Auditor: Chinese debt could lead to loss of Mombasa port
SEE ALSO :Tax evasion crackdown extends to MombasaSGR reported a near Sh10 billion loss in its first year of operations. The Auditor General has warned that the eventuality is likely because of a lopsided loan agreement that greatly favours the China Exim Bank, who advanced Kenya the loan. Specifically, Kenya got the short end of the stick in the agreement where any disputes arising from the debt servicing would be arbitrated in China. An audit completed last month indicates that Kenya Ports Authority’s (KPA) assets, which include the Mombasa port, could be taken over if the SGR does not generate enough cash to pay off the debts. “The China Exim Bank would become a principle in (over) KPA if Kenya Railways Corporation (KRC) defaults in its obligations and China Exim Bank exercise power over the escrow account security,” the audit reads in part. Escrow account An escrow account is a contractual arrangement in which a third party receives and disburses money for the primary transacting parties, with the disbursement dependent on conditions agreed to by the transacting parties. According to the loan agreement, funds generated from the SGR were to be deposited in an escrow account – controlled by an unknown third party on behalf of KRC and China Exim Bank. At the current estimates, KPA generates Sh50 billion a month or Sh600 billion a year in revenues. F.T Kimani, the auditor, cited in his report that KPA’s exposure is linked to a requirement that it feeds sufficient cargo to the Chinese-built railway project. Failure to provide the requisite cargo would mean Kenya has gone against a critical clause in the loan agreement of guaranteeing specified “minimum volumes required for consignment”. It is also indiscernible how KPA signed the loan agreement as a borrower, in one of the toxic clauses subsequently exposing its assets to the Chinese clamp. “…any proceeding(s) against its assets (KPA) by the lender would not be protected by sovereign immunity since the Government waived the immunity on the Kenya Ports Assets by signing the agreement,” the auditor wrote. Repayments for the loans are slated to start mid next year on expiry of a five-year grace period.
Register to advertise your products & services on our classifieds website Digger.co.ke and enjoy one month subscription free of charge and 3 free ads on the Standard newspaper.