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Africa

Will Kenya's Mombasa port be taken over by the Chinese?

media China's President Xi Jinping attends a welcome ceremony for his Kenyan counterpart Uhuru Kenyatta outside the Great Hall of the People in Beijing in this August 19, 2013 Reuters/路透社

If Kenya defaults on a 2bn euro debt to China, it may have to hand over Mombasa's port to the Asian giant.

A leaked copy of the contract Kenya signed with China for the construction of the giant Mombasa-Nairobi Standard Gauge railway project is causing political shockwaves in the country.

This is amid revelations that the country could lose the port of Mombasa to the Chinese government, if the national Railway Corporation defaults in the payment of Sh227 billion owed to Exim Bank of China.

That amounts to an estimated 1.9 billion euros. The revelations are contained in the front page article of today’s Daily Nation newspaper which claims it has managed to secure a leaked copy of the contract.

Assets in danger

The publication highlights a controversial clause in the 2014 SGR agreement which it warns will infuriate Kenyans. It stipulates that: “neither the borrower (Kenya) nor any of its assets is entitled to any right of immunity on the grounds of sovereignty, with respect to its obligations”.

Edwin Okoth is the author of the bombshell revelations published by the Nairobi-based Daily Nation. He told RFI from Nairobi that Kenya may have mortgaged itself when it accepted the terms of the huge Chinese loan four years ago.

“What I was able to find out which is shocking is that none of the national assets normally protected by sovereignty have been left out in regard to that loan agreement”, regrets the journalist.

Okoth also says that the Chinese may be targeting Kenya’s second container port for which they filed a tender and lost under the argument that they need to generate money and pay their debts. “What that basically means is that everything will go in case of default, warned the Nation’s business reporter.

SGR Losses

Kenyan Transport Cabinet Secretary, James Macharia told a parliamentary committee last year that the company recorded a loss of Sh110 billion in its first year of operations. That represented a revenue shortfall of 943 million euros which he attributed to low cargo business – the SGR transporting just 800 containers, out of the 1,700 which arrive the port.

Kenyan economist David Ndii is an outspoken critic of the Mombasa-Nairobi Standard Guage Railway contract. He told RFI that the cost of servicing the SGR loan is about 20 billion Kenyan Shillings which is about 250 million dollars per year”.

Take-or-pay

David Ndii goes on to point out that under the “take-or-pay” contract, the Kenya Ports Authority has the obligation to apply tariffs of 12 Cents/ton/km set by the Chinese funded and operated SGR Company.

In Ndii’s opinion, by proceeding as such, the Chinese are “able to securitize the port’s cash flows, in the event that the KPA did not meet recovery requirements”.

Debt burden

China is Kenya’s largest lender, accounting for 72 percent of all its foreign debts set to surpass the 5 trillion Shilling mark (42.8 billion euros). That accounts for more than 60 percent of the country’s Gross Domestic Product.

Kenya is set to spend a staggering 800 billion Shillings (6.8 billion euros) in 2019 to service its debts, becoming the third indebted country behind Angola at 36 billion euros and Ethiopia at 11 billion euros.

 

 
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