Making SGR catalyst for economic growth

Business Daily Kenya:  Cost effectiveness and operational efficiency are going to be crucial in ensuring the recently launched Standard Gau...

Business Daily Kenya: 

The Standard Gauge Railway passenger train ride comes to a stop at the Mombasa Terminus. The SGR tops the list of major infrastructure developments the government is leveraging on to drive growth. Photo/AYUB MUIYORO

Cost effectiveness and operational efficiency are going to be crucial in ensuring the recently launched Standard Gauge Railway (SGR) achieves its great promise of being a game changer in the country’s economy.

The first dynamic is the time factor. There are certain goods that are perishable, especially agricultural products, and SGR will make access to markets faster. Passengers will also now move faster between destinations, and so have more time.

The second issue is cost efficiency. Transporters will now take advantage of technology in cost reduction. For them, the key is that it will cost less to move a tonne of cargo. Further, there are substantial savings to be made.

One is reduction in fuel. In SGR, fuel efficiency is very high at between 35 and 50 per cent. Maintenance costs will be brought down because of the nature of infrastructure. Because of the expected substitution of road transport with SGR, usage of tyres by trucks will go down.

Tyre replacement is one of the major costs in transport, and this will result in substantial savings to the economy. Also, the substitution will see an estimated reduction of at least 30 per cent in fuel used by trucks as haulage shifts to SGR, a further saving to the economy. The next dynamic is the axle factor.

SGR gives Kenya Railways the opportunity to increase the load that can be carried on the trains. According to experts, if you can increase the throughput of one wagon, then that’s an advantage.

Currently, SGR has an axle load capacity of 25 tonnes, but this can gradually be increased to 32 by merely adding onto the ballast base of the track. Compare this with the metre gauge which has an axle load of 18 tonnes.

The fourth dynamic is alignment. The metre gauge railway was built over 100 years ago. Because of the level of technology then, the train could not pull cargo up gradients, and therefore, had to meander.

SGR has the major benefit of alignment, which has introduced gentler curves. It is, therefore, able to operate at higher speeds. The benefits arising from all these advantages must be translated into tangibles in terms of travel costs and travel time. How, then, does Kenya Railways ensure that these benefits are realised?

Already, for passengers, cost of travelling between Nairobi and Mombasa is Sh700 for economy class. This is much lower than the average Sh1,200 by bus. Also, the travel time has been cut down by half to four hours. As for freight, experts say costing will be critical to realisation of these benefits.

They state this should not be a cost recovery for the value of building the railway. According to one expert, “this is fundamental.” They note that the cost of road haulage has nothing to do with the cost of building the road.

And so, to provide the SGR with a level playing field vis a vis road transport, the cost of haulage must only be predicated on the cost of rolling stock, and running costs.

“The track is a sunken cost,” and capital costs are undertaken by the Government. The benefit of the SGR is that since 30 and 40 per cent of goods (both exports and imports) are channelled through the system, it has the capacity of reducing the cost structure across the entire production system, reducing local prices of goods, and making Kenya’s goods more competitive internationally.

The key issue for Kenya Railways, therefore, is how to reduce costs, as well as maintain operational efficiency. Herein lies the challenge, and so “the work has just begun.”

The experts state that to ensure SGR works, competition needs to be introduced, and it must be robust enough across the rail, road, and pipeline systems.

The Government must be able to balance these systems, and so there are policy issues for them to consider. Experts have called for tariffs to be balanced so that some road competition is maintained.

If this option is not available, they are calling for a second option where there is regulated access that allows two operators to compete on the SGR.

To enable this to happen, an independent rail manager who does not do operations will be critical to separate infrastructure from operations. Further, measures must be put in place to ensure the two operators do not have price collusion. This is the model that has been employed in the US and Canada to huge success.

The post Making SGR catalyst for economic growth appeared first on Mediamax Network Limited.

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