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.
This is according to a report by Auditor-General Edward Ouko which states that the payment agreement substantively means the revenue of the Kenya Ports Authority would be used to clear the debt.
“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.
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.
The Kenyan government borrowed billions from China to construct the Mombasa-Nairobi standard gauge railway (SGR), against rising opposition that the project may turn out to be a white elephant.
According to the world bank revamping Kenya’s old railway line would have been far more economical than building a brand-new railway.
Economist David Ndii has previously passionately argued that the Standard Gauge Railway us economically unviable.
"It's a white elephant - we don't need it," said David Ndii.
Mombasa-Nairobi standard gauge railway (SGR) is Kenya’s largest infrastructure project since independence and was constructed by China Roads and Bridges Corporation (CRBC), a Chinese State-owned company.
"It's not necessary, it's overpriced. It's the most expensive single project we have done and it's not economically viable now or in the future." Said David Ndii.
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.
Despite the danger of losing the lucrative port, he recommends that the authority discloses pertinent issues and risks related to the guarantee in the statements.
As a result of President Uhuru Kenyatta’s administration not heading this calls, Kenya’s sovereignty is now at stake.
Kenya now joins African states like Zambia and Djiouti who are at high risk of losing key national and sensitive infrastructures due to debts.
According to a report by Africa Confidential titled Bills, Bonds and even Bigger Debts, Zambia is in talks with China over a possible takeover of the country's electricity company, ZESCO, after defaulting on loan repayment.
Djibouti is also projected to take on public debt worth around 88 percent of the country’s overall $1.72 billion GDP, with China owning the lion’s share of it, according to a report published in March by the Center for Global Development.
As a result, there is growing concern that the Djibouti government, facing mounting debt and increasing dependence on extracting rents, may be pressured to hand over control of Camp Lemonnier to China.
In December 2017, the Sri Lankan government lost its Hambantota port to China
for a lease period of 99 years after failing to show commitment in the payment of billions of dollars in loans.