Assessing the state of Kenya's Standard Gauge Railway

Kenya's Standard Gauge Railway (SGR) project has hit a roadblock as the Chinese firm, Afristar Railway Operation Company Ltd, has demanded billions of shillings in unpaid bills before fully handing over operations to Kenya. Economic Analyst Reginald Kadzutu shed light on the financial challenges facing the SGR project during a recent interview. The project, which saw Kenya gradually taking over operations from Afristar in March this year, has been struggling to break even due to high operating costs and unrealistic trip targets. Kadzutu explained that the SGR's operational costs amount to approximately $180 million annually, requiring the railway to conduct close to nine trips a day at full capacity just to break even. However, to cover both operational costs and repay the construction loan, the SGR would need to conduct 31 trips a day, a feat deemed practically impossible. In order to break even operationally, the SGR would need to transport 9.9 million tons of cargo annually. This would necessitate all imports and 80% of all exports to be moved via the SGR, a challenging task given the current export levels of the country. Kadzutu criticized the project as a 'misconceived infrastructure development' with poor timing, highlighting the lack of sector development to support the SGR's operations. The SGR's financial woes are further compounded by the lack of transparency surrounding the governance agreements between Kenya and Chinese entities. Concerns have been raised about potential asset seizures should Kenya default on loan repayment, similar to cases in Zambia and Sri Lanka. The secrecy shrouding the contracts with Chinese partners has fueled speculation about attached assets or severe loan conditions. With Afristar demanding billions in unpaid bills, questions loom over the future of the SGR. Kadzutu expressed hope that the handover to local management would not replicate the decline seen in other state-run entities. Despite significant payments made to Afristar for management fees, the SGR continues to operate at a loss, raising doubts about the project's financial sustainability. As Kenya grapples with mounting external debt, Kadzutu warned of the country's reliance on borrowing to service debt obligations. With exports falling short of covering imports, Kenya faces a looming debt crisis, forcing the government to seek additional financing to meet repayment obligations.