Kenya risks losing KPA over China debt

Kenya will hand over the Ports Authority to the China Exim Bank if it defaults on the loan for construction of the standard gauge railway.

A letter for the financial and compliance audit for the year ending June 30 this year, said to be from the Auditor General’s office, warns that KPA risks being taken over by the Chinese lender if minimum volumes required for consignment via SGR are not met. “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,” a letter sent to the KPA and signed by F T Kimani from the Auditor General’s office reads.

But an official from the Auditor General’s office, who spoke to the Star, dismissed the document posted by former anti-corruption czar John Githongo on Twitter on Tuesday.

By press time, KPA had not confirmed if it received the said letter. “Can I call you later on this?” KPA managing director Daniel Manduku said in a message.

Chinese Exim Bank provided $1.6 billion (Sh160 billion) concessional loan and a commercial loan of $1.633 billion (Sh163.3 billion) for a total of $3.233 billion Sh323.3 billion. The $1.6 billion concessional loan is good for 20 years at two per cent interest rate and a payment period of 13 years with a seven year grace period.

Read: Uhuru gets new Sh140 billion SGR loan, concerns raised over State borrowing

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Kenya, while signing loans for the SGR in 2013 signed an escrow agreement with China Exim Bank, providing KPA as collateral for the facility.

Investopedia defines escrow agreement as an arrangement by which one party deposits an asset with a third person (escrow agent), who, in turn, makes a delivery to another party (the beneficiary) if and when the specified conditions of the contract are not met.

At the outset, the country had planned to haul 4,000 tonnes per trip, peaking at 16,000 tonnes daily, 106,000 tonnes weekly and 5.5 million tonnes annually to breakeven and repay the construction and operational costs.

But data from KPA shows that SGR is carrying 12,452 tonnes per week. An average of 647,504 tonnes are expected to be hauled by the end of the year. Both capacities are below the minimum tonnage cover of between 2.1 million and six million tonnes per year between 2020-34 as stipulated in the agreement.

The minimum tonnage to cover loan repayment for 2020 is six million or 13,972 tonnes per day. The minimum threshold for 2021 is 5.72 million or 13,328 tonnes per day. In total, at least 70 million tonnes of cargo must be transported via SGR in 14 years starting 2020 for Kenya to repay the loan.

Economist David Ndii last month told the Star in Mombasa that SGR does not have a design capacity of 22 million metric tonnes as stated by the government. “We understand the installed capacity is just less than nine million metric tonnes,” he said.

Read: Domestic Or External Debt, Which Way Kenya?

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