Wamburu said the Export-Import Bank of China had yet to respond to Uganda’s latest request for funding nearly two years after it was submitted, after previously responding immediately to Kampala’s proposals.

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

Uganda is also considering taking an alternative route to the coast through its southern neighbour Tanzania – where Yapi Merkezi is already building railways – in a move that could turn Kenya’s section of the Standard Gauge Railway (SGR) into a white elephant.

Kenya, Uganda, Rwanda and South Sudan agreed about a decade ago to build a high-speed SGR to carry freight and passengers between Mombasa and the South Sudanese capital Juba, via Malaba, Kampala and Kigali.

Kenya received US$5 billion from China Exim Bank to build the first phase of the railway, from Mombasa to Naivasha in the Central Rift Valley, which was completed in 2017.

But plans to extend the line to Malaba on the border with Uganda floundered amid accusations that China was engaged in “debt-trap diplomacy” in Africa. In 2018, Beijing expressed reservations about the financial viability of the extension and asked for a new feasibility study before it would release funding.

Meanwhile, Uganda’s southern neighbour Tanzania is making good progress on a 2,561km rail network between its Indian Ocean port Dar es Salaam and Mwanza on Lake Victoria.

Analysts say Kenya’s railway must reach landlocked Uganda – which imports many of its products via Mombasa – if it is to be commercially viable, but Kampala could be tempted by an alternative route to the coast through Tanzania, which was not part of the original plan for a regional railway.

02:09

Kenya opens massive US$1.5 billion railway project funded and built by China

Kenya opens massive US$1.5 billion railway project funded and built by China

Asked on Friday about the Ugandan deal’s termination, Chinese foreign ministry spokesman Wang Wenbin did not give a direct answer but said China and Uganda “have a comprehensive cooperative partnership and the practical cooperation between the two countries is a pacesetter for China-Africa cooperation”.

“Over the past few years, China and Uganda have conducted a series of fruitful cooperation on railways, hydropower stations, expressways, oil and gas development and infrastructure, bringing tangible benefits to the two peoples,” Wang said.

“China stands ready to work with the international community to continue to carry out infrastructure, investment and financing cooperation with African countries.”

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Tim Zajontz, a research fellow with the Centre for International and Comparative Politics at South Africa’s Stellenbosch University, said the decision not to fund the SGR extension from Naivasha to the Ugandan border and on to Kampala was the result of more risk-averse lending practices by China’s policy banks.

“Since 2017, the Chinese government has put in place more restrictive regulations for overseas lending to avoid further non-performing loans and unsustainable debt,” he said.

“Chinese policy banks now assess the macroeconomic situation in African countries more cautiously and realistically before dishing out loans to avoid political backlashes about debt which had started to damage the reputation of the Belt and Road Initiative.”

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Zajontz said the decisive factor for Kampala in cancelling its contract was the government’s failed attempts to secure funding for the project from China Exim Bank but there had also been political controversies in Uganda about its costs.

“In 2017, a parliamentary committee questioned the projected cost of US$2.3 billion, suspecting that non-competitive bidding and single-sourcing of material might inflate the project’s price tag,” he said.

Zajontz – who is also a co-editor on Africa’s Railway Renaissance, a book expected to be published in mid-2023 – pointed out that Tanzania’s railway and Kenya’s SGR at least partly compete for the same cargo markets in Uganda, Rwanda and the Democratic Republic of the Congo.

“Both projects should have been better coordinated at the regional level to ensure economically feasible and integrated project designs based on realistic trade projections,” he said. “Unfortunately, railway nationalism trumped regional planning and has caused the risk that one of the SGRs might end up underutilised.”

Railway to nowhere? Kenya starts cargo services on China-funded line

Zajontz said the long-term commercial viability of the Kenyan SGR would ultimately depend on the region’s overall economic growth which would determine whether there was enough demand for both rail links.

“SGR extension lines to Uganda, South Sudan, Rwanda and the DRC, as well as port efficiency in Mombasa, will be decisive for the long-term economic fate of Kenya’s SGR,” he said.

Operating only a segment of the railway line is hardly profitable enough to recoup the project’s massive capital expenditure, according to Zajontz, who also said it was unlikely that Nairobi would sign new loans to extend the SGR any time soon, considering Kenya’s fiscal situation.

“Chances that a private investor closes the SGR gap to the Ugandan border by means of a public-private partnership are equally slim,” he said.

“For the time being, the northern rail corridor is doomed to rely on the recently refurbished metre-gauge line between Naivasha and the Ugandan border as a makeshift solution.”

Chinese firms on track in Tanzania with US$2.2 billion railway contract

Mark Bohlund, a senior credit research analyst at REDD Intelligence, said China’s outstanding lending to Tanzania had fallen from US$2.6 billion in 2017 to just below US$2 billion in 2021.

“From a risk management perspective it makes sense for Beijing to finance the railway line there rather than increasing its financial exposure to Kenya and Uganda through the SGR project,” he said.

Chinese creditors lent Uganda US$2 billion between 2015 and 2020, mainly to build the Karuma hydropower plant, which is close to being commissioned.

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“This has left China with an already high exposure to Uganda and it is clear that further Chinese financing is needed to get the East African Crude Oil Pipeline off the ground,” Bohlund said.

But while having multiple operators working on the SGR increases the operational risk – as London’s Crossrail project has shown – Uganda’s only viable option in the near term is likely to be to move ahead with the project, because of growing concerns about debt sustainability, he said.

“Closing the deal will require the Kenyan SGR to be expanded to the Ugandan border and China may be called upon to finance this section.”