Uganda expects to conclude financing arrangements for its €2.7 billion ($3 billion) standard gauge railway (SGR) project within the next few months after securing a major funding commitment from the Islamic Development Bank (IsDB), bringing the long-delayed infrastructure initiative closer to financial close than at any point in the past decade.

But Kenya, with which Kampala is building the cross-border project, is struggling to raise about $4 billion for extension of its line from Naivasha in the Central Rift to Malaba on the border, with the Treasury confirming the project will not proceed under a public private partnership as earlier proposed, but the financing options are still unclear.“It’s not being structured as a PPP,” said Kefa Seda, Director-General of the Public-Private Partnerships Directorate at Kenya’s National Treasury and Economic Planning Ministry.

Yet, so far, the Kenyan government has only committed Ksh30 billion ($231 million) from the exchequer – a small fraction of the required Ksh502.9 billion ($3.9 billion) – and there’s no clarity on where the rest will come from.

State officers, including from the National Treasury, the Ministry of Transport, and the Kenya Railways Corporation, remain tight-lipped on where the funding will be sourced, pointing to the lack of clarity within the government.

Meanwhile in Kampala, officials say negotiations with remaining financiers are at advanced stages, while preparations are underway for launch of Uganda’s debut Sukuk bond, which will fund the government’s 15 percent share of the project.

Last month, Ocailap led a government delegation on a roadshow to Nairobi, Zanzibar, Dar es Salaam and the Gulf region to market the Sukuk.

Juvenal Muhumuza, Commissioner for Development Assistance and Regional Cooperation at the Ministry of Finance, said talks with the African Development Bank (AfDB) and other financing partners could be concluded “soon.”“Financial close will happen after parliamentary approval,” he said. “In principle, we hope to have a deal with AfDB over the coming few months. The export credit agencies have in principle agreed to finance the project.”Blended financeUganda has structured the financing around a blended model designed to spread risk across multiple sources.

Under the arrangement, 60 percent of funding will come from export credit agencies, 25 percent from development finance institutions and multilateral lenders, and 15 percent from domestic financing instruments, including Sukuk.

According to Treasury documents reviewed by The EastAfrican, Citibank is acting as lead arranger for €1.4 billion ($1.6 billion) expected from a consortium of agencies that include Sweden’s EKN, Austria’s OeKB, Switzerland’s SERV, Italy’s SACE, Poland’s Kuke and Turkey’s TurkExim.

The multilateral financing package includes the recently approved IsDB funding, a planned €550 million ($627.57 million) from AfDB and €150 million ($171.16 million) from the Opec Fund for International Development.

The proposed 10-year Sukuk, structured as a hybrid Ijarah/Istisna instrument, is expected to provide the final component of Uganda’s financing package and mark the country’s first sovereign issuance under Islamic finance principles.

While significant chunks of the financing plan are now in place, officials stop short of giving a firm date for financial close, noting that parliamentary approvals and completion of financing agreements are outstanding.

Construction beginsUganda awarded the engineering, procurement and construction contract for the railway’s first phase to Yapi Merkezi in October 2024. The 48-month project covers construction of the line from Malaba on the Kenyan border to Kampala.

To accelerate implementation, Uganda early last year issued the contractor with a Limited Notice to Proceed and advanced $83 million for preliminary works while financing negotiations continued.

As a result, early construction is underway in Iganga, about 120 kilometres east of Kampala, where Yapi Merkezi is building a sleeper factory and associated construction facilities ahead of full-scale civil works.

The project represents a major shift in Uganda’s infrastructure strategy after the government in November 2022 terminated its agreement with China Harbour Engineering Company (CHEC), which had held the contract since 2015 but failed to secure financing for implementation.

Uganda turned to Yapi Merkezi in a deal inked in early 2023, betting that a new contractor and financing model would finally unlock a project that has remained on paper for more than a decade.

The government argues that the railway is critical to reducing transport costs and improving Uganda’s trade competitiveness. While presenting the 2026/27 budget recently, Finance Minister Henry Musasizi said SGR remains the country’s top infrastructure priority as it will strengthen trade links with regional partners.

Officials estimate that container transport costs between Mombasa and Kampala could fall from about $3,500 to roughly $1,600, while transit times could be reduced from five days to one.“The SGR is not merely a transport project; it is a national productivity platform and the logistics backbone for Uganda’s Vision 2040,” said Ocailap.

Kenya laggingYet even if Uganda secures financial close this year, the railway’s full economic potential will depend on Kenya completing and financing its own missing SGR link between Naivasha, Kisumu and Malaba.

Without those connections, the Malaba-Kampala line would operate short of the seamless regional corridor envisioned to connect Kampala directly to the Port of Mombasa.

In June 2025 Kenya’s Treasury began negotiations with China for a maiden Panda bond estimated at Ksh358 billion ($2.77 billion) to finance the extension of the line.

But, in November the same year, Treasury Principal Secretary Chris Kiptoo told The EastAfrican that the planned issuance of Chinese bond had been suspended, citing the need for “patience” with the Chinese market.“Panda bond is also a small ticket but it is still a new area, a new market. That will take time, I don’t think it (issuance of Panda bond) will be this fiscal year (2025/2026), it may not happen,” the PS said.“We will try but the monetary condition for the Chinese market requires patience we have just started, we are diversifying our markets so that we don’t just rely on Eurobond. We want yen and yuan-denominated bonds.”The bond was to be listed on the Shanghai Stock Exchange (SSE), and its proceeds used to cover the entire SGR project including compensation to landowners who shall be displaced to pave way for the project construction.

China was the key financier of the first two SGR phases—from Mombasa to Nairobi, and then from Nairobi to Naivasha dry port—through loans from the China Export-Import (Exim) Bank.

But Beijing pulled out of the Malaba extension after Naivasha, citing concerns over its commercial viability and Kenya’s rising debt, which increased the risk of loan default, including on Chinese credit.

After years of seeking alternative financing, Kenya returned to Beijing for funding, in June 2025, Prime Cabinet Secretary and Foreign and Diaspora Affairs Cabinet Secretary Musalia Mudavadi said Kenya was banking on Chinese support to ensure that the Panda bond is floated at the start of the 2025/2026 fiscal year.

Kenya and China signed a deal to jointly finance the 475-kilometre rail from Naivasha to Malaba, during President William Ruto’s state visit to Beijing in April 2025.

China has long stopped issuing concessional loans to African countries but has been gradually opening up to public-private partnerships, grants and permitting foreign governments to fetch funds via sovereign bonds.

Kenya had initially agreed with China to co-finance the project, each contributing 30 percent of the required funds, with a consortium of private investors expected to cover the rest. But Nairobi has since expressed difficulty in raising its share and requested additional Chinese support.

Lack of a rail link between Kenya and Uganda has meant that most cargo from the Mombasa port is transported by road to Uganda, Rwanda, Burundi, South Sudan and the Democratic Republic of Congo (DRC).

This overreliance on roads increases both time and cost. But financing constraints in both Kenya and Uganda have long delayed efforts to complete the Naivasha-Kampala railway connection, pushing both governments to woo new financiers for their respective sections.

When President William Ruto handed the contract for the construction of Naivasha-Malaba SGR to China Road and Bridge Corporation (CRBC) in March this year and launched the construction in Suswa, little was revealed about where the funding would come from. Over the past year, CRBC has won two major infrastructure projects in Kenya -- dualling of the Rironi-Mau Summit toll road and the upgrading of the Jomo Kenyatta International Airport.

Last year, Transport Cabinet Secretary Davis Chirchir said the new phase of the SGR would be tolled, hinting at possible PPP development as the government gravitates towards the model for large infrastructure projects.

But, with a timeline of less than two years, the Chinese partner could not finance the project by itself, as any deals requiring more than $1 billion of investments requires a lengthy approval process from Beijing.

The government had resorted to using the money collected through the Railway Development Levy, a tax imposed on imports and petroleum products to construct the railway, but it would take years to raise enough from the Ksh39 billion ($300 million) annual collections.

Mr Chirchir last year hinted at a plan to float a $3 billion 15-year bond using the levy as a security, but there is yet to be any progress to this end.

This could partly be linked to a disagreement between Kenya and the International Monetary Fund, on whether such a securitised loan should be counted as public debt.

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