How deal was conceived and the fallout five years later

Chirau Ali Mwakwere
                                               Chirau Ali Mwakwere                PHOTO: COURTESY
By Paul Wafula

The deal to get China Road and Bridge Corporation (CRBC) to build the Kenya railway was struck in an office in Westlands in 2008. On the table were only two people — a former manager at CRBC, and a well-connected city businessman who has been key in most Chinese deals involving the Kenya government.

The job for the businessman, who the Jubilee goverment is now accusing of frustrating the project, was to use his clout in the Kibaki-Raila government to push the deal through while CRBC was to do the actual design, construction and supervision once the government had bought it.

The idea was then presented to the ministry of Transport, which was at that time considering the construction of a new railway line.

Multiple interviews by The Standard on Sunday with people who were involved at various stages from inception to the actual signing of the contract show that the “free feasibility” study and providing of financing through a built operate and transfer model were very compelling for the government at the start.

“At the beginning, the proposal was mainly to use foreign direct investment where the government would only provide the land. Then the investor would do all the works at his cost, operate it at a profit, before handing it over to the government through a build operate and transfer arrangement,” an insider told The Standard on Sunday.

The first official document between Kenya and CRBC was a memorandum of understanding and cooperation signed on August 12, 2009 in Nairobi. On the table was the then Transport minister Chirau Ali Mwakwere representing the Kenya government and Mr Du Fei, the then CRBC’s general manager for the Kenya office.

The MoU allowed CRBC to carry out a feasibility study between Mombasa and Nairobi, with a provision that it could be extended to Malaba upon request of the ministry of Transport. Kenya Railways was left in the dark at the initial stages neither did it participate in the formulation of the terms of reference.

But it was not until after the transfer of Mr Du Fei from Kenya, when the rift among sponsors of the project started. This is after it became clear that the project may not attract an investor given that it could not prove that it would be commercially viable.

This fears were to later be authenticated by a World Bank report that advised against investing in the project. So when CRBC offered to look for financing through the Exim Bank, the Kenyan government had to play by the rules and cede as much ground as possible. First, the design standard was changed from the American to the Chinese Standard, which is not familiar to Kenya Railways.

Next to be dropped was the idea of the electric train on grounds that Kenya did not have reliable power. Additionally, the double track idea was dropped in favour of a single track when it became clear that the traffic forecasts would not support a double track.

It took just slightly over one month to approve the final proposal by the Chinese company, when it was due. Documents show that CRBC submitted its proposal to Kenya Railways for construction of the railway on May 29, 2012. The main correspondence at the contract award was Mr Nduva Muli, who was the then Managing director at Kenya Railways with Mr Li Qiang, the new general manager for China Road and Bridge Corporation (Kenya) acting as the contact person for the firm.

A week later, a nine-member negotiation team was set up to fine-tune details of the deal. The negotiations were carried out between June 4, 2012 and June 25, 2012.

Kenya Railways was represented by Eng Solomon Ouna, who also chaired the negotiation team. Other members of the negotiation team from Kenya Railways were Mr Alfred Matheka, Eng David Mwadali, Ms Marianne Keittany and Stanley Gitari.

The minutes of the negotiations show that Mr Yang Jie was the team leader for China Roads, assisted by Mr Xiong Shi Ling, Mo Yong Nian and Mr Zhou Yi Hua.

Kenya Railways handed the Chinese firm the contract on July 10 of the same year, 43 days after CRBC submitted the proposal. The award letter was received by CRBC, at their offices in Lavington on the same day it was signed. CRBC then accepted the award letter on the same day, and replied immediately.

In its letter, the Chinese company accepted unconditionally to do the project for Sh220 billion.

Most of this happened without involvement of the businessman, creating a feeling of betrayal.

Before the financing deal, China demanded assurance that the Kenyan government would pay. It received a commitment that Kenya would put up legislation to ensure that the Standard Gauge Railway would receive as much cargo as available to operate profitably. Also, to cushion it further, Kenya introduced the 1.5 per cent railway levy charged on all imports.

Further, an agreement was struck that will see a special account known as ESCROW opened after the railway starts operating where all the revenues would be deposited. This way, China would first draw its money for repayment of the loan before the money is diverted to other purposes.

The financing deal was signed after the state visit by the Kenyan govennment, spelling the beginning of an all out war on the project. By the launch of the project in November last year, the rift was palpable.

China Road and Bridge Corporation CRBC