China funding puts ports at risk

The government borrowed Sh227bn to construct the Mombasa-Nairobi standard gauge railway (SGR), despite criticism that the project was being managed by China Roads and Bridges Corporation (CRBC), a Chinese State-owned company, reported Daily Nation.

A report by Edward Ouko, Auditor-General of the Republic of Kenya, states that the payment agreement substantively means the revenue of the Kenya Ports Authority (KPA) would be used to clear the debt, if the minimum volumes required for consignments are not met.

‘Biased’ agreement

The audit shows that KPA’s revenue was Sh42.7bn as at June 30, 2018, a 7.9% increase from the Sh39.6bn recorded the previous year, according to Daily Nation.

“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.

“KPA assets are exposed since the authority signed the agreement in which it has been referred to as a borrower under clause 17.5,” said the letter, which also stated “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.”

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 and recommends that the authority discloses pertinent issues and risks related to the guarantee in the statements.