Railway to cost Kenyans Sh120bn more

Parliamentary Public Investment Committee Chairman Adan Keynan (left) and vice chairman Kimani Ichungwah chat with National Treasury Cabinet Secretary Henry Rotich (right) after he appeared before the committee Tuesday. [PHOTO: BONIFACE OKENDO/STANDARD]

By PAUL WAFULA and MOSES NJAGIH

NAIROBI, KENYA: The cost of constructing the standard gauge railway has now hit Sh447.5 billion after Treasury, for the first time, revealed other costs not known to the public.

Treasury Cabinet Secretary Henry Rotich on Tuesday told the parliamentary Public Investment Committee (PIC) that the project would attract additional costs including land acquisition, insurance and cost of the loan, which will push up the cost by another Sh120.5 billion.

At one point, the committee was forced to adjourn to allow Mr Rotich to get the total cost of the project after the Cabinet Secretary appeared not to have the actual cost.  

The Adan Keynan-led committee started its sittings this week to investigate whether Kenyans will get value for money, establish if the government broke the procurement laws and what the actual cost of the project is.

Different government agencies have been giving information on the actual cost of the project in bits, at times contradicting each other.

First, it was Sh220 billion, but this was later said to be for the civil works. The figure rose to Sh327 billion when the contract was expanded to allow the Chinese company constructing the railway, China Roads and Bridges Corporation (CRBC), to also purchase rolling stock — locomotives, passenger coaches and wagons.

But Tuesday Rotich revealed that in addition to the Sh327 billion, the Government will also pay Sh3 billion for the supervision of the project, Sh9.8 billion as insurance premiums and another Sh8 billion to purchase 2,253 hectares of land.  

“This land will be purchased through compulsory acquisition for the railway corridor,” explained Rotich. But the figures from Treasury on the insurance seemed to contradict those given by Kenya Railways Managing Director Alfred Matheka who indicated on Monday that the insurance would be Sh13 billion.

extra piece of land

Further, Rotich told PIC that another Sh10.6 billion will be used to expand the Embakasi inland container depot to accommodate the increased cargo traffic. He said Sh1 billion will be used to acquire extra piece of land for the depot.  

Rotich, who was grilled in the morning session on Tuesday, was accompanied by four senior officials from Treasury including Treasury PS Dr Kamau Thuge and the Investment Secretary Esther Koimet.

On the cost of the loan, Treasury supported the Transport ministry,  which appeared before the committee on Monday, that the financing of the project will be in two parts with almost half being a concessional loan attracting 2 per cent interest while the remaining half will come as a commercial loan. The two loans will be provided by the Exim Bank of China, which Rotich said was representing the Chinese government in the financing deal. The commercial loan will attract insurance premiums at 6.93 per cent. The Cabinet Secretary said the indicative figures for the cost of the commercial loan will be Sh172.4 billion and that of the concessional loan will be Sh140.4 billion. This will bring the total cost of the financing to Sh203.5 billion.

But it is the realisation that Treasury may have used a cancelled commercial contract to negotiate the loan that generated most heat at Tuesday’s hearing. Kenya Railways had cancelled the contract awarding the tender to CRBC, citing an ‘error.’ 

In cancelling the tender, Kenya Railways argued that it had realised it had followed the wrong procurement procedures and had wanted to correct it given that it was now a government-to-government contract. However, it did not furnish Treasury with a new contract after it later restarted the procurement process that saw CRBC given the entire project from feasibility study, design, construction, procurement, and supervision.

Parliament was also stunned to learn that the government was not guaranteeing the project, a move MPs said caused the huge insurance repayments.