Kenya might lose strategic port to China

Kenya might lose its principal seaport in Mombasa to China, if it defaults on the loan it took to build the Standard Guage Railway (SGR) that runs from the port city of Mombasa to capital city Nairobi, Kenya’s Auditor General Edward Ouko have stated in a report.

According to the report, the payment agreement translates to the revenue of the Kenya Ports Authority (KPA) being used to clear the debt.

“Exim Bank would become a principle over KPA if KRC defaults in its obligations and the Chinese bank exercises power over the escrow account security,” a management letter sent to the KPA reads.

China had funded the SGR through the Exim Bank of China which granted Kenya a loan of $3.6 billion in August 2013, maturing in 2023. The Asian powerhouse is also funding other sections of the SGR, including the $3.8 billion Naivasha-Kisumu phase, which Kenya’s President Uhuru Kenyatta wants China to fund as a combination of loan and grant.

The project lays credence to the concerns raised by critics of China’s debt diplomacy and seeming neo-colonisation in Africa. As things stand, part of the project which is up and running is not earning enough revenue to fund its running cost. As Kenyan journalist Paul Wafula wrote in local newspaper The Standard on Sunday, monthly operational cost of the Nairobi-Mombasa section of the SGR equals about Sh1 billion. However, the railway made just Sh590 million from ticket sales from June – December 2017. There are also issues of corruption perpetrated by Chinese staff of China Roads and Bridge Corporation (CRBC) at the SGR Mombasa Terminus, which operates Kenya’s passenger train service dubbed Madaraka Express. These developments point to risks of default for Kenya, which the Auditor General highlighted in a management letter reportedly signed by one Mr FT Kimani on behalf of the Auditor General.

China’s loans through its state-owned lenders such as the China Exim Bank are collateralised by strategically important national assets such as ports or mineral resources. According to reports, Kenya Ports Authority (KPA) was used as collateral for the loan that funded the SGR. The reports alluded to the fact that KPA was referred to as the borrower in the agreement with Chexim, hence waiving sovereign immunity that might stop China from taking an action in case of default. Reports further put details of the agreement as saying disputes would be referred to China for arbitration, showing an advantage for China. While Kenya would see its largest infrastructure project ever as a huge achievement, China is the main beneficiary of the SGR. Apart from the fact that construction was handled by Chinese companies, equipment supply was also handled by China, as well as the management of the passenger train Madaraka Express. The project also fits well into China’s Belt and Road Initiative (BRI), through which the country intends to build a China-centered trading network.

If Kenya defaults on its loan to China, the country might well take over the ports as reports have suggested. Beijing has exercised its powers in this regard in several parts of Africa and Asia. Djibouti was forced to lease strategically positioned land to China, having found itself burdened with loans from China.

Sri Lanka had to forfeit its strategically located Hambantota port to the Chinese as it could not pay its debts to the country. There are also reports that Zambia risks losing its state utility Zesco to China due to Chinese loans it is struggling to repay.

With public debt reaching Sh5.1 trillion, Kenya spends 29 percent of revenues on debt servicing. Yet, there are other projects planned for Chinese funding.

While there are arguments, that seem to be in favour of Chinese diplomacy, calling on African governments to be responsible and ensure Chinese debts are in the best interests of their respective countries, it is easy to indulge in loans from China; they are cheap and easy to come by. But Africa has to be very careful.