Uganda, Tanzania SGR line clear as Kenya derailed

KAMPALA, Uganda

Government of Uganda this week formally terminated the contract of China Harbour Engineering Company (CHEC) to build the country’s first phase of the standard gauge railway (SGR), a 273-km line from Malaba to Kampala, almost eight years after the project was launched.

Standard gauge railway (SGR) cargo train makes its way to the Mombasa Port from Nairobi 

The Chinese firm failed to convince Beijing to finance it so Kampala terminated the contract in November 2022, and has now opted for a different financing model with Yapi Merkezi of Turkey.

The Turkish firm which, incidentally, is building part of the Tanzanian SGR network, is expected to submit a response to government’s request for construction in the next few weeks, paving the way for procurement, said Uganda SGR Project Coordinator Perez Wamburu.

In June 2022, Uganda’s Attorney General Kiryowa Kiwanuka started to review CHEC’s contract after it became apparent that China Exim Bank – Kampala’s main infrastructure projects financier of the past decade – had grown cold feet on bankrolling the SGR.

“We read between the lines when China’s Ambassador to Uganda said that after the Covid-19 pandemic, China has become more cautious on financing big infrastructure projects in Africa. We all know that Covid didn’t leave economies of the world the same,” Wamburu said.

He explained that Uganda was forced to rethink its options and cast its net wider for other financiers when its last submission for financing to the Exim Bank went unanswered for nearly two years – a departure from the earlier practice when the Chinese responded to Kampala’s proposals within weeks.

“From the time of our last submission for financing in February 2021, we have heard only silence. After submission, we wanted for a few months, it was silence, and up to now, it’s still silence from Exim Bank,” he said.

Uganda’s SGR first phase, initially awarded to CHEC in 2015, starts from the Malaba border post, and was expected to cost $2.2 billion – 85 percent of which was to be borrowed from Exim Bank – but the lender held back funding and repeatedly asked Kampala to table new requests for financing.

At the back of the Chinese reluctance was doubt that Kenya would build its SGR – also funded by the Exim Bank – all the way from Mombasa to Nairobi, Naivasha, Kisumu and through to Malaba, to link with Uganda’s in order to make the project viable.

Uganda’s decision to ditch the Chinese changes the realignment of the region’s project financing to Western financiers, raising the question of whether Beijing’s Africa juggernaut – using infrastructure-led diplomacy to win over the continent against its Western rivals – is finally losing steam.

After hitting a dead end with China Exim Bank, Uganda is now in discussions with several Export Credit Agencies (ECAs) to bankroll its SGR project, with officials suggesting that Kenya will go the same route.

Tanzania’s project is bankrolled by Western lenders.