Transporters face a massive cut in business under the terms of a controversial financing deal for the standard gauge railway agreed between
A report tabled by the House committee on Transport, which investigated the agreements, shows that the Sh448 billion line will be protected from road transporters, especially for goods passing through the Inland Container Depot (ICD) at Embakasi in
"An appropriate policy directive will be issued by the government to ensure freight is shifted from road to rail transport," Treasury secretary
Under the agreement
"KRC and KPA signed the 'Take or Pay Agreement' whose main objective is to guarantee minimum cargo that will be transported using the rail with a view of ensuring that there are enough resources to repay the loan,"
This is meant to guarantee that the line will raise adequate revenues to help service the Sh327 billion loan. But it is expected to stoke debate over whether the line should be given protection even after importers started paying the 1.5 per cent duty on all imports for domestic use to finance it.
The duty raised Sh10 billion in the first half of the year against a target of Sh6.2 billion.
The committee chaired by Starehe MP
READ: MPs approve award of rail contract to Chinese firm
Phase one of the project will be undertaken through concessional loans amounting to
"As part of negotiations between the governments of
"Under the agreement, it will not be a problem of KPA and its employees to repay the loan. It will be the responsibility of the government and to this end the government will utilise money from the
Another condition of the loan is the creation of an escrow account into which revenues from the new railway operations will be deposited and from which loan repayments will be drawn.
"The cash flow from the fund will also cover other obligations in the project such as land acquisition, supervision consultancy, loan insurance, commitment and management fees," the minister says in the report. These are estimated at Sh120 billion, including interest over the term of the loan.
The Treasury says the railway will help reduce the cost of transportation, protect the environment through reduced carbon emission, and accelerate
industrialisation as new industries are set up to service the railway.
It expects this to spur GDP growth by an additional 1.5 percentage points per year.
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