The government’s plan to extend the Standard Gauge Railway (SGR) to Malaba has received a major boost after the High Court upheld the legality of the Railway Development Levy (RDL), a key source of funding for the ambitious infrastructure project.
In a judgment delivered on Friday, Justice Gregory Mutai ruled that the levy, which is charged on imported goods, was legally enacted and can continue financing railway projects as provided under the law.
The ruling removes a significant legal hurdle for President William Ruto’s administration, which is banking on the fund to finance the next phase of the SGR from Naivasha through Kisumu to Malaba.
The Railway Development Levy is charged at two per cent of the customs value of imports entering the country by sea, air and land. Importers pay the levy to the Kenya Revenue Authority (KRA) before their cargo is cleared.
Every year, the levy brings in revenues between KSh36 billion and KSh50 billion, which makes it among the largest sources of infrastructure funding by the government. Estimates from the Ministry of Finance indicate that the revenue to be collected in the current financial year will be around KSh48.5 billion.
The revenue goes to the Railway Development Levy Fund, created to raise money for building and maintaining the SGR and other railway systems.
The government hopes to rely on the fund when looking for money for the Naivasha-Kisumu-Malaba railway line, which will enhance the movement of cargo along the Port of Mombasa and its neighboring countries at reduced costs.
The court’s decision also means the State can continue using future collections from the levy as security when raising money for railway projects.
Currently, the Government is trying to secure a 15-year infrastructure bond of KSh387 billion to KSh390 billion for funding the SGR extension, which is slated for completion between June and August 2027.
Nonetheless, the verdict was not entirely in favor of the State.
Mutai, the presiding judge, concluded that it was unlawful for the government to allocate funds from the Railway Development Levy towards funding of the Nairobi Commuter Rail project before the laws of parliament were amended to permit such expenditure.
He ruled the expenditure unconstitutional and ordered the government to conduct another fresh procurement of the unfinished part. The tender process had to be conducted competitively within 90 days.
It follows a period where the Government is leaning heavily on locally raised revenue to fund massive infrastructural projects in order to minimize public borrowings.
To the private sector, the verdict offers clarity on one of the biggest investments in transport in Kenya, considering the potential of the SGR extension to promote regional trade and connectivity with Uganda and other member states of East African Community.
