Kenya eyes trade benefits from planned Chinese-built railway

MOMBASA, Kenya (Reuters) - Kenya's president inaugurated the country's biggest ever infrastructure project on Thursday, pledging his support for the construction of a $13.8 billion Chinese-built railway that aims to boost regional trade and cut transport costs.

Construction is due to start shortly on the standard gauge railway that will link Kenya's Indian Ocean port of Mombasa to the town of Malaba on its border with Uganda. It will also be extended to Uganda, to Tanzania and by 2018 to Rwanda.

The railway is part of a package of deals worth a total $5 billion signed by Kenya and China during President Uhuru Kenyatta's state visit to Beijing in August.

The exact amounts to be invested in the railway project remain unclear but Nairobi has said China will provide a large share of the cash, while the Kenyan national budget and a new railway tax on imports will also contribute funds.

"We intend to make it (the line) operational by 2018. There is urgency and we are committed to realise this dream," Kenyatta said at a ceremony in Mombasa to launch the project.

Kenyatta said that, once complete, the railway would cut transport costs in the region by more than 60 percent.

"This in turn will spur expanded production and reduce the cost of goods and services ... An economy only ever thrives on the foundation of proper infrastructure," he said.

The new railway, which will link Mombasa via Nairobi to Uganda's capital Kampala, is meant to supplement an existing railway completed by the British in the early 20th century.

Freight on the trains includes exports of tea and coffee and imports such as flour, sugar and machinery.

SPARING KENYAN ROADS

The new line will ferry heavier and bigger containers more quickly and will relieve pressure on the region's roads, which have been damaged by the amount of traffic, officials said.

Years of mismanagement in Kenya and Uganda have meant their governments neglected proper maintenance of tracks and trains on the existing line. As a result, much of the freight destined for Kenya's landlocked neighbours has to move by road.

The railway will be built by China Roads and Bridges Company Ltd, but the Dock Workers Union in Mombasa and some legislators have opposed the awarding of the contract to the Chinese firm, saying there was no competitive bidding.

Government officials say the award was tied to China's agreement to pay the lion's share of funding for the railway.

On Thursday, Kenyatta praised Chinese President Xi Jinping for his "personal interest and support" in the railway project.

Kenyatta said the railway link would also be extended to neighbouring Tanzania, adding that work would start on that section next month. Tanzania has accused its neighbours in the past of excluding it from their plans for expanding roads and railways in the region.

The railway is part of wider regional plans to improve infrastructure and speed up transit cargo from Mombasa.

Kenya is building a new $67 million berth to receive bigger vessels in the port and countries in the region have agreed to remove non-tariff barriers and waive visa fees to boost cross-border business.

Kenya and Uganda, which have discovered oil, are also considering building an interconnected oil pipeline to a new port being developed on Kenya's northern coast.