Kenya and Tanzania have renewed a drive to connect their standard gauge railway (SGR) projects with land-locked neighbours Uganda, Rwanda and Burundi amid pressure to diversify funding sources for the undertakings.
Last month, Kenya broke ground on extension of its railway line from Naivasha, six years after the project stalled, to Kisumu and the border town of Malaba, which would bring the project to the doorstep of Uganda.
At the end of July, Tanzania started the extension of its SGR project westwards from Capital Dodoma to Kigoma on the shores of Lake Tanganyika.
The country says it plans to include two new lines as part of the project including linking its port city of Tanga to Musoma on the shores of Lake Victoria, bringing its own line to the doorstep of Rwanda, Burundi and Uganda.
Tanzania has not given timelines for the Tanga-Musoma line, but Kenya hopes to complete its Malaba section by June 2027.
Uganda is expected to develop its own sections of the SGR connecting to both the Kenya and Tanzania lines but has given priority to the Malaba linkage.
‘We are considering doing two new lines in addition to the current Mwanza-Kigoma line. One of the lines is to connect Tanga to Musoma on the Western side of the country. If this happens, then it will really benefit Uganda and Rwanda,’ Khamis Mussa, the Tanzania Minister of Finance said in an interview with this publication last week.
The second line seeks to connect Mtwara and the inland port of Mbamba Bay with the aim of linking Tanzania with its southern neighbours Malawi and Zambia.
Both Kenya and Tanzania are conscious of the cost implications of bringing the regional connectivity projects to life amid limited fiscal space.
The pair is also doing the heavier lifting by developing the largest portions of the rail infrastructure in contrast to neighbouring Rwanda, Uganda, Rwanda and the Democratic Republic of Congo (DRC).
‘While we seek investments that will benefit our neighbours, we must realise that the major investment must be done by us and we must be conscious of the impact on debt levels and debt servicing,’ added Mr Mussa.
‘We have to put up over 2,000 kilometres of railway but Rwanda or Burundi would only be putting up a few kilometres in their sections.’
Kenya has opted to extend its SGR section using securitisation-transforming revenues raised from the railway development levy (RDL) into a tradeable security which will then back the issuance of a bond to pay investors in the project.
The country previously funded the Mombasa-Nairobi-Naivasha section of the SGR using mostly debt raised from China.
Civil works to the extension of the railway line from Naivasha are, however, yet to start, pending land acquisition activities according to the Kenya Railways Corporation (KRC).
Kenya plans to use up to 90 percent of the Railway Development Levy (RDL) collections to issue securitised bonds, raising billions of shillings for the stalled SGR extension to Kisumu and Malaba.
The government expects to mobilise up to Sh390 billion from the process to finance the SGR extension.
The country has been forced to innovate, adopting securitisation and public private partnerships (PPP) to implement new multibillion shillings projects.
Tanzania has on its part relied on a mix of external financing and domestic revenues to implement its SGR project, having a wider fiscal space than Kenya.
The country is however escalating its drive for PPPs to implement infrastructure projects while mitigating debt risks.
Last week, Tanzania signed three agreements with Africa50, a pan-African infrastructure investor co-owned by the African Development Bank (AfDB) and sovereigns on the continent to deliver infrastructure projects under the PPP model.
The agreements include a pact with the Tanzania Electric Supply Company Limited (Tanseco), opening the window for private investment in electricity transmission projects through the public-private partnership mechanism including developing high-voltage lines.
Tanzania says it is still making baby steps towards fully leveraging PPPs to diversify its project financing.
‘PPP is one area we are yet to fully tap but this has huge potential for not just rail development but also energy transmission. We have seen the appetite for projects from the private sector, but they need assurances including payment and price guarantees,’ Mr Mussa said.
Uganda is seen as the immediate off taker of Kenya’s extended SGR project as it nears the close of funding for the 272 kilometres stretch of standard gauge railway connecting the border town of Malaba and Kampala.
The landlocked country has sought Sh62 billion from a Shariah compliant Sukuk bond to finance the project.
The Malaba-Kampala line is one of four planned corridors with the other three including a southern line stretching 280 kilometres from Bihanga to Mirama Hills at the Rwandan border.
The southern line will eventually link Uganda and Tanzania’s SGR projects.
The full-circle completion of Kenya and Tanzania SGR projects and subsequent connection links to neighbours will provide importers with alternative routes to access the Indian Ocean with the main ports of Mombasa and Dar es Salaam expected to compete on efficiency.
Mombasa has been tipped to be the main port of call owing to its ability to handle more cargo than its counterpart Dar while Tanzania’s second port of Tanga mainly handles petroleum products.
‘There is no competition as Dar es Salaam cannot entirely handle cargoes meant for countries like Uganda and DRC as Mombasa has double the capacity. I would expect Dar to mostly handle spillover cargoes,’ said David Nashon, a regional consultant working in the transportation sector.
‘All these projects will result in regional connectivity and will give importers the choice of either using the port in Dar es Salaam or Mombasa.’