Uganda will invest $205 million in restoring an old railway line linking Kampala to Malaba on the Kenyan border following delays in securing funding for the standard gauge railway.
The upgraded meter gauge railway line is expected to boost monthly freight capacity to 120,000 metric tonnes from the current 20,000 tonnes by 2026, Stanley Sendegeya, Uganda Railways Corporation's chief financial officer, said in an interview.
"We keep turning down customers because with the little money from government, amounting to $2 million annually, we can't handle much business," he said. "Customers opt to use trucks."
The SGR opened to passengers in May 2017, and to freight in January 2018.
It is now uncertain whether Uganda's joint plan with Kenya and Rwanda, conceived six years ago, to build a standard gauge railway (SGR) that connects East Africa's land-locked nations to the Kenyan port of Mombasa, will come to fruition.
In recent months, the SGR project has faced major financing challenges after the Chinese Exim-Bank, its major benefactor, delayed financing of the third and last segment of the Kenyan section from Naivasha in the heart of the Rift Valley to Malaba on the border with Uganda.
Uganda has also experienced delays to the funding of the $2.3 billion Kampala-Malaba segment of the standard-gauge railway that the Export-Import Bank of China was expected to foot 85 per cent of the budget.
The Kampala section of the SGR project was to be built simultaneously with the third phase of the Kenyan section.
Uganda's latest decision came amid reports that Kenya revised downwards its reported earnings from the SGR between Mombasa and Nairobi. The latest figures raised concern over the profitability of the project, and the country's ability to repay the $3.2bn it borrowed from China to build the railway.
The Kenya National Bureau of Statistics last month released data showing that the SGR generated sales of $57 million in 2018, its first full year of operations, down nearly 45 per cent from the $103 million figure that was reported in March, and far below the annual operating cost of $120 million.
The bureau did not disclose the reasons for the downward revision, putting to question the accuracy of the mega project's performance reporting.
The shortfall comes as concern mounts over Kenya's ability repay its Chinese loans.
Kenya is due to make larger repayments as the five-year grace period, set in May 2014, comes to an end.
Importers and exporters have not been using the SGR for their freight because of "exorbitant rates" charged.
When the bureau gave the $103 million revenue figure in March, China's ambassador to Kenya, Wu Peng, praised the SGR, which China Communications Construction Company built and operates for an undisclosed management fee.
"We believe SGR is economically viable," Mr Wu said. "Note that in the first year of operations, the Mombasa-Nairobi SGR has earned $103 million, which is close to the operating cost of $118m. It's never easy for a railway project to achieve nearly break-even in a year."
The shortfall in revenue prompted an increase in freight charges and doubling the price of fares for children.
-- Additional reporting by Agencies