The ESIA states the exact mix of tunnels, bridges and embankments, so this allows calculation of what the SGR Phase2A would cost if built in China under a competitive tender.

Terrain
Building in Kenya can be more expensive than building in China, for example because equipment has to be mobilised. For the SGR Phase2A that is not an issue, as the equipment is already in place from SGR Phase 1.

Labour cost is an issue, as the senior staff has to be flown in and paid more than in China. A lot of low-skilled labour is required for construction, and in China the minimum monthly wage is Sh31,143 ($300), while in Kenya low skilled labour is around Sh20,762 ($200).

We assume that this evens out. Cement and sand prices are roughly the same in both countries, but steel is more expensive in Kenya at Sh41,524 ($400)/tonnes against China’s Sh31,143 ($300).

Track is only five to seven per cent of total cost, and includes labour, so this is of limited impact.

In the table (shown left) we show costing for an SGR equivalent in China, on basis of the highest cost to the client in very remote places with extremely difficult terrain.

This cost typically includes a profit margin of between five and 10 per cent for the construction company which is not unusual in large-scale projects. The actual cost to the company is probably not higher in Kenya, than in very remote regions of China.

Kenya, however, pays $1,300 million, giving the company an additional profit of Sh49.7 billion($479 million) in this model.

Interestingly, this China costing is not for a single-track cargo line such as our SGR. It is for a double-track mixed cargo and high speed line, with speeds of 200 km/h for passengers and 120 km/h for cargo!
Double-track is usually 150 per cent of the price of single-track with high-speed specifications adding 30 per cent.

That would mean that the cost to the company for this low speed single-track line would be Sh43.7 billion ($421 million) or Sh363 million ($3.5 million) per km, but sold to Kenya at a price of Sh134 billion ($1,300 million) or Sh1.1 billion ($10.76 million) per km.

It is significant that the costing model used above comes to a km cost of Sh363 million. This is almost the same as Tanzania and Ethiopia are paying under competitive international tendering with some rolling stock added in.

This strongly suggests that Kenya is paying Sh134 billion for a product with a value of Sh43.7 billion an over-payment of $879 million (Sh90.5 billion). Put differently, we are paying a price that is three times the value.

While it is not the mandate of any Environmental and Social Impact Assessment to analyse value for money in detail, it must look at socio-economic impact.

A grossly exaggerated cost, as suggested to be the case by this analysis, would have a negative impact on the economy and thus socially.

The final version of the ESIA should therefore include some analysis of value for money, the more so as in this case, it also threatens the viability of the whole railway, and thus the wellbeing of all concerned.

These issues gain more prominence due to the current cuts in development spending by Treasury and the current projections estimating that 40 per cent of our tax revenue is to be spent on servicing loans.

The Kenyan population however deserves to have insight in the source of the data presented in this ESIA. Kenya deserves a realistic assessment of the socio-economic impact to be expected.

Nema should only issue a construction licence once these economic issues are clarified in a robust manner, in a much-improved ESIA.

As it stands now, the ESIA approves a considerable environmental sacrifice, but there is no robust analysis whether any benefits are to be gained.

Vishwanath is a Kenyan environmentalist with international experience in the fields of water resource management, landscape and wildlife conservation, community participatory approaches, advocacy and lobbying, strategic planning, and communications. He currently works at the International Union of Conservation of Nature in the People and Landscapes Programme, and is also the Acting Chair of the Friends of Nairobi National Park. He has a background in Environmental Studies.

Why the Sh134bn Nairobi to Naivasha SGR line may not give
Tz was getting a better deal from China but Magufuli wanted the best deal and he got it from Yapi Markez. Kenyas story is a sad one, how does a km costs $10.7m!! Excluding rolling stock and free of equipment mobilisation costs!! Only an insane mind or a benefecial of this graft can justify this. Kafrican i expect you to be living in a mansion in Karen, i should pay you a visit some time. If i find you living in Korogocho or somewhere else of that status i will pray for you so as the spirit of stupidity to free you.
 
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Tz was getting a better deal from China but Magufuli wanted the best deal and he got it from Yapi Markez. Kenyas story is a sad one, how does a km costs $10.7m!! Excluding rolling stock and free of equipment mobilisation costs!! Only an insane mind or a benefecial of this graft can justify this. Kafrican i expect you to be living in a mansion in Karen, i should pay you a visit some time. If i find you living in Korogocho or somewhere else of that status i will pray for you so as the spirit of stupidity to free you.
Huhuh rail cheap inayojengwa kama tarmac road...flat tena outdated 19th century
 

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