Scram­ble to re­pair SGR debt dam­age

Na­tion re­port yes­ter­day on how a se­cret pact be­tween Nairobi and Bei­jing on the fund­ing of rail­way line put Kenya’s as­sets at risk sends of­fi­cials scram­bling as me­dia tour of sec­ond phase of project called off.

Daily Nation (Kenya) - - FRONT PAGE - @ed­win­cowino [email protected]­tion­ BY ED­WIN OKOTH

Gov­ern­ment of­fi­cials in­volved in the con­struc­tion and run­ning of the Stan­dard Gauge Rail­way were last evening scram­bling to save face in the wake of a Na­tion ex­pose that de­tailed the fi­nan­cial traps of Chi­nese loan pacts with Kenya.

Sources told the Na­tion that se­nior of­fi­cials met yes­ter­day to de­lib­er­ate on the mat­ter. More meet­ings are sched­uled start­ing to­day to dis­cuss the leak­ing of de­tails of the loan Kenya signed with the Exim Bank of China in 2014, in which, it has emerged, the coun­try waived sovereignty on all its as­sets in case Nairobi de­faults on loan re­pay­ments.

In a bid to calm nerves, Kenya Rail­ways Cor­po­ra­tion last evening can­celled a me­dia tour planned for this morn­ing to give a progress up­date on the con­struc­tion of the sec­ond phase of the SGR. It did not give any rea­son for the sud­den change of plan, only promis­ing that “a new date will be com­mu­ni­cated” soon.

The loan con­tract Nairobi en­tered into with Bei­jing has sev­eral clauses that heav­ily favour China and com­pel Kenya to make many com­pro­mises, with the most con­tro­ver­sial one be­ing the waiver of sovereignty on as­sets.

Sov­er­eign lend­ing deals do not usu­ally in­clude the of­fer­ing of col­lat­eral by the bor­rower, which ex­plains why China’s an­gling for Kenyan na­tional as­sets has puz­zled many within and out­side gov­ern­ment.

State of­fi­cials yes­ter­day re­mained tight-lipped on the mat­ter, while eco­nomic an­a­lysts, while agree­ing that Kenya seemed to have mort­gaged it­self while ne­go­ti­at­ing the huge loan, were care­ful not to be ref­er­enced di­rectly.

“It is weird and I re­ally don’t know what the Chi­nese could be up to, given that it is not even prac­ti­cal to at­tach na­tional as­sets as a loan col­lat­eral,” a Nairobi-based eco­nomic an­a­lyst told the Na­tion. “Sov­er­eign guar­an­tees are usu­ally suf­fi­cient to cover for loans bor­rowed by gov­ern­ments.”

The rev­e­la­tions have now turned the na­tion’s col­lec­tive at­ten­tion to the var­i­ous multi-bil­lion-shilling deals Kenya has signed with gov­ern­ment en­ter­prises in China, in­clud­ing ma­jor in­fra­struc­ture deals in the en­ergy and trans­port sec­tors.

Be­cause of the col­lat­eral clauses, Kenya’s cash-rich paras­tatals and firms risk Chi­nese takeover in case of a de­fault. Among them is the Mom­basa-head­quar­tered Kenya Ports Au­thor­ity, whose ex­po­sure risk was re­cently the sub­ject of an au­dit query by the Au­di­tor-gen­eral.

KPA faces a par­tic­u­larly huge takeover risk as the Chi­nese loan ne­go­tia­tors en­sured it was in­cluded in a strict take-or-pay agree­ment with Kenya Rail­ways Cor­po­ra­tion, mean­ing the port is at the cen­tre of Kenya’s re­pay­ment obli­ga­tions.

Other than its strate­gic im­por­tance to the SGR cargo op­er­a­tions, the port of Mom­basa, the busiest in East Africa, is also quite lu­cra­tive, with an­nual rev­enues danc­ing around the Sh50 bil­lion mark.

It is the per­fect gate­way to a re­gion in which China now com­mands a huge share of the mar­ket, with the value of im­ports to Kenya alone — mainly ma­chin­ery and trans­port equip­ment — hit­ting Sh292 bil­lion in the first 10 months of 2018.

KPA is not only re­spon­si­ble for the run­ning of the port of Mom­basa, but is also in charge of the de­vel­op­ment, main­te­nance, op­er­a­tion, im­prove­ment and reg­u­la­tion of the sea ports of Funzi, Kil­ifi, Ki­unga, Lamu, Malindi, Mt­wapa, Shi­moni and Vanga on the coast of Kenya.

It also man­ages three in­land con­tainer de­pots in Nairobi, Kisumu and El­doret, and has three li­ai­son of­fices in Kampala, Ki­gali and Bu­jum­bura to cater for tran­sit coun­tries. An­other dry port is ex­pected to be con­structed in Naivasha, and plans are un­der­way to put up a Sh14 bil­lion port in Kisumu.

The only other State-owned firms with a sim­i­lar strate­gic im­por­tance are Kenya Elec­tric­ity Gen­er­at­ing Com­pany (Ken­gen), Kenya Power and Kenya Pipe­line.

Part of the rea­son China wanted a strate­gic as­set to cover its back was the fear that the SGR would not sup­port it­self. In July 2018, Trans­port CS James Macharia told a par­lia­men­tary com­mit­tee that the SGR op­er­a­tor had made a loss of Sh110 bil­lion in its first year of op­er­a­tions.

“On av­er­age, the line made a monthly loss of $7.5 mil­lion in the 2017/2018 fi­nan­cial year, largely as a re­sult of low cargo busi­ness,” said Mr Macharia. “How­ever, we now project that it will turn around and make a profit of $50 mil­lion by June next year, av­er­ag­ing $4.2 mil­lion profit monthly as we ramp up cargo vol­umes.”

The plan re­lies on the rather op­ti­mistic es­ti­mate that the train’s daily ton­nage run will go above 800 con­tain­ers, out of the 1,700 that ar­rive at the port.

A new trans­port tar­iff will in­crease charges by nearly 80 per cent and could prove coun­ter­pro­duc­tive and cre­ate more com­pe­ti­tion from truck­ers, who also have the last-mile ad­van­tage.


Pres­i­dent Uhuru Keny­atta and DP Wil­liam Ruto flag off a cargo train in Mom­basa on May 30, 2017.

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