Setting records straight on SGR: Where additional costs came from


Opposition leader Raila Odinga has claimed the cost of building phase one of the Standard Gauge Railway (SGR) was Sh220 billion and not the Sh327 billion spent by the Jubilee administration.

Mombasa Governor Hassan Joho, one of Raila’s most loyal foot soldiers, even threatened to stop the inaugural passenger ride last week over its cost.

But President Uhuru Kenyatta and his deputy William Ruto have denied claims of exaggerated costs. Meanwhile, both sides of the political divide have laid claim to the project Uhuru is pegging his re-election bid on.

The Standard set out on an investigation that involved several people, including main architect Jimmy Wanjigi, and various documents relating to the project.

On August 12, 2009, an MoU was entered into between Kenya and China Road and Bridge Corporation (CRBC) that said the company would undertake a feasibility study for phase one of the railway, between Mombasa and Nairobi. The Chinese firm also agreed to do design works free of charge.

Ministerial statement 

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Raila has maintained SGR was a project of the Government of National Unity, also known as the grand coalition. A ministerial statement seen by this paper suggests former President Mwai Kibaki met Uganda’s Yoweri Museveni on October 28, 2008, regarding the SGR. The statement, dated February 2014, was signed by then Transport Permanent Secretary Nduva Muli.

It was agreed that the two countries would build the SGR, linking the Mombasa port to Kampala with a branch line to Kisumu and Pakwach.

This commitment was important because initial projections showed SGR would be a white elephant if Kenya did it alone.

Mr Wanjigi, a prominent businessman, had helped to introduce CRBC officials to the Government. Together with a team in his Westlands office, they came up with a plan to get Kenya a modern railway line. Part of the team was then CRBC General Manager Du Fei.

Wanjigi and Du Fei were “very good friends’”

Wanjigi’s initial plan was to get a Chinese company to do a Build Operate and Transfer (BOT) project for the Government. In such a transaction, the contractor funds and builds a project then operates it until it he gets his money back before handing it over to the owner.

If he got the clearance he needed from Raila, the second most powerful official in the coalition government, Wanjigi would have pushed the deal through.

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There was a strong case for building a modern railway as the old line, linking Kenya to Uganda, was developed more than 100 years ago. It had serious limitations in terms of technology and capacity.

In 2012, for example, the line had only handled 0.9 million tonnes compared to the Mombasa throughput of a massive 22 million tonnes. The initial plan was that CRBC would build the SGR then allow other players to take over.

“The CRBC was only expected to lay the track. The rolling stock (wagons and trains) was to be done by another group. There was a suggestion that large transporters would come up as a consortium to operate the railway or buy the wagons,” one source said.

Before he was moved from Nairobi, Du Fei and Wanjigi had developed a working relationship. But this relationship would later be put to a major test when the deal matured.

“Du Fei and Wanjigi were the main men at the start. Problems began when they felt they were losing control of the project and accused the Government of hijacking it,” said the source.

The CRBC boss was transferred to Angola and replaced by Li Qiang. Things began to change. None of those initially involved remained in charge.

In 2012, things started falling apart as everyone positioned themselves to have influence in the next government. Wanjigi switched his alliance from Raila and placed his bet on Jubilee given they had made building a modern railway a main campaign point in their manifesto.

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After completing the feasibility study, the Chinese company wanted to remain part of the action and became “a little greedy”, which “fuelled the undercutting that followed”.

Wanted everything

“Now they wanted everything. After seeing challenges the Government would face before making the railway line profitable, they decided to offer a loan, build it and let Kenya handle the rest. This is what turned the project from what it was initially into a loan,” said a former top Government official who did not wish to be named.

“A lot of action happened in 2012. There was uncertainty. So it was important that the contract was awarded before the next government was formed. A lot of money was going around to ensure that this happened. This was also the best time for politicians to strike deals,” said the source.

The letter of award for the civil works was written on July 10, 2012. Mr Muli, then the Kenya Railways Corporation (KRC) boss, said KRC would be “Government’s representative” for the project.

The Chinese firm wrote back on the same day, accepting the award: “This refers to your letter of award… awarding the above captioned project to our company. We hereby give a formal unconditional acceptance of the award,” wrote Qiang. The tender amount was Sh220.9 billion.

This amount did not include supply of wagons.

“We take this opportunity to convey our appreciation for the award of the contract, and look forward to signing the commercial contract at the earliest time possible,” the acceptance letter read.

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A week later, KRC set up a nine-member team to discuss details of the deal.

“This is where additional costs started piling up over the terrain, quality of materials and required approvals,” a brief by the budget office of Parliament says.

During this meeting, chaired by a Mr Solomon Ouna, it was decided CRBC would also supply locomotives. Some of the KRC employees who attended the meeting were Alfred Matheka, David Mwadali, Marianne Kitanu and Stanely Gitari. Representatives from CRBC were Yang Jie, Xiong Shi Ling, Mo Yong Nian and Zhou Yi Hua.

The initial contract limited CRBC to civil works. But the firm was handed another Sh95 billion to supply the trains and wagons, on top of the initial Sh220 billion contract.

The Government also gave the Export-Import (Exim) Bank of China a guarantee the railway line would control at least 35 per cent of the cargo business from Mombasa.

The CRBC would build the railway line and buy wagons and trains. It would also supervise itself and operate the SGR through a subsidiary.

To insulate itself further, the company was to open a special account, known as an escrow account, where all the money collected from the railway would be deposited.

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