KENYA – The Kenya Railways Corporation (KRC) has begun a gradual takeover of operations on the standard gauge railway (SGR) from Chinese firm Africa Star Railway Operation Company (AfriStar) amid concerns of high costs of keeping trains moving.
KRC board chairman Omudho Awitta said the corporation has already assumed ticketing, security and fuelling functions on the SGR passenger and cargo trains as part of a deal to fully run operations on the Chinese funded and built track by May next year.
“KRC has not terminated its contract with Africa Star Railway Operation Company (AfriStar). We have negotiated so that we take over the running of the standard gauge railway (SGR),” said Mr Awitta in response to the Business Daily queries.
“The contract between the two parties was to run for 10 years from 2017 with provision clause for review in the fifth year.”
Kenya Railways contracted AfriStar, a subsidiary company of China Road and Bridge Corporation (CRBC), to manage SGR operations and maintenance under which the operator has the right to manage the ticketing system and any associated software and hardware.
The Kenyan government in 2020, however reached a deal with AfriStar to take over operations and maintenance by May 2022 and the gradual takeover was set to commence in July 2020 with some functions handed over from March 1, 2021.
“From March 1, 2021 KRC has taken over all staff working on ticketing function,” Mr Awitta said.
“KRC has not terminated its contract with AfriStar. We have negotiated so that we take over the running of the standard gauge railway ”
Omudho Awitta – Chairman, Kenya Railways Corporation
The cost of operating the SGR has been a concern with data by the Kenya’s Transport Ministry showing that the country spend an average of US$9.1 million per month on the operations of the Mombasa-Nairobi railway alone.
However, the cost could go up to US$16.4 million due to items such as the price of lubricants and fuel, loading and unloading fees, maintenance charge and other management fees.
Revenue collection by AfriStar has nevertheless trailed expenditure exposing the public coffers to a huge bill for sustaining operations.
In the three years to May 2020 the SGR posted a combined operating loss of US$197.7 million with a revenue of US$228.2 million over the period against operational costs totalling US$426 million, a gap that the Treasury has to plug.
The operation loss has already caused KRC to default on an estimated US$364.8 million pay-out to AfricaStar.
The SGR operation agreement requires the government to foot a fixed service monthly payment, which is paid quarterly in advance at a rate of US$28.8 million.
Apart from the operating fees, Kenya is obligated to honour repayment of the US$3 billion it borrowed for the project from the Exim Bank of China in May 2014 and started repaying last year after expiry of the five-year grace period.
Liked this article? Subscribe to DealStreet Africa News, our regular email newsletter with the latest news, deals and insights from Africa’s business, economy and more. SUBSCRIBE HERE
