Bloated costs and other shady moves behind Kenya's SGR deal secrecy

The Naivasha Standard Gauge Railway (SGR) and Metre Gauge Railway (MGR) link at the Naivasha Inland Container Depot (ICD). The assessment by the Africa Waste and Environmental Centre in October 2012 paved the way for the construction of Kenya’s most expensive infrastructure project. 

Among the very first red flags that the Standard Gauge Railway (SGR) project was to be bulldozed by all means necessary despite its huge economic ramifications was the exclusion of key players in government from its planning.

For a project of its magnitude, public participation would have been a natural pre-requisite, considering that the government had to acquire large tracts of land and the railway would cut through towns and villages, affecting many livelihoods.

This was not even the most shocking aspect of the secrecy of the project that would saddle Kenyans with a KSh417 billion debt to China for the Mombasa-Nairobi leg alone.

The National Environment Management Authority (NEMA) excluded the Kenya Wildlife Service (KWS), Kenya Forest Service (KFS) and the National Museums of Kenya from the environment impact assessment based on which the project was cleared.

This despite the fact that the three statutory agencies manage the Tsavo National Park and other spaces that would be affected by the project.

Consulting these state agencies would also likely have refined the project’s implementation plan.

The assessment by the Africa Waste and Environmental Centre on October 2012 paved the way for the construction of Kenya’s most expensive infrastructure project ever.

Sidestepped procurement process

Besides the secrecy around the environmental impact assessment, the Kenyan government sidestepped the constitutional requirement of competitive bidding for all public procurement engagements.

Instead, fashioning it as a ‘government to government’ deal between Kenya and China, the contracts were signed exclusively by Treasury and companies owned by the Chinese government.

China Roads and Bridges Corporation (CRBC), the firm that conducted a feasibility study and affirmed the project’s financial viability, also did the construction work, provided rolling stock, supervised itself and is currently operating trains at a huge loss through its subsidiary.

China Exim Bank, which loaned Kenya the money to construct the SGR, did not deposit a single cent into the Consolidated Account as expected for all government projects.

Instead, the bank was depositing the money directly to CRBC’s accounts.

“The buyer shall pay those amounts due to the seller which are financed by the financial institutions of China to the seller directly through the financial institutions in China,” says one of the commercial contracts that Transport Cabinet Secretary Kipchumba Murkomen failed to disclose.

“For the amounts due to the seller, which are co-financed by the government of Kenya, the buyer shall pay directly to the Kenya local bank of the seller,” says the contract.

On the contrary, however, movement of money since the project began was one way; from Kenyan tax payers to China.

Apart from coughing up 10 per cent of the construction amount, taxpayers are currently paying Sh1 billion per month for operating trains on the SGR, while still repaying Sh96.70 billion per year to the China Exim Bank.

This means Kenyans will pay dearly for the next 10 years for mistakes committed by public officials who went ahead with a project that they knew was unviable.

Think tank warning

This was after the Kenya Institute for Public Policy Research and Analysis (Kippra), a government think tank, had warned that since the SGR would a single track for both passenger and cargo freight, it could run only 12 trains a day.

Uhuru Kenyatta and SGR

Former President Uhuru Kenyatta looks on as a cargo wagon passes by during the launch of Standard Gauge Railway in Mombasa on May 30, 2017. Analysts predict hard times for the SGR in terms of its ability to repay the Chinese loans after President William Ruto reverted all port operations to Mombasa.

Photo credit: File | DPPS

This further meant that, after factoring the time needed for trains to pass each other, the SGR could run only four passenger and eight cargo trains per day, which would translate to about eight million tonnes a year, making it difficult to break even.

However, brokers keen on pushing the project through contracted CRBC to conduct its own feasibility study, ignoring the government’s expert advice to itself.

“The government of Kenya and CRBC signed a memorandum of understanding on August 12, 2009 for CRBC to conduct a feasibility study and preliminary design of the Mombasa-Nairobi section of the project, which has been completed to the satisfaction of the Kenyan technical team,” say minutes of a meeting held between CRBC officials and the Kenyan government on June 25, 2012.

The CRBC feasibility study termed the project “highly profitable”, conveniently indicating it was capable of transporting 22 million tonnes per year.

Based on this rate, CRBC argued that the Mombasa-Nairobi leg of the SGR would not only break even, but would also repay the China Exim Bank loans within 10 years, thus obviating the need to extend the line to Kampala as originally envisaged.

However, the SGR’s inability to break even and the refusal by China to grant Kenya an additional Sh368 billion loan to fund the Naivasha-Kisumu leg in 2019 lay bare the fact that the feasibility study done by CRBC was not based on facts.

The secrecy surrounding the project likely points to the determination by the Chinese and Kenyan negotiators to avoid public scrutiny and parliamentary oversight.

“Each party understands to maintain the commercial confidentiality of any information, data or document which it gains during the performance of this contract and not to make such information, data or document available to any third party,” reads the confidentiality clause on all the contracts.

Interestingly, while CRBC was paying taxes for the items it was importing to Kenya in its home country, it was exempted from doing the same in Kenya.

“All taxes, duties and fees of whatever nature levied in connection with this contract inside the territory of China shall be borne by the seller,” says one of the contracts.

“The seller shall be exempted from the value added tax, cess, IDF fees and withholding tax in connection with the contract and related formalities for the commodities’ entrance to Kenya. All the tools and spares necessary for the after-sale services and personal items brought into Kenya by the technical team of the seller shall be free from any taxes and duties,” it says.

Exaggeration of prices

Besides exemption of CRBC from taxes, a study of the bill of quantities shows a serious exaggeration of prices, which raises questions on how the government allowed itself to be railroaded into such an expensive project.

Passengers at the Nairobi terminus boarding bay

Passengers at the Nairobi terminus boarding bay on May 29, 2017. As Parliament prepares to debate the SGR contracts, it is clear Kenyans will feel the financial pinch of the lopsided and secretive project for many years to come.

Photo credit: Fila | Nation Media Group

For instance, out of the KSh327 billion that was spent on the project, a staggering one billion shillings was spent on planting grass in certain sections and another KSh1.4 billion on a chain-link fence.

The contractor then charged KSh300,622,576 for each of the 43 Dongfeng 88 Chinese diesel freight locomotives and KSh250,618,742 for each of the five Dongfeng 4D diesel passenger locomotives, which some Kenyans termed century-old trains.

The contractor also charged KSh142,095,330 each for 1,620 rolling stock for freight and KSh118,996,352 each for 40 passenger cabins, in addition to a training simulator acquired for KSh125,259,376.

While the Nation could not tell whether these items were overpriced due to their technical nature, the mobile phone airtime allowance of Sh5 million to the lead engineer for the three years the project was being implemented was obviously too high, considering that a postpaid line would have cost only  KSh72,000 for the entire time.

The lead engineer’s house was also furnished at a cost of Sh3 million and office computers bought at KSh280,000 each, while his laser jet printers cost KSh513,700 each. In total, the taxpayer forked out KSh57 million to provide office furniture.

Other items that were acquired extravagantly include station loudspeakers at KSh28,800, video cabinets (KSh1.14 million), workshop benches (KSh180,000), ticketing system (Sh8.4 million each), air conditioners (KSh1.9 million), portable radios (kSh119,100) and digital voice recorders (kSh341,500).

These digital recorders, however, cost as little as Sh3,000 in downtown Nairobi.

CRBC also billed Kenya Railways KSh38 million to install a passenger guiding system, KSh14.6 million for each security system at the railway stations, KSh26 million for each luggage inspection system and KSh14 million for passenger monitoring systems at the stations.

Taxpayers also bought 46 A3 laser printers at Sh513,700 each, for use at the stations during construction, against a market price of between KSh40,000 and KSh75,000.

Additionally, all the stations got a KSh4.5 million vehicle for the electrical engineer, while the Mombasa and Nairobi stations each got a 45-seater bus that cost KSh25 million, a 12-seater minibus (KSh12 million) and a 1.5-tonne double-cab pick-up for KSh3.5 million.

CRBC also charged Kenyans KSh20 million for the project launch, KSh3 million for photographing the progress of the project and KSh239 million for the entertainment of their Chinese staff during their stay in the country.

As Parliament prepares to debate the SGR contracts, it is clear Kenyans will feel the financial pinch of the lopsided and secretive project for many years to come.

Analysts predict hard times for the SGR in terms of its ability to repay the Chinese loans after President William Ruto reverted all port operations to Mombasa, reversing one of the most controversial policies of the Jubilee administration.