In Summary
  • The government borrowed the billions to construct the Mombasa-Nairobi standard gauge railway (SGR), against opposition that it could become a white elephant.
  • A report by Auditor-General Edward Ouko states that the payment agreement substantively means that the revenue of the Kenya Ports Authority would be used to clear the debt.
  • The auditor notes that the agreement is biased since any non-performance or dispute with the bank would be referred to arbitration in China, “whose fairness is resolving the disagreement may not be guaranteed”.
  • Ouko accuses the KPA management of not disclosing the guarantee documents in its financial statements.

Kenya could lose the port of Mombasa to the Chinese government if Kenya Railways Corporation (KRC) defaults in the payment of Sh227 billion owed to Exim Bank of China.

The government borrowed the billions to construct the Mombasa-Nairobi standard gauge railway (SGR), against opposition that the project by China Roads and Bridges Corporation (CRBC), a Chinese State-owned company, could become a white elephant. The country's sovereignty is now at stake.

THE DEAL

A report by Auditor-General Edward Ouko states that the payment agreement substantively means the revenue of the Kenya Ports Authority would be used to clear the debt.

This is if the minimum volumes required for consignments are not met.

The audit shows that KPA’s revenue was Sh42.7 billion as at June 30, 2018, a 7.9 percent increase from the Sh39.6 billion recorded the previous year.

“Exim Bank would become a principal over KPA if KRC defaults in its obligations and the Chinese bank exercises power over the escrow account security,” states a management letter sent to the KPA, that Mr FT Kimani signed on behalf of Mr Ouko.

The letter says, “KPA assets are exposed since the authority signed the agreement in which it has been referred to as a borrower under clause 17.5."

It adds, “Any proceedings against its assets by the lender would not be protected by sovereign immunity since the government waived the immunity on the KPA assets by signing the agreement.”

BIAS

The auditor notes that the agreement is biased since any non-performance or dispute with the bank would be referred to arbitration in China, “whose fairness is resolving the disagreement may not be guaranteed”.

Mr Ouko accuses the KPA management of not disclosing the guarantee documents in its financial statements.

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