Economy China wins another sweetheart deal to run new rail

A section of the standard gauge railway. The Mombasa–Nairobi section will be completed in June next year. PHOTO | FILE

Kenya has given China another sweetheart deal after agreeing to have a Chinese company operate business on the standard gauge railway without public bidding.

The deal to offer the firm the contract was reached on Saturday at a summit of the East African Community bloc in Kampala attended by President Uhuru Kenyatta, putting Rift Valley Railway (RVR) business at risk.

RVR, which operates the Kenya-Uganda railway, is expected to face competition from the new railway being built with Chinese financing from Mombasa to the Ugandan border.

“They directed that the contractors for the Mombasa-Kampala section undertake operations in the interim as the two partner states build their local capacities,” said the communication that followed the summit.

The Mombasa–Nairobi standard-gauge line is expected to be completed in June next year.

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Kenya had initially talked of seeking an operator through an open competitive tender.

Kenya Railways last month started the search for transaction advisors to help procure an operator for the Sh357 billion Mombasa-Nairobi line.

The advisors had up to April 22 to submit their bids.

Offering Chinese firms the contract to operate the standard-gauge line is set to rekindle talk over the award of the contract to build the multibillion-dollar railway line to a firm from China, which sparked widespread criticism over the transparency of the process.

China Road and Bridge Corporation was appointed to build the first phase of Kenya’s biggest ever infrastructure project. Kenyan officials acknowledge that there was no public bidding, which they said was a condition of Chinese loans to help fund construction.

Some legislators complained that the contract was overpriced. It will cost Sh447.5 billion including financing costs.

But RVR, which operates the ageing narrow-gauge track, will be the biggest loser.

RVR has recently raised billions of shillings from banks and shareholders to buy locomotives and wagons and refurbish the rail line in a bid to move more traffic from roads to railway.

Rail transport in Kenya accounts for only 1.5 million tonnes of the 24.8 million tonnes of cargo that passes through the Port of Mombasa to the region every year.

Government officials reckon that the poor performance of RVR has led the consideration Chinese firms to operate the rail business.

“The measure is short term and will bridge the gap as Kenya and Uganda build their capacities to operate the rail,” Transport Principal Secretary Wilson Irungu told the Business Daily in an interview.

RVR won a 25-year contract to run the 2,352km Kenya-Uganda railway in November 2006 for the cargo business, and a five-year contract for the passenger unit.

Egypt’s Citadel Capital owns 85 percent of RVR. Uganda’s Bomi Holdings owns the rest.

China Communications Construction Company (CCCC) is in pole position to be the operator of the standard-gauge line, multiple government sources said.