Transport CS says people tend to focus more on the managing director yet he is just part of the KQ management. Transport and Infrastruct...
Transport and Infrastructure Cabinet Secretary James Macharia addressing participants at KICC in Nairobi on March 17,2016 during the Jubilee at three years Inter-Ministerial Symposium.
That question is very pertinent because as you accurately point out some of those departments can and some of them like Housing, Public Works and Transport have in the past been standalone ministries. On the face of it, it looks very difficult and it is a huge mandate.
What makes it possible is that across all those five State departments there is a common thread, a common denominator and that is the element of infrastructure.
The purpose of bringing these State departments together was to make sure that the common thread was leveraged on. If the State departments were under different ministries, it would be very disjointed and delivery of public services would be a problem because it would mean a CS has to talk to another CS because these departments would be in different ministries.
Let’s talk about the Standard Gauge Railway (SGR), a major milestone in the country’s infrastructure landscape, but which is associated with perceptions of scandal. What are you going to do to change this perception and get Kenyans to own the project?
What we are continuing to do is to demonstrate the benefits of SGR – what it has done so far and more critically what it is going to do and in particular the impact on the Gross Domestic Product (GDP).
In terms of passenger and cargo transport, the SGR will make a major difference. People will be taking only four hours from Nairobi to Mombasa. In terms of economic impact it will be massive. So far we have employed almost 30,000 young Kenyans, including engineers and technicians.
Together with the contractor, we have set up two major factories – one at a place called Kathekani near Mtito Andei and a second one near Emali to produce the sleepers used for laying the track. Again, there are jobs being created in those factories.
More important is the impact it will have on the Port of Mombasa. Today, you will go to the port and you find containers lying everywhere because the trucks cannot take away the cargo as quickly as it is coming.
But with the SGR as the cargo will be coming, we will have a way of getting the same onto the trains to make the port more efficient. It will then take only six hours to get to Nairobi.
Therefore, in terms of the economic spinoff it is going to be massive. Finally, it will help us a lot in regional integration. In Mombasa, we are privileged to have a port which is so conveniently located in Africa.
For that it will have a big advantage, for example, compared to Durban in South Africa. Countries like Uganda, Rwanda, South Sudan, even Ethiopia will have an easier way to take their cargo from Mombasa.
What is the rationale or economic viability of fast-tracking the Naivasha section of the SGR?
Naivasha is just one of the stops, if you like, for the SGR because the project is from Mombasa to Malaba. We had to fast-track this section from Nairobi to Naivasha compared to say Kisumu-Malaba because we would want to set up a Special Economic Zone in Naivasha.
However, we have also signed commercial agreements with China from Naivasha to Kisumu via Narok, Bomet and Nyamira. In Kisumu, we will do a modern port worth about $140 million (Sh14.2 billion).
The idea is also to make sure we can maximise the use of the lake because even as we transport cargo from Malaba and Kampala, if we have a modern port in Kisumu then some of the goods can go by lake to neighbouring countries, or if for whatever reason Uganda did not do its bit we would not be having a ‘hanging railway’.
In regard to road construction, how successful has been the annuity programme (that was initially meant to construct 10,000KM)?
The annuity programme is one of the things that we have admitted has not done very well. It was conceptualised some time back, but today we have not started any road by way of annuity.
The main reason is that contractors and their financiers quoted very high in terms of the cost per kilometre. On average, it was coming to about Sh300 million per kilometre for ordinary roads. I know one contractor who quoted Sh1 billion a kilometre.
We said we could not sell this to Kenyans and so we started negotiating those costs down to Sh100 million per kilometre. As a result, we are just about to launch the first four roads under the annuity programme. But as an alternative, we introduced the low-volume seal roads across the country.
Was the involvement of politicians (looking for kickbacks) who wanted to identify contractors in the annuity programme also a factor?
Possibly not for annuity because they (roads) were not many. The roads where they are likely to be interested in are the rural ones. But we have put a strict governance regime whereby we would like to keep the standards and we would like contractors that are accountable to the government because if they come here politically, they will be accountable to those who brought them.
Still on roads, there has been an increase in the fuel levy yet at the same time the auditor-general has raised queries on the use of the funds. Why should more money be allocated to your ministry yet you cannot account for every shilling?
What we can say is that queries that have been raised have been addressed. We account for it fully — every shilling that goes to new road construction or maintenance or emergency roads without any reservation. We subject ourselves to a lot of scrutiny.
What I can assure Kenyans is that with the increased fuel levy certainly they should see a big improvement in road maintenance. It was just increased the other day and so that money is yet to start trickling down. But I can assure you that going forward there will be a big change.
During the recent Infrastructure summit at State House, the President talked of inflated costs in road construction. What do you say about that?
That is an issue that has been historical but which is now behind us. We have put in place strict governance structures where the decision to award a contract is not done by a single individual.
The tender committee is made up of officers of diverse backgrounds and they have been told that they are jointly and individually accountable. If you look at the recent awards, for every contract or for each road we are tendering I have requested to be personally shown the results and justification for the award.
Last weekend was a low point in efforts to have a world-class airport when the three backup generators at JKIA failed. What exactly happened?
The outage happened across the country but we are more interested in what happened at the airport. They have three generators – two of them serve the terminals and one serves the runway. The one for the runway had no problem and came on automatically and planes could land and take off.
It is the two for the terminals that did not switch on automatically and had to be switched on manually. That took 15 to 20 minutes. Because of that things shut down - the baggage could not move, ticketing could not move and so there was a backlog.
That is a lesson that needs to be taken seriously in particular making sure we have enough contingencies which are tested all the time.
In September 2013 the President presided over the ground-breaking ceremony of the Greenfield terminal which was to cost the country about Sh67 billion.
Three years later, the project was stopped with the explanation that the terminal was no longer necessary. Who will pay for the costs incurred and possible penalties for breach of contract?
The first important thing to know is why we stopped it. We did an assessment and realised that this was money that we did not have to spend. The statistics in terms of passenger numbers tell the whole story.
In 2013 when the decision was being taken, the capacity at the airport was 5.5 million passengers. Since June 2013 we have completed Terminals 1A arrivals and 1A departures, we have completed Terminal 2A in the far end near the Greenfields. We have recently also completed Terminal 1E.
If you take all those developments, we have a capacity of at least 11 million passengers. Then we also now have money from the World Bank to remodel Terminals 1B, 1C and 1D so that they can take in more passengers. Once we do that, capacity will go up to 14 million passengers. Right now, the throughput is only 6.5 million.
So you have more than 7.5 million capacity which will not be utilised. The 14 million passengers per year is the projected throughput in 2025. So why should you, if you currently have throughput of 6.5 million and a legroom of 14 million, spend another $1 billion (about Sh100 billion) to do a Greenfield terminal?
So we decided to put a stop to it despite having been launched by the President.
What mattered was to save Kenyans the loss. By the time we stopped it, about Sh4 billion had been paid to the contractor and all you can see there is they dug a big hole. We are now discussing with them how the money will be refunded.
Those discussions have not been completed but Kenyans will get their money back.
What about breach of contract?
That is a bit detailed and legally technical. There is a question as to whether there was a valid contract or not. In fact we got opinion from the Attorney General which stated that indeed we did not have a legally binding contract.
But to avoid unnecessary acrimony we decided we could agree out of court.
The financial problems at Kenya Airways have been mounting despite efforts to resuscitate the national carrier. Why are we not seeing results and why is the current management still in office?
KQ is a listed company and what I can give you is the information in the public domain. That is about the published results as of March 30, 2016. Although the bottom line was Sh26 billion loss there was a major improvement on the line that matters — the operational loss.
In March 2015 the operational loss was Sh16 billion yet this year March, that figure had come down to Sh4 billion. What really brought the figure to Sh26 billion has three elements to it – there was the issue of the financing costs because by then they had not sold off these big planes, or returned them or sub-leased them.
They were still carrying heavy financing cost. Secondly, the shilling had gone to about Sh102 against the dollar. Number three, they were doing the last bit of the hedge in the year ended March 30, 2016.
Therefore, if you look at the results you will find about Sh20 billion was not actually operating loss but financing cost which will not recur in the current financial year.
That is why I am saying that what is most important as a business is to look at that line of operating loss. I would, therefore, like to correct the impression that it has sunk deeper into losses.
It hasn’t. It is also not true that we have not done anything about management. Management is not about one person. People tend to focus more on the managing director yet he is just part of the management. Below him, we have changed virtually everybody from finance director, director of flight operations to chief operating officer.
But let me just assure you that more changes are coming. I cannot disclose more than that now. Bottom line is that KQ is a viable airline.
What about the Kenya Ports Authority. Do you have confidence that the current board and management will deliver the 40 per cent SGR cargo requirement?
First, KPA will not just feed the SGR with 40 per cent (of its cargo) but possibly 80 per cent. In terms of management of KPA, if you asked me this question six months ago I wouldn’t have said yes — I didn’t have confidence and that is why we made so many changes.
Now we are hopeful that the management we have there plus the board are going to steer the Authority to greater heights but also avoid the bigger challenge of corruption. They have been put on notice.
