Hidden risks in Standard Gauge Railway

In May, 1969 the General Manager of the then East Africa Railways and Harbours (EAR&H) Dr Ephantus Gakuo - father to the First Lady Margaret Kenyatta prepared a report and account for the performance of the corporation.

It was no different from the year before. The ‘lunatic line’ which stretched from Mombasa, Kenya to Kampala, Uganda was struggling. Dr Gakuo was thus worried.

The closure of the Suez Canal must have given Gakuo some sleepless nights. The closure meant that few, if any, ships docked at the port of Mombasa. There was also bad weather, with floods damaging bridges and the heavy rains making it difficult to reconstruct them.

All these factors, said Gakuo in the report, were partly responsible for the dismal financial performance of the East African Railways and Harbours.

Unfortunately, there was really nothing Kenya and its East African partners could do about these challenges.

But there was something they could do about another challenge that was slowly but surely killing the East African Railways & Harbours. To eliminate the cut-throat competition from the trucks on the road.

“The problems of the Canal and of the weather are not controllable from East Africa but the problem of road competition is and the principles on which the EAR&H legally operates,” explained Gakuo in the report.

He argued that railway transport had for sometime been made viable “with a tariff controlled by law to ensure low (sub-economic) rates for basic East African industries.”

This, he said, was possible with “adequate licensing protection from unbridled competition.”

But this position has since been rendered ineffective after Kenya reviewed abolishing licensing for freight road haulage,” Gakuo wrote.

The abolishment of licensing freight haulage was the beginning of what could culminate in the death of the old railway built by the British.

It, unfortunately, ushered in a phase of wanton destruction of roads, congestion of ports and grisly accident by heavy trucks.

“The retention of licensing in Kenya was the key to a successful upholding of the tariff as it reduced trunk route competition not only in Kenya but throughout the region from Mombasa to Kampala,” added Gakuo.

The relaxation of the licensing rule still remains a big threat to survival of the newly launched Standard Gauge Railway (SGR) which is expected to open up the country and help the economy grow by at least 1.5 per cent - more so along the corridor.

The Financial Standard spoke to a number of former managers at Kenya Railways Corporation who insist that the new rail might not be a huge departure from the old one.

The threat that killed the old railway is much alive today, and could frustrate the efficient operation of the Sh327 billion SGR.

Already, the SGR seems to have started on the wrong footing as far as investment in the project goes. The trains have started operating without an insurance cover. The risk exposure could be catastrophic.

Speed limits

According to a retired locomotive driver Kariuki Kimiti, the old locomotives could do as much as 70 kilometres per hour from Mombasa to Nairobi, slightly slower than the recently unveiled SGR trains which are expected to do, on average, 80 kilometres per hour. The difference, back then, was in policy.

According analysis given by experts, the road trucks did not simply beat the old railway because they were more efficient than the railway; but overwhelmed the old rail system because the Government decided to neglect the old line even as it relaxed restriction of heavy cargo haulage on the road.

But, more than anything else, the culture of impunity and political Kleptocracy won it over for the truckers.

This threat is a clear and present danger to the newly launched the SGR. “Most of them (truckers) are well-connected and are even financiers of political parties and will want to seek favours,” reckoned Dr Samuel Nyandemo, an Economics lecturer at the University of Nairobi.

An article in the British weekly magazine, The Economist, wondered whether the SGR was yet another “dud investment” predicting a spirited fight by truckers, and thus complicating the prospects of the project repaying the Chinese loan.

“Repaying the loans taken out to build the line will require hefty fees or huge volumes of traffic.

But truckers — who now handle more than 95 per cent of the freight moved from Mombasa port — will compete fiercely on price, and shipping companies may look for other ports if levies rise,” read the article that was published in 2016.

There has been a hush-hush agreement that most of the trucks on the road belong to powerful persons, either politicians or are persons connected to politicians.

The recommendations of the 1970 Ndegwa Commission on Public Service structure and remuneration must have triggered this orgy of self-aggrandisement by civil servants, including those working for Kenya Railways.

The Commission wanted to boost the private sector which had lost out to the public sector with the latter attracting all the best skills, giving civil servants the greenlight to also engage in private business.

Own business

Those in the civil service including Kenya Railways managers saw in this a window of opportunity to start their own businesses such as trucks ventures, thus denying the corporation billions of shillings in revenue.

“People were interested in diverting traffic from railways to roads, and this was mainly the big men in politics and the State,” says Prof Anyang’ Nyong’o who was the Public Accounts Committee Chairman between 1994 and 1995.

“So rather than put money in modernising Kenya Railways, they would rather divert that money to their use so that Kenya Railways could fall and they could haul goods from Mombasa to Nairobi,” adds Nyong’o.

Gerrishon Ikiara, an economics lecturer at the University of Nairobi and former Permanent Secretary in the Ministry of Transport between 2003 and 2008, says that while it might be true of the Ndegwa Commission “it had been exaggerated.”

He agrees that lack of “adequate supervision” might have allowed some civil servants to mix work with private business, but it also contributed to the growth of the private sector in the country.

“The railway had failed, it did not have the right carriage capacity and so people turned to trucks,” says Ikiara.

The former PS said that during his time as at the helm of the Ministry of Transport, he used to make several trips to Treasury asking for money to pay salaries for Railways staff.

Shippers Council of East Africa Chief Executive Gilbert Langat noted that while business interests may have been a factor in the decline of the metre gauge railway over time, under investments, which led to equipment being in a desolate state, were largely to blame.

“The Government and KRC never invested in the railway and it was being used every day. So of course wear and tear resulted to wagons and locomotives being unserviceable, lower speeds and handling equipment were not being replaced, leading to poor service,” he said. He noted that while interests, such as lobbying by truckers and even giving cargo owners better deals that played part in decline of the metre gauge railway, will always be there.

The new rail service can retain its edge and continue being a key player in the movement of cargo as long as it services were up to standards. “Businessmen will always be there, so Interests will always be there,” said Langat.

“The decline of the metre gauge railway arose largely due to inefficiencies from the side of the operations and this resulted in cargo owners having bad experiences, with cargo staying in transit longer than it was supposed to, sometimes for more than 100 days. This is also a risk to SGR but if people (cargo owners) have a good experience and the SGR operator gets the pricing, efficiency and cargo handling right, they will be converted,” explains Langat. Failure to invest in the railways continued even after it had been concessioned to the Rift Valley Railways. According to  Rift Valley Railways Group Chief Executive Isaiah Okoth, which operates the metre gauge railway, the railway needs up to Sh6 billion ($60 million) to be in a position where it can operate efficiently. “What ails the company is lack of capacity which is to mean the state of the track. There has not been any significant investment over a long time.

The neglect started way back and by the time the concession was happening, the track was in a bad state,” he said.

While there has been a lot of excitement and expectations in following the launch of the new railway service, it would be prudent to note that railway operations in East Africa have always being dogged by failure.

Neglect and under investments by the owners of the railway networks as well as old debts, including loans advanced to build the railways, have always come haunt the operations of the railways.

The Kenya-Uganda Railway, which is largely credited for the growth of towns from Mombasa through to Kampala, tops among the gross underperformers in the region. While it accounted for almost all cargo that moved from the port to the hinterland shortly after it was set up by the colonial Government, this has over time come down to about 50 per cent at independence to about 20 per cent in the 1990s.

At the moment, the line moves under three per cent of the cargo that leaves Mombasa port.

The Tanzania-Zambia Railway (Tazara), the line built by Chinese funding and commissioned in 1976 and which had as much expectations as the SGR at launch, has been grappling with similar challenges.

Due to neglect and failure to invest in upgrade and maintenance of the railway, it is always performing poorly.

In addition to neglect, the operator has always been dragged by debts, including the original debt from China.

“Its performance has been erratic largely due to frequent mechanical failures of the locomotives which are underpowered for the task they have to perform – hauling heavy freight trains over long distances and up some steep gradients,” notes a recent report on the railway.

“The railway has also been plagued with financial difficulties, compounded by the fact that two Governments are jointly in control of the funds.

On several occasions in recent years, the railway has come to a complete halt because there has been no money to meet the fuel bills. At other times, shortages of wagons have been the problem.”

Dr Nyandemo noted that the SGR, unlike the old railway, might be saved by the expediency of repaying the Sh327 billion loan to the Chinese. “The goodness with the SGR is that we will be target to meet the repayment, so there will be high efficiencies,” said Nyandemo.

Good linkages

He observed that there will also be good linkages between Kenya Railways and Kenya Ports Authority (KPA). Observers have also reasoned that truckers can now take over from Nairobi to Malaba as we wait for the remaining phase to be completed.

Langat said that the region’s growing economies would ensure there are enough cargo volumes that would ensure there is enough business for players in transport industry.

“Road transporters should not worry. Our cargo volumes are growing at about eight per cent per year, port volumes capacity are increasing substantially and the region is growing so there will be sufficient cargo for both rail and road.

There will also be the last mile application that may require a deeper thought but it offers opportunities for transporters.”