NAIROBI, Kenya – Kenya is now pushing China to shoulder the entire cost of extending the standard gauge railway (SGR) from Naivasha to Malaba, abandoning an earlier financing model that required Nairobi to raise 30 percent—equivalent to Sh174 billion—of the Sh581.6 billion ($4.5 billion) project.
Treasury Cabinet Secretary John Mbadi confirmed the shift, citing growing public spending pressures and a shrinking revenue base that have made it “impossible” for the government to contribute to the mega infrastructure project.
“We are looking at a model of procurement where we get funding exclusively outside of government,” Mbadi told Nation, revealing that the previous plan—where China Road and Bridge Corporation, China Development Bank, and China Exim Bank would each contribute 30 percent, Kenya another 30 percent, and a consortium the remaining 40 percent—is now off the table.
The reversal comes amid deepening fiscal strain. Kenya is grappling with ballooning public expenditure driven by newly signed collective bargaining agreements, the rollout of universal healthcare, and education reforms.
Meanwhile, the collapse of the Finance Bill in mid-2024—following deadly protests—sank hopes of aggressive tax expansion and left Treasury scrambling for alternatives.
“We’re facing competing demands, and unfortunately, we’re not in a financial position to proceed under the original arrangement,” Mbadi said.
The SGR extension, a 369-kilometre line connecting Naivasha to the Ugandan border town of Malaba, is seen as vital to unlocking trade with landlocked neighbors including Uganda, Rwanda, and the Democratic Republic of Congo.
These countries are developing their own SGR networks, and Uganda has reportedly urged Kenya to expedite construction on its end.
The SGR was initially pitched as a transformative regional trade corridor.
But the project stalled in Naivasha after the completion of the Mombasa–Nairobi section, which China financed.
The abrupt halt drew criticism, with some opposition leaders branding it “a railway to nowhere.”
To keep momentum, the National Treasury had earmarked Sh16.5 billion in the 2025/26 budget to kick-start the extension.
But officials now admit that without new financing, delays are inevitable.
Kenya had previously floated the idea of using domestic revenue, including revising the Railway Development Levy, and setting up a special purpose vehicle (SPV) to hold project assets.
This would have limited borrowing but required legal changes. That option, too, has now been shelved.
China, meanwhile, has expressed concern over the project’s ability to generate returns.
With Kenya’s outstanding debt to Beijing standing at Sh692.6 billion as of December 2024—much of it linked to the Mombasa–Nairobi line—Chinese lenders are reportedly demanding stronger guarantees of revenue recovery.
The funding rethink follows a recent meeting in Beijing between President William Ruto and Chinese President Xi Jinping, where the two sides agreed to review SGR-related laws, policies, and operational standards.
While official statements focused on regulatory cooperation, sources say financing for the Naivasha–Malaba leg was high on the agenda.
So far, no definitive timeline has been set for completing the SGR extension, which will require Sh380 billion to reach Kisumu and another Sh122.9 billion to stretch from Kisumu to Malaba.
“We’re still exploring different models—PPP, concessional loans, anything viable,” said Mbadi. “The Ministry of Roads and Transport will bring the final proposal to the Treasury.”
