Kenya recently launched its high-capacity, high-speed standard gauge railway (SGR) for passenger and freight transportation, which currently runs from the coastal city of Mombasa to the capital city, Nairobi. The SGR replaces the meter gauge railway passenger line that was constructed during the British colonial period that was commonly referred to as the lunatic express.
The Kenyan SGR is part of a proposed wider regional network for the development of railway connecting Kenya, Uganda, Rwanda and South Sudan. Each of these countries is expected to develop the part of the railway line falling within its borders. Kenya is ahead of the pack, being the first country in the region to operationalize the SGR.
SGR is the country’s largest infrastructure project since the country gained independence from the British colonialists in 1963. From a public-private partnership (PPP) perspective, the SGR is a unique project for various reasons:
1. Procurement method for the construction of the SGR, as well as supply and installation of rolling stock
The procurement for the construction of the SGR and the supply and installation of the rolling stock marked an interesting turn in the manner in which some major infrastructure projects are procured in Kenya. SGR marked the introduction of what is now commonly referred to as “government-to-government,” procurement, where the law allows projects financed through concessional loans and grants from foreign governments to be exempt from Kenyan procurement law. Terms and conditions imposed by such concessional loans and grants were therefore not subject to the procurement law.
This was controversial. The Law Society of Kenya filed a case in the Kenyan High Court challenging the procurement method used for the SGR, citing lack of competition as one of the grounds for the challenge. The construction of the SGR was funded through a concessional loan from the Exim Bank of China, which required that the engineering, procurement and construction contract be awarded to a specific state-owned Chinese corporation. The court ruled that the procurement was proper, recognizing government-to-government procurements arising from negotiated grants or loans as being exempt from the application of the procurement law, thereby setting a precedent in this regard.
This procurement method is however not unique to Kenya. Early this year for instance, it was reported that Britain and Iraq had entered into an arrangement wherein Britain would advance 10 billion pounds in loans to finance infrastructure projects in Iraq over a 10-year period. One of the conditions of the loan was that it would only benefit British companies. Government-to-government procurements are however not necessarily a bad thing, provided the procurement meets the requirements of a viable PPP infrastructure project, which in the case of Kenya includes affordability, value for money and appropriate transfer of risk to the private party. Whether or not the Kenyan SGR is affordable and offers value for money however, has been subject of debate. Time will tell whether the investment in the SGR was worthwhile.
2. Procurement method for the operator of the SGR
During the 13th Summit of the Nothern Corridor Integration Projects (NCIP), an initiative of Kenya, Uganda, Rwanda and South Sudan aimed at promoting integration by fast tracking regional projects for the benefit of citizens and the development of the region, the heads of state of these countries resolved that the Chinese firm that constructed the SGR would be appointed to undertake the operation of the railway line. Kenyan law currently allows procurements under bilateral or multilateral agreements between Kenya and any foreign government, entity or agency to be exempt from the application of the procurement law.
In accordance with the resolution made during the 13th Summit of the NCIP, therefore, Kenya appointed the same Chinese firm that constructed the SGR to operate the railway line. During Kenyan President Uhuru Kenyatta’s visit to China in May 2017, the Chinese Government approved Kenya’s request for an additional 369 billion Kenyan shillings (~$3.59 billion) from the Exim Bank of China for the construction of the next phase of the SGR, which is expected to extend to Kisumu, the port city on Lake Victoria.
The timelines for completion of the entire SGR network is however still unclear as some of the countries that are part of the SGR network have not yet began implementing the project in their countries.
While the SGR marks an important milestone in Kenya’s infrastructure space, it also tested the government-to-government procurement method for major infrastructure projects and it will be interesting to see whether this procurement method is adopted for other major infrastructure projects, particularly regional projects, which would otherwise face procurement challenges arising from the different procurement laws across the different states.
In determining the procurement method to be used for such projects however, the requirements for a viable PPP project should not be dispensed with, and if the government-to-government procurement method does not meet the cut, other options should be considered.
Source; World Bank
Author: Cynthia Olotch