Pressure behind Govt’s demand that cargo be ferried via SGR


Pressure behind Govt's demand that cargo be ferried via SGR
President Uhuru Kenyatta makes an impromtu visit at the Inland Container Depot (ICD) in Embakasi. PHOTO| PSCU

In Summary

  • The government, through its respective clearance agents, made the pronouncement on the mandatory use of the SGR service by local importers starting Wednesday before pulling the plug on the directive on Tuesday.
  • The government is under pressure to effectively ‘make the line pay for itself’ hence the increased on-boarding of imported cargo.
  • The heightened liability pressure on the government comes as the five-year grace period on the settlement of the Ksh.324 billion SGR construction loan accruing to the Chinese Export and Import Bank (EXIM) nears an end.

The government’s recent directive on compulsory transportation of all import cargo from Mombasa to Nairobi via the Standard Gauge Railway (SGR) has elicited a lot concerns from traders.

The government, through its respective clearance agents, made the pronouncement on the mandatory use of the SGR service by local importers starting Wednesday before pulling the plug on the directive on Tuesday.

The directive, which now sits on the scrutiny tab of both the members of public and most recently National Assembly would have seen all cargo destined for the Kenyan hinterland forced onto the SGR service up to Nairobi.

According to Kenya Revenue Authority (KRA) Chief Manager for the Inland Container Depot (ICD)  in Embakasi, Rosemary Mureithi the target of the now abandoned directive entails the government quest for creating efficiency in the transport and logistics economic segment.

“The prompt is to bring efficiency into the logistics of moving cargo. This is the very purpose of the SGR project,” she said.

In the long run, the directive is to be adopted by long-haul truckers who move goods to the greater Eastern Africa region as the government moves to scale up its interior port infrastructure including the construction of a new ICD in Naivasha to serve Uganda and the operation of the revamped Kisumu depot.

Carrot and stick

The directive whose suspension has been pegged on the need for extended stakeholder engagement, is however being forced down the throats of importers who, under a free enterprise regime, have the option to choose their desired means of transporting cargo from the port of Mombasa.

“If you allow the option, there will be confusion. The government has set up hubs for the excellence of business. Why would we still want to go the other way,” KRA Commissioner for Customs and Border Control Kevin Safari posed to Citizen Digital.

While the quest for efficiency has been the standard government response to the deployment of the SGR service in cargo logistics, the State has found it hard going to raise revenues on the heavily funded railway.

Kenya’s debt stock to the Chinese state which has warranted concerns from entities such as the US Center for Global Development and Moody’s credit rating agency is estimated at nearly Ksh.700 billion at the close of 2018 and sits behind only Angola’s and Ethiopia’s on the continent.

Freight services which represent the line’s mainstay have greatly under-performed since launch in January 2018 as cargo importers stay off the service complaining of high transport charges.

The SGR sunk to a near Ksh.10 billion loss in its first year of operation with railway freight registering a dismal 3.5 million tonnes against a maximum carrying capacity capped at 8.76 million tonnes to end with rail revenues of Ksh.10.2 billion according to data from the Kenya Railways Corporation.

New data from the Kenya National Bureau of Statistics (KNBS) earlier this year would however poked holes at the railway corporation’s estimates revising down uplifted cargo to 2.9 million tons to significantly bring down revenue earned to Ksh.5.7 billion.

The government is under pressure to effectively ‘make the line pay for itself’ hence the increased on-boarding of imported cargo.

The heightened liability pressure on the government comes as the five-year grace period on the settlement of the Ksh.324 billion SGR construction loan accruing to the Chinese Export and Import Bank (EXIM) nears an end.

The State is expected to commence repayment for the non-concessional credit facility from the lender in January 2020 under the cloud of criticism from its development partners on bloated loan accumulation from the Asian economic powerhouse.

Free enterprise

While experts largely agree with the under-utilization of SGR to warrant a change in approach, industry analysts decry the intrusive directive while championing for adherence of free enterprise elements of demand and supply.

“Government should allow importers to chose the most viable option based on elements such as pricing and the estimated waiting period,” Transport allied economist David Nashon told Citizen Digital.

“The key thing here is time. Are importers actually willing to purchase the shortened time on the SGR service or would they rather wait?”

While truckers remain up in arms over the impending disruption to their routine trucking business, Mr. Nashon advocates for agility on the logistics stakeholders part seeing the continuation of the trade as an intermediary in last-mile connectivity.

Even so, Nashon lays emphasis on the extension of the SGR to Kampala, Uganda, denoting the noncompetitive, old and derelict Medium Gauge Railway (MGR) which currently sits as the only viable option of connecting the Kisumu port to the soon to be completed Phase II of the SGR to Kisumu.

The government is seeking to transition the majority of logistic activities on the Northern Corridor to the SGR service with the end goal of boosting freight uptake on rail while alleviating pressure on the key Mombasa port.

The transition, on current estimates, is expected to result in the accumulation of an additional 500 twenty-foot equivalent units (TEUs’) containers on a daily basis to 1500 TEUs’.

KRA already anticipates the strengthening of revenue collection from the current Ksh.600 million threshold to Ksh.1.1 billion.

While queries remain on the readiness of the ICDs’ to take in more cargo, the government has backed its upgraded storage capacity and per-arrival clearance to guide the rapid evacuation of importer goods from the inland facilities.

Importers will be required to clear their goods from the Nairobi inland depot within 21 days with non-adherence to the directive warranting the auction of goods through gazette notices upon the expiry of a 30-day term.

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Story By Kepha Muiruri
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