When Kenya signed a loan agreement with the EXIM Bank of China, part of the pre-condition for financing was that the government would ensure that Kenya Ports Authority (KPA) signed a long term Service Purchase Agreement and ‘a take or pay’ arrangement with the Kenya Railway Corporation (KRC).
This placed an obligation on KPA to either consignee a minimum amount of freight using Standard Gauge Railway (SGR) line service or pays the contract value of that minimum amount. This is what has now made the two agencies to force a huge amount of cargo through the SGR, bringing players a nightmare.
The move has not only pushed the cost of transport using SGR to untenable level but now threatens to disrupt an industry model that has operated smoothly.
In the last few months, the volume of the cargo through SGR has gone up significantly, with 7 cargo trains daily. Industry players, road transporters and Container Freight Station (CFSs) in Mombasa, complain that as a result, they have laid off over 50 percent of their formal workforce.
Considering the limitation of the Inland Container Depot (ICD) in Nairobi, which is receiving the cargo through SGR, the role of road transport cannot be ignored. Although developed countries have invested hugely in rail infrastructure, the role of rail in transport has diminished over the years offering Kenya a vital lesson that it should not abandon one for the other.
Estimates indicates that when fully operational, railway will only be able to ferry about 35 percent of the container generated by the Port of Mombasa by 2022. Considering that it has a limited capacity of 22 million tonnes and with the container cargo growth at the port of Mombasa recording an annual growth of 10 percent, the proportion of the cargo through SGR will continue to diminish.
It is therefore imperative for the government to also protect other players in the logistics chain who have helped the industry grow. SGR should not come as an interruption that will leave us with huge damage as we seek to force to repay huge Chinese loan that was sunk into the project.
The Northern Corridor has numerous towns that have grown mainly due to transport. About 1200 trucks leave Mombasa every day. This is a huge number that has been able to provide a livelihood to small business along the corridor such as food kiosks as well as those operating guest houses. There are also thousands of other traders who provide services that eat from transport sector such as fleet management companies, spare part dealers, oil marketers and garage, just to name a few.
Although the railway line will have long term benefits considering that it has a long life, its viability must also be assed based on the impact it has had on the other social economic aspects.
In the last one decade, the logistics industry around the port of Mombasa has grown smoothly, bringing in efficiency and competition that has seen the cost of transporting goods go down significantly. Also, the government has opened road network to exit the port with private sector having put huge investment through Container Freight Stations (CFSs) that should not be isolated.
The government must move in to protect the importers from huge transport cost through SGR that have almost doubled compared to what they paid road transporters due to the last mile transport and return of the empty containers through rail.
The industry is also paying other punitive inconveniences to justify the government considering other means to raise the money to pay for the loan that was used to construct the line.
Some importers have offered to pay Railway Development Levy at three percent compared to the 1.5 percent they are currently paying.