However, amid signs of a regional trend towards liberalising or opening up networks for private participation, governments are increasingly likely to look at private rail operations, concessions and other forms of privatisation for future development, in order to generate economic benefits from the new assets.
Currently there is limited capacity to operate the networks, and East African governments have limited budgets for further infrastructure development. In a recent report (202-page / 7.5MB PDF), the Development Bank of South Africa (DBSA) identified poor condition of rolling stock and the absence of a supporting institutional framework as contributing to this situation.
Before we look at some of the options for private participation in the sector to address these issues, we review East African rail investment over the past decade.
East Africa's rail push
Much of the impetus for the push towards investment in East African rail arose from the East African Community’s (EAC) East Africa Rail Sector Master Plan published in 2009. According to the report decades of decline, along with a predominantly narrow gauge network limiting capacity, have led to a virtual collapse in freight rail’s market share in East Africa.
The plan set out an ambitious series of expansions and upgrades, aimed particularly at realising the significant market potential in fully connecting the various EAC member states, and allowing movement of freight rail from inland to key ports such as Dar-Es-Salaam and Mombasa.
It identified several key projects, which are currently at various stages of development. Some portions of the Dar Es Salaam-Isaka-Kigali/Keza-Musongati Railway Line, driven by the Rwandan and Tanzanian governments, have been completed or commenced construction and a number of other phases are in procurement. Other sections are on hold due to financial issues.
The Uvinza-Bujumbura Line, which connects Burundi to the Tanzanian rail network along the Kigoma-Tabora line, is progressing. Although there is currently no advanced stage of this line to Bujumbura, the Uvinza-Msongati cargo line is currently well into planning and will connect Msongati in Burundi to the Tanzanian network.
The Bihanga-Kabale-Kigali Line, intended to link Rwanda to Uganda and then on to the Kenyan rail network, was also outlined in the master plan, although it seems to have stalled.
Big spending by EAC governments
The master plan identified Rift Valley Railways (RVR) in Kenya and Uganda, and Tanzania Railways and the Tanzania-Zambia Railway Authority, as the major drivers for spending on the initial rehabilitation of main lines; investment in future track capacity; and upgrading and restoring branch lines.
The anticipated investment across Ethiopia, Tanzania, Kenya and Uganda has materialised to varying degrees. This has primarily seen connections to ports and lines nearer the East African coast being developed. Inland lines have been harder to jusitify from a passenger and business case.
For example, in Kenya the Mombasa to Malaba Standard Gauge Railway Line was completed in 2017. A further extension between Nairobi and Naivasha was completed in 2019 for a total investment of US$4.85 billion. The project was primarily funded by a China Exim Bank loan with the balance funded directly by government, although after significant losses the Kenyan parliament has recommended renegotiation of the loans.
Similarly, Ethiopia concluded extensive development and expansion of its network on the basis of China Exim Bank funding, with some portions of the expansion coming online in 2016 and other phases now nearing construction completion.
Ethiopia, which has had continued strong economic growth despite a difficult climate, has recently also announced further rail sector investment as part of its 10-year development plan to 2030. These investments are likely to be based on a public-private partnership (PPP) model with the African Development Bank to provide grant funding.
On the other hand, Uganda and Kenya have been hampered by China Exim Bank moving away from funding of standard gauge railway in recent years, a move which has also seen rail links, new lines and further extensions to Kenya's standard gauge line being delayed. The financing issues experienced by Kenya and Uganda on the standard gauge railway lines have resulted in a new push for the rehabilitation of metre-gauge railways to access the Northern Corridor and inland areas including the Democratic Republic of the Congo (DRC) and Sudan.
In Uganda, construction has now commenced on the upgrading of the metre-gauge Tororo to Gulu Line which has been out of commission for 20 years and will link Mombasa with eastern and northern Uganda, DRC and Southern Sudan. This line has combined funding from the Ugandan government and an EU grant.
Tanzania has led strong investment in the rail sector, with the first two phases of the Dar Es Salaam-Isaka-Kigali line and new Dar-Es-Salaam to Mogoro line at or near completion.
Opportunities for an innovative private sector
The Master Plan identified public-private partnerships as a key mechanism for delivering the above rail infrastructure investment.
Although not strictly procured as regulated PPPs, many East African rail projects featured participation of Chinese contractors funded by the China Exim Bank through the provision of export credit finance. However, the reliance by Kenya, Ethiopia, Uganda and Rwanda on funding from China Exim Bank has resulted in a two-fold issue. On the one hand, ongoing funding for rail expansions has largely dried up with Chinese funding cooling; and on the other, governments are still faced with significant debt repayments for the lines which have already been developed, even though financial performance of these lines have not met expectations.
As a result, these states may look to greater private sector participation not just in the construction but also in the operation of track infrastructure. We review these mechanisms in East Africa rail: options for private sector participation.
Co-written by Reuben Cronjé of Pinsent Masons, the law firm behind Out-Law