A leaked report by Kenya’s auditor general reported that the country’s main port of Mombasa would be in danger of Chinese takeover if Kenya’s rail system failed to pay off a loan from China. The media reports were partly denied by the government but a number Kenyan newspapers demanded that Nairobi come clean on the terms of the loan. Some cited the example of Hambantota, the Sri Lankan port taken over by a Chinese firm as part payment for a loan. “Sri Lanka and Zambia have become textbook examples and underscore the fact that the threat of losing national assets to private lenders is real,” editorialised Daily Nation. 

The auditor general report, parts of which were reprinted online, questioned the terms of a $2.3 billion loan from China Exim Bank to the Kenyan Railways Corporation. Nairobi had offered Mombasa port’s assets as collateral, meaning that if Kenya defaulted, the port would have to be handed over to China. The report said Kenya had gone as far as to waive its sovereign immunity and agree that any dispute would be handled in a Chinese court. 

The loan was taken to build a Mombasa-Nairobi standard gauge railway, with the construction being carried out by a subsidiary of the state-owned China Communications Construction Company. The rail line, called the Madarak Express, is a diesel-powered passenger and freight rail service connecting the two cities. The project has faced large cost overruns and its economic viability has been questioned. Six Kenyans and three Chinese have also been arrested on bribery charges for two cases related to the railway line. 

"The payment arrangement agreement substantively means that the [Port] Authority's revenue would be used to pay the Government of Kenya's debt to China Exim bank if the minimum volumes required for [rail] consignment are not met," wrote auditor F.T. Kimani. "The China Exim bank would become a principle over [Kenyan Port Assets] if [Kenyan Railways Corporation] defaults in its obligations." He said much of this was missing from the port authority’s financial statements. 

The auditor general did not directly deny the media reports, saying only that it had “not released” such a report. KPA managing director Daniel Manduku said, "There is no risk of losing the port. In fact, we will pay this loan ahead of time…We can even take another loan and pay it on time."

China has over the years become Kenya’s largest lender, pushing Japan into number two place in 2013. Beijing now controls 66 per cent of Kenya’s bilateral debt and accounts for over 12 per cent of the Kenyan government’s total  debt position. This figure is expected to increase as the Madarak Express moves to its second phase and is extended to Naivasha. 

https://www.maritime-executive.com/article/kenya-risks-losing-port-of-mombasa-to-china

https://www.standardmedia.co.ke/business/article/2001306837/auditor-kenya-risks-losing-port-to-china

https://mobile.nation.co.ke/blogs/editorial/State-has-to-lay-bare-details-of-SGR-loan/3112610-4904060-u02q16z/index.html

 

December 29, 2018

About the Author

Pramit Pal Chaudhuri writes on political, security, and economic issues. He previously wrote for the Statesman and the Telegraph in Calcutta. He served on the National Security Advisory Board of the Indian government from 2011-2015. Among other affiliations, he is a member of the Asia Society Global Council, the Aspen Institute Italia, the International Institute of Strategic Studies, and the Mont Pelerin Society. Pramit is also a senior associate of Rhodium Group, New York City, advisor to the Bower Group Asia in India, a member of the Council on Emerging Markets, Washington, DC, and a delegate for the Confederation of Indian Industry-Aspen Strategy Group Indo-U.S. Strategic Dialogue and the Ananta Aspen Strategic Dialogues with Japan, China and Israel. Born in 1964, he has visited over fifty countries on five continents. Mr. Pal Chaudhuri is a history graduate from Cornell University.