Four ways the SGR is hurting taxpayers

5 minutes
A SGR train on standby

The newness of the train’s coaches together with its jet speed is enough to convince any Kenyan that the Lunatic Express, the precursor of the Standard Gauge Railway, was truly a rustic piece of colonial relic.

If you are the kind that is thrilled by the sudden transfiguration of Kenya’s landscape as Nairobi’s concrete jungle melts into a vast stretch of the dry forests of Ukambani before being replaced by the sweltering coastal plains dotted with the majestic baobab trees, the SGR is your train of choice.

But don’t be fooled. Beneath these enchanting flashes of beau voyage offered by the new railway’s passenger service is the blood and tears of millions of ordinary Kenyans who continue to gird the massive pillars of the SGR.

The $5 (Sh608.4) billion railway—which runs from the port city of Mombasa through Nairobi before terminating in the middle of nowhere in Naivasha— might as well be a curse more than a blessing to Kenyans.

It is not just Kenya’s most expensive project since the country’s inception, the SGR is also one of the most controversial, scandal-prone piece of infrastructure.

First, there are claims that the cost of the SGR was highly inflated. This means that Kenyans are paying heavily for a project that would have cost as little as Sh55 billion, according to businessman Jimmy Wanjigi.

Mr Wanjigi, who is rumoured to have been one of the powerbrokers behind the SGR, told Citizen TV last year that this amount of money was enough to pay for the construction of the SGR from Mombasa to Malaba.

The SGR, he said, was supposed to be funded privately. Wanjigi claims he came up with the idea of SGR in 2008, however, did not offer evidence to support his claims.

Nonetheless, claims of the cost of SGR being inflated have not come from Wanjigi alone. Such claims were echoed by activist Okiya Omtatah, now the Senator for Busia County. Mr Omtatah argued in court that the project’s design and supervision of the construction services amounting to $110 million (Sh13.4 billion) were duplicated, hence a loss to the public.

Former Prime Minister Raila Odinga has also been on record saying that the cost of the SGR, which they initiated while in the Grand Coalition Government with the late President Mwai Kibaki, was inflated.

If Kenyans wanted a modern railway like the SGR, they had a cheaper alternative, according to a 2013 World Bank report.

The global lender noted that the alternative of upgrading the oldest railway in East Africa, popularly known as the lunatic express, was much cheaper compared to constructing a new SGR.

For the SGR to recoup its investments, the World Bank noted that the SGR had to carry up to 55.2 million tonnes annually, an uphill task for the country.

The SGR is also a Constitutional aberration, according to a 2021 ruling by the Court of Appeal which found that Kenya Railways did not float the project to competitive bidding, yet all State contracts have to be subjected to open tender.

Second, this is a project that has denied the State billions in taxes. Not only are the loan repayments to the Exim Bank of China not subject to any taxes, but goods and services procured for the SGR by the contractor, China Road and Bridge Corporation (CRBC), were also tax exempt.

And the tax burden brought by the SGR does not end there. As part of the security for the loan, Exim Bank asked the Government of Kenya to come up with a Railway Development Levy (RDL) whose effect has been to add to the plethora of taxes that Kenyans are forced to painfully endure.

Revenues collected from the RDL, which is currently charged at the rate of two per cent on all goods imported into the country, are supposed to go into a Railway Development Fund. This money will be tapped by the Exim Bank should the National Treasury fail to raise enough money to repay China for the SGR loan when it falls due on January 21 and July 21 each year.

The RDL has added to the high cost of living occasioned by increased taxation, with millions of ordinary Kenyans relying on cheap imported clothes, shoes, utensils, soap and other items they use in their own homes.

Third, even if the RDL appears like it inadvertently discourages importation and thus encourages local manufacturing, a preferential buyer credit loan agreement that the National Treasury signed with Exim Bank for a $1.6 billion (S194.7 billion) concessional loan, required Kenya to allow for sourcing of materials for the construction of the SGR from China.

This denied local cement and steel companies from recruiting more workers in the period when the SGR was under construction.

It also went against the spirit of Buy-Kenya-Build Kenya which is aimed at building the capacity of local manufacturers.

Fourth, as part of the agreement between the National Treasury and China Exim Bank, the Kenya Ports Authority was required to provide the SGR with certain minimum freight traffic.

This money would then be put in a protected account to be used for repayment of the Chinese debt in case the National Treasury did not have sufficient funds when the loan fell due.

If KPA could not get the minimum cargo onto the SGR, it would be forced to pay for the shortfall.

Consequently, KPA decided to force all cargo from Mombasa to Nairobi onto the SGR, to the chagrin of many traders who found the SGR to be more expensive than the trucks. This additional cost paid by the traders would then be passed on to consumers, hence a high cost of living.

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