VIDEO: Questions linger over Shs10 trillion SGR cost

In early March 2017, panic-stricken officials from Uganda’s ministries of Works and Finance, dashed to Dar es Salaam to “compare notes” with their Tanzanian counterparts on among others, variations in prices of their disassociated Standard Gauge Railway (SGR) projects.
President Museveni and his Kenyan, Rwandan, and South Sudan counterparts, under the Northern Corridor Integration Projects (NCIP) vision, had earlier in October 2014 flagged off construction of the SGR line snaking from Mombasa to Kampala with tendrils to Kigali and Juba. The multi-billion-dollar project was to be financed by China’s Exim Bank.
Kenya, then under the Uhuru Kenyatta administration, had secured 90 percent of the $3.8 billion (Shs13.8 billion) financing for the Mombasa to Nairobi track. Uganda and Kenya started discussions on developing a new railway in 2008 with plans of securing joint financing, but Nairobi went ahead in 2013.
A cargo train at the Naivasha Inland Container Depot in Kenya. Currently, goods destined for Uganda from Mombasa port are transported by road from Naivasha where the multi-billion shilling SGR line from Mombasa ends. PHOTO | FILE | NMG
Tanzania, whilst part of Uganda, Kenya, Tanzania, and Rwanda under the East African Community (EAC) regional bloc, was/is outlier in the NCIP whose vision include cooperation in 16 areas including the SGR, oil refinery development, and ICT, among others.
When John Magufuli ascended to power in November 2015, with Tanzania somewhat isolated by the regional leaders commingling under the NCIP, he went to work to amplify his country’s profile. That is when the French oil giant TotalEnergies-backed study, exploring routes for the proposed oil pipeline from Uganda’s oil field, settled on the southern route through Tanzania. The Tanzania oil route was sealed in April 2016 in Kampala.
During an oil pipeline-related visit to Tanzania in late February 2017, President Museveni heard from his hosts that they had also embarked on construction of the SGR costing slightly above $1.5 million (Shs5.4 billion) per kilometre.
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Uganda had in 2014 awarded the $2.2 billion (Shs8 trillion) engineering, procurement and construction (EPC) tender for construction of the Malaba-Kampala SGR line at a cost of $7.3 million (Shs26.6 billion) (approximately $9.9 million—Shs36 billion, in today’s currency adjusted for inflation) per kilometre to China Harbour Engineering Corporation (CHEC).
The $2.2 billion (Shs8 trillion) cost was eventually revised to $2.17 billion (Shs7.9 trillion) in 2018 as the project was rocked by claims of procurement wheeler-dealing and corruption.
Tanzania awarded the first phase of 300km SGR from the Dar es Salaam port to the interior to a joint venture of Turkish and Portuguese firms—Yapı Merkezi İnşaat ve Sanayi A.Ş/ Mota Engil Africa—at a cost $1.215b (Shs4.4 trillion) from Turkiye’s state-owned Export Credit Bank.
Following the early March trip to Dar es Salaam, Works and Finance officials were supposed to prepare a brief for the President. One official even told this newspaper “it is likely Tanzanian officials” lied to the President as their project cost somewhere around $5 million (Shs18 trillion) per km, yet still lower than CHEC’s $7.3 million (Shs26.6 billion). It is also then that Yapı Merkezi İnşaat ve Sanayi A.Ş developed appetite for the Ugandan SGR project.
Apples and pears tale
Seven years later, Uganda’s plans of constructing its 272km SGR line from Malaba to Kampala faltered after Exim Bank slammed the doors on government—sources say the bank which had long second guessed the project economies of scale closed the chapter in 2022 on account of the Covid-19 pandemic that wrecked many African economies and their capacity to repay loans.
On the other hand, Tanzania now under President Samia Suluhu who succeeded Magufuli who died in March 2021, has completed 1,090km of SGR; Dar es Salaam to Morogoro—300km (cost $1.215 billion/Shs4.4trillion), Morogoro to Singida—422km ($1.93 billion/Shs7.1 trillion), and Makutupora to Tabora—368km ($1.928 billion/Shs7 trillion), which contract was signed in December 2021.
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In March 2022, President Suluhu embarked on additional SGR lots. These include 165km Tabora to Isaka at $900 million (Shs3.2 trillion) and 341km Isaka to Mwanza port on the Lake Victoria shores at a cost of $1.326 billion (Shs4.8 trillion) also byYapı Merkezi İnşaat ve Sanayi A.Ş, and the 506km line from Tabora to Kigoma city on the shores of Lake Tanganyika at cost of $2.7 billion (Shs9.8 trillion) constructed by a consortium of Chinese firms.
Last week, Yapı Merkezi İnşaat ve Sanayi A.Ş, in joint venture with M/s YM Global Projects Ltd, made a breakthrough with the signing of the $3 billion (Shs10.9 trillion) EPC tender for the Malaba-Kampala SGR line, however with the project cost increasing by $900m (Shs3.2 trillion).
The Permanent Secretary of the Ministry of Works and Transport, Mr Bageya Waiswa (right) and the Vice Chairman of Yapi Merkezi, Dr Erdem Arioglu (left) sign a contract for the construction of a Standard Gauge Railway from Kampala to Malaba on October 14, 2024. PHOTO/ ISAAC KASAMANI
The SGR project coordinator, Mr Perez Wamburu told Monitor last week that the increase in price is on account of several factors including “increase in the value of money (infilation) with time and change in project scope.”
“The figure you are talking about of $2.2 billion/$2.1 billion (Shs8 trillion/Shs7.6 trillion) was generated in 2015; we are in 2024, and people in economics and finances will tell you that a lot has changed in-between. Just like even in ordinary small businesses, the prices of things, some people now call it the time value of money, changes,” Mr Wamburu defended.
He added: “The second thing about the figure being different is the scope. The line will start in Malaba as was before, but we have added what we call a marshalling yard— a railway yard for separating and distributing cargo trains to and from Kampala, and Kenya.”
Hence, Mr Wamburu revealed that the £uros 2.7 billion ($3 billion/ Shs10.8 billion) CapEx, which stands for “Capital Expenditures” refers to the investments a company makes to acquire, improve or maintain long-term assets such as buildings, land, machinery or equipment. He revealed the CapEx comprises two components: £uros2.35 billion (Shs9.3 trillion) for the main EPC/project works and £uros350 million (Shs1.385 trillion) for provisional works as may be determined by the project employer.
“Now, the figure of £2.7 billion today looks high. It is actually high but construction of the railway is an expensive thing but worth it. We should also not make the mistake of comparing that Uganda is constructing its railway at this and that figure, and Kenya or Tanzania is constructing its railway at that figure. There are many factors for the variations,” he noted.
However, it is hard to not compare the project costs. Ethiopia, with its mountainous terrain constructed the 750km Addis Ababa-Djibouti line at a cost of $3.4 billion (Shs12.4 trillion) at a reported cost of $5 million (Shs18.2 billion) per km started in 2011 and completed in 2018.
Later in 2015, the country awarded the $1.7 billion (Shs6.2 trillion) tender for the 391km-long Awash-Kombolcha-Hara Gebaya SGR line to Yapı Merkezi, with the EPC including among others 10 substations, 12-10km tunnels and eight power control stations.
Financing blues ahead
Standard Gauge Railway is one of the railway classifications worldwide for high speed trains. Gauge is the distance between rail lines.
It differs from the existing Meter Gauge railway line (an outdated model) left behind by the British colonial administration. Meter Gauge is widely used on the continent having been built by different colonial masters to transport commodities out of Africa.
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SGR has a standardized width of 4 feet/8 inches) while meter gauge has a width of about 3 feet/5 inches). This determines how fast trains run and the weight they carry.
The SGR classification is also in line with the African Union SGR protocol, of upgrading and linking the continent’s railway system to facilitate continental integration. Other countries that have upgraded to SGR include Morocco, Ethiopia, Algeria, Egypt, South Africa, Tanzania, Kenya, and now Uganda is set to join.
Mr Wamburu further justified the increase in the cost on account of the planned dual carriage railway bridge along the River Nile in Jinja and the realignment along of the route, particularly in heavily industrialised sections along the project corridor.
“This bridge we are going to construct is going to have two tracks; instead of having one line as normally, it will have two, taking into consideration future traffic, which is not very far. Bridges are actually more expensive, if you want to use the simple example of the current cable bridge,” Mr Wamburu said, adding: “Because the project delayed, including acquiring land we had mapped and we could not stop people from using their land, in some sections have built serious factories so rather than break them down we decided to slightly realign the route.”
SGR cargo train. FILE PHOTO | NMG
Construction of the 272km Malaba-Kampala SGR section, part of Uganda’s planned 1,700 km of electric rail line connecting to all pockets of the country, is set to begin in November with a completion timelines of 48 months.
Other planned lines are, the northern 465km Tororo-Gulu-Nimule line connecting to South Sudan, the 383km Kampala- Bihanga-Kasese - Mpondwe at the DR Congo border, and the 280km Southern line from Bihanga - Mirama hills to Rwanda.
With a capex of nearly Shs11trillion, the SGR joins the bracket of government’s big-ticket projects that have compounded the country’s pile of debt stock. The most expensive infrastructure project undertaken this far is the $1.4 billion (Shs5.1 trillion) Karuma dam and associated three interconnection lines funded by the Chinese government.
As at June 2024, public debt stood at Shs95trillion ($25.7 billion). Of this, external debt stood at $7.1 billion (Shs27.7 trillion) and $11.3 billion (Shs41.3 trillion) as domestic debt.
The Deputy Secretary to Treasury, Mr Patrick Ocailap acknowledged that “debt is going to increase at a managed rate” but was quick to add that “you cannot refuse to sleep because you are going to get nightmares.”
“These numbers you are quoting are part of our 41/44 percent Debt to GDP ratio. The numbers are as they were at the time of reading the budget because we knew that we’re going to sign this (SGR) contract, pay for EACOP and related works in the oil project. So it’s not guess work; its calculated action to mobilise the money for these infrastructure projects to boost the export base,” Mr Ocailap argued.
Similarly, Mr Ocailap also defended the $3 billion (Shs10.9 trillion) project cost on account of inflation and the changed terrain of the post-Covid-19 financial architecture.
He added: “The construction of the SGR has taken time in negotiations and acquisitions of right of way, and financial closure. When Covid-19 struck the financial architecture went through the room. You could see crazy interest rates; rates of 10 percent on a dollar, from as low as zero. We had instances where banks were begging on taking money at 0.01 percent, but that was then.”
Connection to nowhere
He, further, revealed that to-date government is still unsure why Exim Bank cold-shouldered the project that was once billed to unlock regional interconnectivity.
“The piece of work they (yapi) did in Tanzania was quite impressive. So we think they are now better partners…up to 30 percent will be by our local contractors ... .and without steel and iron…you can see that kind of integration that will take place,” he added.
While both Messrs Wamburu and Ocailap maintained that the Treasury will pick the tab of $3 billion (Shs10.9 trillion) for the project, they remained guarded on the financing mechanisms of raising the money.
During the budget reading in June, Finance minister Matia Kasaija allocated “maintenance of roads, building of a few new strategic roads, accelerated rehabilitation of the Metre Gauge Railway, and commencement of construction of SGR” Shs4.9 trillion.
Speaking last Tuesday during the FY2024/2025 quarter two releases, the Secretary to Treasury Ramathan Ggoobi announced releasing Shs479 billion (Shs1.7 trillion) for the SGR, including to fast-tracking acquiring of the project right of way said to be at 58 percent.
Tanzania's new electric multiple-unit (EMU) trains. PHOTO | COURTESY
Sources close to the discussions told Monitor at the weekend that the government was going to copy and paste the Tanzanian model of tapping into multiple loan sources to raise the $3b. Tanzania turned to among others Credit Suisse, Eastern and Southern African Trade and Development Bank, and Standard Chartered to finance the first 1,090km sections of SGR. It is also worth noting that the 1,090km were not as pricey as Uganda’s 272km section.
“Be comforted that this project is being done by the government. The agreement all along was that each country was going to finance its section of SGR,” Mr Wamburu noted.
As Uganda prepares to break ground for construction next month for the Malaba-Kampala section, across the border Kenya is yet to embark on the 107km Naivasha-Kericho-Malaba section at a cost of $1.7 billion (Shs6.2 trillion) linking to Uganda
Kenya’s first phase of the SGR running472km from Mombasa port to the capital Nairobi was completed in December 2016, followed by the 120km Nairobi to Naivasha line at a cost $1.7 billion (Shs6.2 trillion).
Kenya also plans to construct the 266km line from Naivasha connecting to the Kisumu port at Lake Victoria.
The state minister for Regional Affairs John Mulimba told Monitor last week that they have secured sufficient assurances from Nairobi about completing the pending sections.
“In May this year there was an NCIP summit and sufficient assurances were floated and in that regard Kenya has gone as far as securing a contractor for the Naivasha-Malaba line and Kisumu line,” Mr Mulimba said.
He added: “We are pretty much convinced this time…much as there have been many dynamics since Covid-19 came. But we are pretty sure we are on the same page.”
Both the Kenya and Tanzania SGR lines are aimed at connecting landlocked Uganda, Rwanda and South Sudan, through a multi-modal rail water transport across Lake Victoria. But to sync with Tanzania’s railway-ferry route development at Mwanza, this means Uganda has to advance its earlier plans to developing the proposed port at Bukasa, Wakiso district and also expand Port Bell. The Bukasa port development plan before it gathered dust was $180 million (Shs656.5 billion).
Mr Mulimba said regional leaders are fully committed to this logistical interconnectivity of East Africa so it makes sense for the planned SGR network to connect to northern Tanzania at some point.
“The target is to facilitate trade and facilitate logistical connectivity within the region….so northern Tanzania is key,” he added.
PANORAMA: Uganda signs $3B deal for Standard Gauge Railway construction
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PANORAMA: Uganda signs $3B deal for Standard Gauge Railway construction