Tanzania building electric railway at half price of Kenya’s diesel SGR line

The only flag still missing from the railway master plan of the East African region ratified in 2008 is that of Tanzania. 

It is not missing by mistake.

Tanzania, which is East Africa’s most populous country, was not on the table when the presidents of Kenya, Uganda, Rwanda and Southern Sudan sat to ratify the protocol for the development of a Standard Gauge Railway (SGR) connecting the port of Mombasa to Kampala, Kigali and Juba.

Instead, Tanzania opted to walk alone and only bring on board any of its neighbours that would buy into its vision.

As Kenya rushed to build the first phase of its modern rail in record speed to the envy of its neighbours, Tanzania took a back seat, the way a second born child would do, lurking in the shadows and learning from the mistakes of his elder brother, then retreated to plot how to do a better job when his turn came.

And before Kenya could finish bragging about its fete in building the best railway in the region since the last century, Tanzania signed a second contract that will see it build an electric railway line that will move nearly twice as fast as the Kenyan line but at a fraction of the cost.

Last week, Dar, which has upped its silent rivalry with Kenya as it races to compete for the top spot as the economic power house in East Africa, awarded a $1.92 billion contract to a Turkish firm to build 422 kilometres of its SGR.

Though this is just a fifth of the total line that Tanzania plans to build, the deal has shone a new spotlight on costs of building railways in the region.

It is also set to reignite debate on the viability of big infrastructure projects as each nation fights for title of the transport hub of the region.

Cheapest railway

Tanzania said its electric railway has been designed to support a maximum speed of 160km per hour for passenger trains and 120km per hour for freight. It is expected to be complete within 30 months.

This pales in comparison to Kenya’s line whose passenger’s train has a maximum speed of 120 kilometres per hour, and its freight will be doing 80 kilometres per hour at best. This means that in every hour, the Tanzanian train would cover an extra stretch of 40 kilometres ahead of the Kenyan train.

Besides speed, Tanzania’s line also appears to be slightly superior since it is electric. Kenya opted for diesel-powered engine that can be upgraded into electric in future.

At $1.92 billion, which translates to about Sh192 billion at current exchange rates, Tanzania appears to have secured the cheapest railway construction deal in the region, given that it will be spending nearly half of what Kenya spent to build the first phase from Mombasa to Nairobi.

Kenya’s line between Mombasa and Nairobi, which was slightly longer by about 50 kilometres, was constructed at a cost of $3.8 billion (Sh380.4 billion).

This cost does not factor in the interest on loan, the 20 per cent depreciation of the currency and the Sh11.7 billion paid on land acquisition.

At the time of negotiating the contract in 2012, the dollar exchange rate was Sh87. But the dollar is now more expensive to buy and is currently trading at about Sh103 on average.

“With the volatility of the exchange rate, it will be a challenge estimating the total financing cost of the project by the time the loan is paid off in approximately 20 years,” Kenya Railways said in an earlier response to Sunday Standard.

Tanzania did not fall for the temptation to go for a government-to-government deal that Kenya used to single source China Road and Bridge Corporation (CRBC).

Kenya handed the contract to the Chinese firm without a fight after the Chinese government dangled billions to fund the railway on condition that the contract would not go through a competitive process.

As the Turkish firm assembles its tools to start the construction of this new stretch, it appears that the decision by Tanzania to stick to a competitive process after cancelling an earlier contract awarded to a Chinese firm to build the high-speed electric line could have paid off.

President John Magufuli quietly terminated a contract awarded to Chinese Construction Company in 2015 due to allegations of corruption. Kenya chose to look the other way from the allegations of corruption and cost inflation that marred the SGR construction in the initial stages and is set to march on.

But Tanzania terminated the contract and immediately invited fresh bids. This is what saw the deal last week awarded to Yapi Merkezi Insaat VE Sanayi As, a Turkish firm based in Istanbul.

The headache for Kenya and Tanzania now is how to pay for the big railway projects without falling for the temptation to continue the borrowing spree.

China Exim Bank, which is funding the Kenyan line, was expected to finance the Tanzanian line but withdrew after the contract was terminated. This saw Tanzania turn to the other BRICS nations seeking for finance.

President Magufuli in May asked his South African counterpart Jacob Zuma to help the country secure soft loans from Brics Development Bank. The BRIC grouping includes South Africa, which has good trade relations with Tanzania, Brazil, Russia, India and China.

In August, the African Development Bank came to the aid of Tanzania, and agreed to finance part of Tanzania’s central railway projects after several stakeholders pulled out.

The Tanzanian line is the closest to the Kenyan one in terms of terrain, location and standard offering a better benchmark for comparisons. The other closest line is the Ethiopian that was launched recently but is a lot different to the line Kenya is building.

Crossing corridors

Some of the reasons that have been cited for differences in prices for the railway projects in the region include the number and sizes of train stations, the number of locomotives, freight wagons and passenger coaches. But all the other things do not account for more than a third of the entire cost.

In explaining why Kenya’s line appeared to be more expensive than Ethiopia, the government maintained that Kenya had other features that made it a lot more costly.

Kenya’s line has one port station, two major passenger stations in Mombasa and Nairobi, and seven passenger intermediate passenger stations at Mariakani, Miasenyi, Voi, Mtito Andei, Kibwezi, Emali and Athi River and 23 crossing stations.

It also has 98 Bridges covering 29 kilometres of the railway line and has Nine Wildlife Animal Crossing Corridors erected within Tsavo East and Tsavo West National parks for wildlife to pass under the SGR line. The crossing corridors are over seven metres high and at least 70 metres wide.

Tanzanian state-run railway firm Reli Assets Holding Company Ltd (RAHCO) said the Turkish firm will design and construct the railway line. This is the second infrastructure project won by the company in Tanzania this year. The complete features are yet to be revealed.

But it says it will build the 422 kilometre line from Morogoro to Makutupora, both in central Tanzania, and it will have the capacity to transport 17 million tonnes of cargo each year. This is about five million tonnes less cargo than what Kenya hopes to ferry in a year once its freight lines are in operation. Kenya hopes to carry 22 million tonnes of cargo a year and this gives it a better chance at break even.

RAHCO said it awarded the firm the contract after it met the technical and financial requirements. Fifteen contractors submitted bids for the project. This is the second railway contract that Tanzania has given out.

The first phase was handed to consortium of the Turkish firm and Portugal’s Mota-Engil Engenharia e Construção África, S.A.

Construction of this first phase of the project that runs from Dar es Salaam to Morogoro is expected to be fully funded by the Tanzanian government. The first phase involves construction of a dry port project and six stations at a cost of $1.2 billion (Sh120 billion) for 300 kilometres of railway, and is expected to be completed by 2019.

RAHCO said it would award three additional tenders over the coming months to build another 700 kilometres of the railway. The route followed by Tanzania is in stark contrast to the process followed by Kenya, which opted for a government-to- government deal instead of using the competitive bidding process.

Good gradient

Kenya opted to hand CRBC and its subsidiaries the contract to do almost everything on the line from a feasibility study, design, building, supervision, purchase of the rolling stock and now running it.

Tanzania broke up its railway into four parts and put out four tenders to design and build the remaining stretch of the railway line that will link Dar es Salaam port with the landlocked neighbouring Rwanda, Burundi and Eastern part of DR Congo.

In total, Tanzania plans to spend $14.2 billion (Sh1.4 trillion) over the next five years to build 2,561 kilometres of what would be the longest standard gauge railway network built by a single east African nation. The line will connect its main Indian Ocean port of Dar es Salaam to the Burundi border.

Both Kenya and Tanzania defied studies from the World Bank that had suggested that building new railway lines may not be economically viable at the time. Instead, the World Bank suggested that the two countries would be better rehabilitating the existing two metre gauge railway at a cheaper cost.

For Tanzania, the World Bank went ahead to provide money for rehabilitation of existing central railway line several years ago, an offer that was not taken.

But Kenya argued that the metre gauge line built over a century ago is too dilapidated and will not meet the desired standards and speeds required after rehabilitation. Kenya Railways argues that the construction of the metre gauge railway was done on the 18 tonnes axle load, but the SGR is being done on the 25 tonnes axle load. This requires a much stronger support base.

Secondly, the SGR would allow the country to achieve good gradient and curvature that is necessary for speed and efficiency. Kenya Railways says that the metre gauge railway from Nairobi to Mombasa is 518km but on the SGR it is 472km.

“That tells a person that the SGR is fairly straight,” Kenya Railways says on its website. The biggest headache will be how to marshal the necessary cargo and passengers to break even and repay the debts.

Kenya is understood to have made a commitment to put in place policies that would guarantee that the new railway line gets majority of the cargo business from Mombasa Port. Kenya Railways says that the Feasibility Study Report had projected that the Kenyan line would break even within five years of operation.

“Judging from the interest shown so far by the business community locally and within the region to use the SGR, this could come sooner. In fact KR might have to consider investing into additional locomotives, freight wagons and passenger coaches by the fourth year in operations,” Kenya Railways says.

“Another catalytic development that could speed up SGR breaking even is the plan to extend the railway to Naivasha County and set up an Industrial Park along with a freight exchange centre at Mai Mahiu providing easy access of freight destined to the Great Lakes Region.”