Mixed reactions have trailed online reports that Kenya may lose its key asset to China over loan repayment. The reports allege that Kenya has signed away the sovereignty of the Kenya Ports Authority (KPA) to the Chinese government, including their Mombasa Port. The speculations came to light after the office of Kenya’s Auditor-General released a letter allegedly written by the Senior Personal Secretary, Njeri Kimani on behalf of Auditor-Director Edward Ouko.
According to the letter, the Kenyan government borrowed Sh227 billion from China’s Export-Import Bank (EXIM Bank) to construct the Mombasa-Nairobi Standard Gauge Railway (SGR). The Kenyan government then used the KPA assets as collateral for the loan, implying that the authority’s revenue will be used to pay the loan if the Kenya Railways Corporation (KRC) does not meet its obligations as per the terms of agreement for the loan. However, the Auditor General’s report showed that KPA’s revenue was at Sh42.7 billion as of June 30, 2018, a 7.9% increase from the Sh39.6 billion it recorded the previous year. The figures mean it is impossible that the project will break even by the time Beijing comes to collect.
“The payment arrangement substantially means that KPA’s revenue would be used to pay the Government of Kenya’s debt to China EXIM bank if the minimum volumes required for consignment are not met as per schedule one.” the letter said.
“EXIM Bank would become a principal over KPA if KRC defaults in its obligations and the Chinese bank would exercise power over escrow account security…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, KPA’s assets are exposed.”
However, in a tweet on Wednesday, the office of the Auditor General has denied that Ouko authored or released the report though it neither confirmed nor denied the contents.
“Our attention has been drawn to reports that the office of the auditor general has released an audit on Kenya ports authority for the financial year 2017/2018. This is to clarify that the office has not released any such report.” the tweet said.
Notwithstanding, the report raised fears in Kenya, considering that China has in the past seized key assets in other countries due to defaulted loans. In December 2017, the Sri Lankan government reportedly lost its Hambantota port to China for a lease period of 99 years after failing to show commitment in repayment of loan running into billions of dollars.
The loss of Sri Lanka’s port is always highlighted as one of the examples of China’s ambitious use of loans and aid to gain influence around the world and of its willingness to play hardball to collect.
In its first assets seizure in Africa, Zambia lost its international airport to China over debt repayment earlier this year in September. Also, China already owns and controls 60% shares of the Zambian National Broadcasting Corporation.