Mbadi: Malaba SGR extension aims to shun external debt

The government is pursuing creative financing options to extend the Standard Gauge Railway (SGR) from Naivasha to Kisumu and to the Ugandan border at Malaba without relying on new debt from China or other external lenders.

Treasury Cabinet Secretary John Mbadi said earlier this week the railway line from Naivasha to Kisumu would cost about $3.3 billion (Sh425.7 billion).

A further extension to Malaba would bring the total expenditure to $5 billion (Sh 645 billion). He said the government plans to raise this through fundraising, without adding new debt for Kenyans.

The National Treasury distanced itself from claims of fresh engagement for Chinese financing of the railway line from Naivasha to Kisumu and Malaba, noting that the extension will also rely on key funding vehicles, such as domestic revenue tools like the securitisation of the Railway Development Levy (RDL), rather than fresh external loans

The government projects raising part of these funds from interest from the National Infrastructure Fund.

“We did not engage with China to finance or fund the railway from Naivasha to Kisumu or Malaba,” Mbadi said, adding that the ongoing engagement with China’s Exim Bank has ring-fenced the Railway Development Levy Fund (RDLF) for railway infrastructure, including debt servicing for existing loans from China’s Exim Bank for the Mombasa-Naivasha phase.

Economists who backed this as a possibility pointed out the missing billions of shillings collected from the railway development levy. They reckoned that the economic viability of the SGR remains hard to gauge, as profit margins remain opaque, with national data only reporting accounting figures.

The Railway Development Levy, introduced in 2013 primarily to fund the construction and development of the Standard Gauge Railway (SGR) and related infrastructure, generates approximately Sh50 billion every year from customs.

Negotiations with China’s Exim Bank aim to waive a clause tying RDL proceeds to repaying existing SGR loans, freeing the levy for new bonds, potentially with a 15-year tenor. The RDL was initially charged at 1.5 per cent of the customs value on all goods imported into Kenya for home use. In 2024, through the tax amendment laws, it was increased to two per cent.

Economic analysts, however, question the viability of the funding model, raising concerns about the whereabouts of the billions of shillings collected from the levy each year. They back that with the RDL estimated to have raised Sh277 billion in the last 11 years, with an average annual collection projected to be Sh40 billion to Sh50 billion; the country should be able to fund railway infrastructure. However, the figures do not add up.

“In theory, it appears Kenya can easily fund its railway infrastructure by optimising the line and effective expenditure management. However, all indications are that even the existing loan repayments are being funded outside the RDL collections,” economist Patrick Muinde said. “The question is: where are all the billions from RDL going each year?”

In 2017, Kenya’s flagship modern rail line, spanning 472 kilometres from Mombasa through Nairobi, financed largely by loans from China Exim Bank, was opened. The government of Kenya covered 10 per cent of the total cost.

The second phase was a 120km route from Nairobi through Naivasha or Suswa. The total distance of the Sh477 billion rail line was 592km.

Phase one of the construction started in 2014, costing Sh327 billion. Phase two kicked off in 2016 and resumed operations in 2019. Both were constructed by the China Road and Bridge Corporation.

The rail line is operated and managed by Afristar for maintenance and operations under contract. Economists now say it is difficult to evaluate the economic sense of the SGR, as while revenue growths are reported, data on operating costs or profit margins remain vague.

“Due to the opaqueness of the actual costs, inclusive of debt structure and the leasing agreement with the Chinese operators, it is not yet clear to the public as to whether the SGR has managed to break even or turn profitable,” economist Muinde said.

He adds that, with no consequential growth on related economic activities at Suswa and the last-mile costs for cargo, the overall economic impact of the line diminishes significantly.

Mbadi pointed to the emerging National Infrastructure Fund (NIF) as a potential source. “Of course, NIF is also coming up. And we will consider if part of the funding can come from national interest.” The CS noted that Kenya has serviced existing SGR loans through regular budget provisions, reducing pressure on the levy.

John Mbadi has revealed that the government has an engagement with Exim Bank to raise funds for the extension. Proceeds from the RDL service, China Exim loans and fund maintenance.

He said the loan clause in the agreement with Exim Bank ties the railway development levy to the loan. “It should also be noted that the government of Kenya has been paying this loan from our normal budgetary provisions,” Mbadi said.

“The railway development levy would raise Sh258 billion ($2 billion),” Mbadi said, adding that the contractor building the rail has committed to putting in Sh64.5 billion ($500 million).

The Treasury Cabinet Secretary outlined the strategy during a recent briefing, emphasising domestic revenue levers and contractor contributions to advance the long-stalled project.

He clarified that the extension aims to complete the rail corridor linking the port of Mombasa to regional markets.

As negotiations with China’s Exim Bank continue to untie the levy from prior obligations, the government positions the extension as a commercially viable step toward integrated infrastructure. Its progress, however, hinges on the securitisation success and contractor commitments.

In 2025, official data from the Kenya National Bureau of Statistics show that SGR revenue hit Sh21.4 billion, with freight and cargo raising Sh16.6 billion while passengers raised Sh4.8 billion.

The report released in early 2026 also showed that passenger numbers went up, generating more income. Historically, the SGR has been criticised for running at a loss relative to loan repayments.

The commercial viability of original SGR designs was pegged on a line traversing three EAC countries, Kenya, Uganda, and Rwanda, to link Mombasa all the way to DRC, but when Uganda and Rwanda pulled out, the Chinese declined any further extensions from Suswa based on commercial viability.

Economists now say that a lot of questions emerge on the viability of the rail line. “What has changed in the past five years to make the extension commercially viable?” Muinde asked.

According to Muinde, the reason Uganda and Rwanda pulled out was corruption padded on the project that was being passed to them. This raises serious questions about the return on investment.

“Earlier comparative analysis with the Ethiopian line projected the Kenyan line as a complete rip-off for Kenyan taxpayers. Have any remedial measures been undertaken in the pricing model for the new extension, or is it a case of new monkeys (cartels) joining the feeding trough?” Muinde.

“On a cost-benefit analysis, railway lines are commercially viable for cargo haulage, not passengers. What cargo will the trains haul back to Mombasa from the hinterlands?” he added, noting that one-way cargo haulage has made the line uncompetitive in pricing compared to truckers.

He pointed out that recent price increments on passenger tickets have resulted in declines in passenger numbers, even though overall revenues have increased minimally.

“This indicates tight pricing market conditions for SGR and highly price-sensitive consumers,” noted Muinde.