Kenya was running the risk of losing control of the Port of Mombasa if it should default on loans from state financial institution China Exim Bank, according to a report from Kenya’s auditor general.
The terms of a $2.3bn loan for Kenya Railways Corporation (KRC) specified that the port’s assets were collateral, and that, due to a waiver in the contract, they would not be protected by Kenya’s sovereign immunity.
KRC accepted the multi-billion-dollar loan in order to build the Mombasa-Nairobi standard gauge railway (SGR), with construction services provided by China Roads and Bridges Corporation (CRBC), a division of state-owned conglomerate China Communications Construction
“The payment arrangement agreement substantively means that the Authority’s revenue would be used to pay the Government of Kenya’s debt to China Exim bank if the minimum volumes required for [rail] consignment are not met,” auditor FT Kimani wrote. “The China Exim bank would become a principle over KPA if KRC defaults in its obligations.”
In addition, as specified in the contract, any dispute with China Exim Bank would be handled through an arbitration process in China, not in Kenyan courts.
The auditor general note that the Kenya Port Authority had not disclosed these arrangements in its financial statements.
The report was leaked to the public via unofficial channels.
In an interview with Kenyan media, KPA managing director Daniel Manduku expressed confidence that the contract clauses would not cause difficulties. “There is no risk of losing the port. In fact, we will pay this loan ahead of time,” he said.