The port of Mombasa to be taken by the Chinese if the state defaults on the Sh364 billion SGR loan.
The Auditor-General states that the assets of Kenya Ports Authority were used as security for the Sh363.96 billion Standard Gauge Railway loan.
In a statement tabled in Parliament, the Auditor General reveals officially for the first time that Kenya abandoned its immunity in the case of a legal conflict linked to a default of servicing the loan.
The borrowers; KPA and Kenya Railways Corporation gave up a call to any immunity from legal proceedings or any of their assets.
This would be in honour of any cases filed today or in future in connection with the agreement.
“Under this clause (17.5) the borrowers – KPA and KRC - agree that any proceedings against them or their assets in connection with the agreement, no immunity from such proceedings shall be claimed by it or concerning its assets.
“…and they irrevocably waive any right of immunity whether characterised as sovereign immunity or otherwise,” part of a private statement surfaced signed by former Auditor General Edward Ouko in April 2019, reads.
KPA is now committed to as the borrower, opposed to earlier details that KPA’s only responsibility was to promote or rather guarantee minimum freight volumes.
This means failure on the part of Kenya in honour of the SGR loans would see the country submit KPA assets, the main one being the Mombasa port.
“KPA assets are presented to the risk of takeover by the lender since the authority signed the payment arrangement agreement,” the audit reads.
“KPA shall make good any shortfall arising either on account of failure to reach the minimum volume of cargo.”
"It will be expected to pay Kenya Railways such an amount as is expected to make good the shortfall within 30 days after completion of reconciliation.”
“If KRC defaults to pay China Exim Bank freight and service charges, KPA would be enforced to deposit the amount due to KRC to a bank account nominated by the Exim Bank.”
The auditor denounced that the two agreements in respect of the SGR loan from the Export-Import Bank of China(EXIM) signed in November 2014 were not presented for audit review.
The repayment of the principal and payment of the interest and fees on loans are to be secured by the long-term service contract.
KPA and KRC are required to guarantee a minimum amount of freight throughout the term of the agreement to be charged and collected by the operator.
China Road and Bridge Corporation, which built the railway, holds the record through Africa Star Operations – its Kenya subsidiary.
By this, the CRBC is paid the funds which the agreement said would be used to secure the repayment of principal and interest.
Kenya is imperilled in the sense that all conflicts not settled by mutual agreement of the two parties referred to the China International Economic and Trade Arbitration Commission.
“The place of arbitration shall be Beijing, PRC. The language of the arbitration shall be English. Each arbitration award shall be final and binding on all parties,” the agreement reads, as quoted in the audit report.
The statement means all KPA revenue would be used to pay Kenya’s debt to the China Exim Bank if the minimum cargo volumes are not met.
Ouko noted that the information was not disclosed in the KPA financial statements as required of accounting practice.
“It appears from the payment arrangement agreement that KPA revenue and assets have expressly guaranteed the repayment of Sh363.96 billion financing the SGR, a material fact which has not been disclosed,” the audit reads.
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