The World Bank says Kenya overpaid up to Sh117 billion for the construction of the Mombasa-Naivasha Standard Gauge Railway (SGR, partly because of fraud in land compensation and an uncompetitive contract award.
The World Bank argues that competitive tendering and clean land compensation deals would have lowered Kenya’s SGR costs, comparing the cost of the country’s diesel-powered SGR with superior electrified lines in the region like the one Tanzania.
“With the same cost metric as the Tanzanian line, Kenya could have saved up to $900 million (Sh117 billion) in initial construction costs,” the World Bank says in a new report.
“Of this amount, at least 30 percent is considered attributable to governance challenges — the preference for direct contracting rather than competitive tendering; land speculation; and outright fraud around tilting, valuation, and compensation payments — rather than topographic or technical differences.”
A World Bank analysis showed that the diesel-powered line connecting Mombasa to Nairobi, the first complete section of the SGR, cost Sh988 million ($7.6 million) per kilometre.
In contrast, the electrified SGR project linking Dar es Salaam to Dodoma in Tanzania cost Sh740.8 million ($5.7 million) per kilometre, while a similar electrified line linking Djibouti to Addis Ababa cost Sh689 million ($5.3 million) per kilometre.
The World Bank says that, while each railway has specific cost drivers, all three are single lines, with Kenya’s standing out as the only non-electrified one.
The bank notes that the Ethiopian line had to overcome a much greater elevation gain and a more mountainous topography where the altitude stood at 2,300 metres above sea level while Kenya’s line went over an altitude of just 1,600 metres.
Land acquisition costs were significantly higher in Kenya despite Tanzania building its line a few years after and at a higher specification (spec), including electrification.
The initial SGR phase connecting Mombasa and Nairobi was financed by loans from the China Exim Bank and undertaken by a Chinese contractor, the China Road and Bridge Corporation (CRBC).
CRBC also conducted a feasibility study of the project, with approval of the Kenya Railways Corporation (KRC).
Kenya borrowed three loans amounting to Sh649.9 billion ($5 billion) in 2014 and 2015 for the construction of the SGR from Mombasa to Nairobi and later extended the line to Suswa near Naivasha.
The government has fought to keep the terms of the three loans secret, along with operational deals and construction records linked to the project amid public pressure, including petitions by civil society groups.
The government has, however, continued to keep a lid on the details of the SGR project, citing secrecy clauses, national security and diplomatic confidentiality.
Contracts for the railway project, whose operations began in 2017, have long been the subject of controversy, including during the reign of former President Uhuru Kenyatta.
Former KRC Managing Director Atanas Maina was in August 2018 arrested alongside the ex-chairman of the National Land Commission, Mohammed Swazuri, over claims of graft in the compensation of land linked to the SGR project.
The Office of the Director of Public Prosecutions (ODPP) alleged that taxpayers’ money was lost in fraudulent compensation for five parcels of public land, acquired by the government to build the railway.
The World Bank said bad governance hampered the execution of projects in Kenya and other middle-income countries.
“Many lower middle-income countries [LMICs] have incumbent business and political elites that limit access to economic opportunities,” the World Bank says.
“In countries with high governance constraints, corruption and rent-seeking increase the cost of goods and services provided by the government, burdening the fiscal balance and negatively affecting domestic and international investors through potential distortions favouring connected companies and hindering others.”
Taxpayers have been footing the SGR costs with revenues generated from running the service, which are held in a joint account as security against repayment default.
Last year, Kenya extended the tenure of Chinese loans used for the construction of the SGR to 2040, with the additional five-year repayment period cooling the burden of quarterly cheques to China.
The extension was part of the conversion of the three credit facilities used to put up the project from dollar-denominated loans into yuan, reportedly saving the country about $215 million (Sh27.9 billion) a year.
Treasury Cabinet Secretary John Mbadi said he could not give further details on the restructure, tied down by government-to-government dealing terms with China.
Kenya is currently seeking to extend the SGR from Naivasha to the border town of Malaba through Kisumu, but without Chinese financing.
The government plans to raise bonds to fund the project, backed by collections from the securitised railway development levy.
