Legislators are now calling for the review of the Sh364 billion Standard Gauge Railway (SGR) financing contract with China that ties the Port of Mombasa as collateral.
The secrete clauses presumes Mombasa Port is the borrower and therefore it can be seized by the financier in case of default in servicing the exorbitant loans by the government.
According to a report filed before the National Assembly’s Public Investments Committee (PIC), the loan deal was biased against the Kenya Ports Authority (KPA) and should be renegotiated.
According to the Mvita Member of Parliament (MP) Abdulswamad Nassir led committee, the loan repayment agreement names KPA and the Kenya Railways Corporation (KRC) as borrowers who are obligated to repay the amount owed to China Exim Bank in the event of default.
Kenya waived her immunity in the lawsuit which means the country will hand over KPA assets, the Mombasa Port’s most importantly if it fails to settle the loans.
“The committee recommends that the National Treasury renegotiate the entire payment arrangement agreement to discharge KPA from the contract and replace it with KRC,” the report says. KPA, in its response, said it could not hold sovereign authority and therefore could not plead sovereign immunity.
Equally alarming, the committee discovered that the placing of KPA in loan repayment was done without the agreement of the board, senior ministry, or Cabinet.
The repayment of the loan agreement in article 17.5, according to the report, referred to KPA as the borrow even though that KPA’s only obligation was to permit minimum freight volumes to meet the criteria of the long-term service agreement.
“It was inconceivable that KPA could sign an agreement with KRC agreeing to provide a certain tonnage of goods for transport through the SGR and be held liable in the event of a failure in a free-market economy where transporters were at liberty to use any mode of transport including road,” reads the report.
In the event of failure by KRC to pay China Exim Bank collected freight and service charges, KPA would be compelled to deposit the amount due to KRC into a bank account designated by the bank.
Both KPA and KRC informed the committee that the required cargo had not been met, forcing KPA to pay China Exim Bank through KRC.
The document, however, does not specify how much money KPA has already paid to China.
The loan amount comprised a preferential credit loan arrangement from China Exim Bank for Sh161.6 billion and a buyer credit loan agreement from the same date for Sh202.36 billion, totaling Sh363.96 billion.
However, the committee noticed that the two loans had separate agreements not presented for audit examination.
According to a stunning disclosure in the report, both the KPA and KRC administration claimed to have no access to such documents.
The consumer lending agreements were also not supplied to Parliament. The committee’s written demands for submitting the documents to both Attorney-General Paul Kihara and the National Treasury went unanswered until the report was tabled in the House.
The panel suggested that the Head of the Public Service submit the two SGR loan agreements for verification to the Office of the Auditor-General during the 2022/2023 audit cycle.
The committee has also criticized the agreement’s conditions, claiming that they are unfavorable to the KRC, the government, and the KPA because all problems will be resolved in China.
In the agreement, in a disagreement, any party may refer it to the China International Economic and Trade Arbitration Commission (Cietac) for arbitration in line with Cietac’s applicable rules.