Uganda is considering abandoning the Kenyan standard gauge railway route and joining the Tanzania one if Kenya does not commit to building the Kisumu-Malaba section of the railway project.
On Monday, Kenya announced that it was seeking a $3.59 billion loan from China to extend the SGR from Naivasha to Kisumu, leaving out the details of the last phase to Malaba.
Uganda, which has been struggling to get funding from China for its initial 293km stretch between Malaba at the Kenyan border and Kampala, has said that it is only Kenya's green light on building the SGR link that will unlock its own funding.
In an interview with Bloomberg, Uganda's Finance Minister Matia Kasaija said that China's Export-Import Bank will only fund the project if Kenya extends its line to the border, which has prompted Kampala to start exploring alternatives.
"We have to wait for our neighbours to decide on the plans for the last phase of this project before we can get the funds. China really doesn't want to fund a white elephant," Mr Kassaija said.
In May 2016, Kenya gave its strongest indication yet that it will terminate its SGR in Kisumu after Transport Cabinet Secretary James Macharia said that extension of the line to Malaba may no longer be necessary if landlocked states opt out.
"The decision has not been reached but we have a number of options at our disposal. We can decide to end the SGR at Naivasha or Kisumu but it will still be a viable venture due to the presence of Lake Victoria," said Mr Macharia.
Uganda is now considering the alternative line through Tanzania, having already secured funding for the construction of the Port Bell harbour. This would see it build its railway track to the shores of Lake Victoria, where it will feed into a new port harbour that will then connect with the Tanzania line.
The line will connect Uganda via Port Bell all through to Musoma port on Lake Victoria to Tanga port on the Indian Ocean, and the Central Corridor via the Mwanza/Bukoba ports on Lake Victoria to the Dar es Salaam port. In April, Tanzania's President John Magufuli commissioned the construction of the 205km Dar-es-Salaam-Morogoro SGR, which is expected to be completed in 30 months.
"We have a choice of going with whoever gives us the quicker and the best alternative so as to have a modern railway network. The harbour at Lake Victoria will be funded by German lender KfW," said Mr Kasaija.
The Malaba-Kampala section of the standard gauge railway has proved to be Uganda's biggest headache, as Kenya has been sending mixed signals over its intentions vis avis the last phase of the project. In February, a joint visit to Beijing by both Kenyan and Ugandan finance ministers to sort out the funding issue was called off, with no explanation provided.
"We understand that our neighbours seek reassurances that we will embark on the last phase of this project. China needed clear justification that Uganda is committed to the project. The joint delegation has the approval of the two presidents, thus providing this mission the needed political commitment," Jackson Kinyanjui, director of the Resource Mobilisation Department at Kenya's National Treasury had said.
China is also seeking Kampala's guarantees on compensation for people affected by the project and a new feasibility and bankability study showing that construction of the SGR makes business sense.
Last year, Kampala was forced to revise the completion date of the SGR from March 2018 to 2020, and that when does not seem feasible now. In February, the Uganda SGR co-ordinator, Kasingye Kyamugambi, announced that China Exim Bank had "in principle" agreed to advance Uganda $2.3 billion to build the 293km line to Kampala. Its entire SGR project is estimated to cost $12.8 billion.
Uganda's ability to repay its debts has become an issue after the World Bank in September last year suspended new lending to the country because of "outstanding performance issues, including delays in project implementation.