Kenya is facing renewed pressure to fast-track the extension of the Standard Gauge Railway (SGR) to Malaba after Uganda raised Sh62 billion through a bond issue to begin construction of its section of the regional rail network.
The funding move by Uganda marks a major step towards building a new railway line linking the country to the Kenyan border and revives momentum for a cross-border transport project that has remained stalled for years due to delays on both sides.
Uganda has issued a Shariah-compliant Sukuk bond worth Sh62 billion (€405 million), split into two segments. The first tranche of Sh32 billion (€205 million) is being raised from Uganda and regional investors, including those in Kenya, while the second tranche of Sh30 billion (€200 million) is aimed at international investors.
The development is expected to increase pressure on Nairobi to secure financing and accelerate the extension of the SGR from Naivasha to Malaba after the project stalled six years ago.
Kenya’s SGR currently ends in Suswa, Narok County, more than 350 kilometres from the Ugandan border. The unfinished section has delayed plans to establish a seamless railway connection intended to improve regional trade and transport.
The 10-year Ugandan bond offers investors a return of 13 per cent. Uganda also has the option of raising an additional Sh3.2 billion (€25 million) through a green shoe option if demand from regional investors exceeds expectations.
“Under the € 200 million trust certificate bullet issuance described in the Base Prospectus dated April 15, 2026, Uganda Sovereign Sukuk1 Limited issues € 205 million trust certificates due 2036 as a domestic and regional issuance of the € 405 million approved by Ugandan Cabinet and is being issued in two segments with this one being € 200 million and the international segment being € 200 million,” reads part of the pricing memorandum.
The bond has been exempted from tax and will be cross-listed on regional stock exchanges, including the Nairobi Securities Exchange.
Uganda says the railway extension will lower freight transport costs to Kampala by at least 40 per cent per tonne per kilometre while reducing cargo transit times by nearly 30 per cent.
“We plan to transfer all heavy cargo to the railway, to reduce road maintenance costs and accidents,” said Uganda President Yoweri Museveni during the launch of the railway extension two months ago.
The Ugandan government is expected to seek additional funding from international debt markets to finance the 273-kilometre railway line, which is projected to cost Sh405 billion.
On the Kenyan side, the government has recently amended laws to allow the securitisation of revenue collected through the Railway Development Levy to help fund the railway's expansion to the border.
Treasury estimates show that extending the SGR from its current terminus to Malaba will cost about Sh502.9 billion. Kenya is pursuing a securitised bond worth between Sh390 billion and Sh450 billion to finance the approximately 350-kilometre stretch from Naivasha to Malaba.
The government says preparations for the project are at an advanced stage, including land acquisition and compensation processes following the completion of a feasibility study.
Kenya Railways Corporation has indicated that more than 5,000 acres of land will be required for the railway extension.
While Kenya has continued to work with Chinese partners on its section of the railway, Uganda has contracted Turkish firm Yapi Merkezi to undertake construction after terminating an agreement with China Harbour Engineering Company in 2023.
The earlier deal was cancelled after eight years of delays linked to difficulties in securing financing.
Construction of Uganda’s railway line is expected to take 48 months once work begins.
Kenya collects about Sh35 billion annually through the Railway Development Levy. In the current financial year, the Treasury initially allocated Sh16.5 billion for the SGR extension before adding another Sh14 billion through a supplementary budget, bringing the total allocation to Sh30.5 billion.
The increased funding for the project came at the expense of other railway programmes, highlighting the government's focus on completing the extension.
Among the affected projects was a planned digital surveillance and protection system along the SGR corridor from Mombasa to Naivasha, whose budget was reduced by Sh1.6 billion.
Kenya Railways also cut spending on locomotive wheelsets, the wheel-and-axle assemblies used by trains, after the allocation for the equipment was reduced by half from Sh2.2 billion to Sh1.1 billion.