Kenya’s key strategic assets at home and abroad will not be protected by “sovereignty” and risk being seized by the Chinese government should there be a default in repaying the Standard Gauge Railway loan, a copy of the contract reveals.
The initial agreement for the Mombasa-Nairobi railway signed on May 11, 2014 also details how the pact will be governed by Chinese laws with all disputes being arbitrated in Beijing.
In addition, the contract, and a subsequent one on the Nairobi-Naivasha phase, also have a confidentiality clause gagging Kenya from making the deal public “without prior written permission of the lender (China)”.
Kenyan media has been awash with reports that Chinese could seize the Port of Mombasa over SGR loan. However, the signed SGR deal suggests the risks go beyond the port.
“Neither the borrower (Kenya) nor any of its assets is entitled to any right of immunity on the grounds of sovereignty or otherwise from arbitration, suit, execution or any other legal process with respect to its obligations under this Agreement, as the case may be in any jurisdiction,” Clause 5.5 of the Preferential Buyer Credit Loan Agreement on the Mombasa-Nairobi SGR reads.
According to Daily Nation, The contract is signed by National Treasury Cabinet Secretary Henry Rotich and Mr Li Riogu, then-Chairman and President of the State-owned Export-Import (Exim) Bank of China.
In the deal, Kenya is also compelled to import goods, technology and services from China.
The deals also allows the Chinese lenders to take over other critical resources — anything from airports and natural resources to embassies abroad.-Daily Nation reported.
“Without the prior written consent of the lender (China), the borrower shall not disclose any information hereunder or in connection with this agreement to any third party unless required by applicable law,” the confidentiality clause reads.
But even more intriguing is the clause in the contract that says any disputes on the loan would only be resolved in Beijing through the China International Economic and Trade Arbitration Commission (Cietac).
“The arbitration award shall be final and binding on both parties. The arbitration shall take place in Beijing,” the agreement says, effectively blocking other international commercial dispute resolution avenues.
Kenya has further signed never to dispute the choice of Cietac as an arbitrator and to take its decision.
In the SGR contract, the Exim Bank also makes it a mandatory requirement that the commercial loan be insured by the China Export and Credit Insurance Corporation (SinoSure).
All charges regarding the management of the loan, which run into billions of shillings, are to be paid by Kenya.
Apart from the $1.6 billion commercial loan and $1.6 billion concessional loan from the China Exim Bank to build the first phase of the SGR, several other loan deals have been signed, stirring debate on Kenya’s ability to repay.
However, the financial viability of the SGR passenger and freight service has remained a subject of debate since its launch in May 2017.
CRBC, the Chinese operator of what is the biggest single infrastructure project since independence, is reportedly paid at least Sh1 billion per month to run the service.
But in another strategy to secure the Chinese lenders, according to the contract, two escrow accounts were set up with full control of the Chinese – especially at default or when railway revenues fail to meet the loan obligations.
The agreement states that while the revenue account would be in Kenya Shillings, the repayment one would be in US Dollars.
Any costs associated with the running of the accounts are to be borne by Kenya.
One alternative source of funding for Kenya to cover its part in financing was agreed to be the establishment of the Railway Development Levy on all imports into the country.
The government also in its financing model for the project would initiate road transit toll levy, green tax in new vehicle registration and an insurance levy, fuel levy and the sale of the current Metre Gauge Railway — assets estimate to be capable of raising Sh41 billion.
There would also be various port levies on imports and exports in addition to a road haulage tax to discourage the use of trucks and divert some cargo to the railway.
The Chinese lender, according to the contract, has the prerogative to open an account in Kenya’s name and keep records of the loan balance.
Kenya, which has little control over the account, is expected to accept the bank records as the
In a memo (No. 3073) to the Board of Directors, Mr Muli warned that Kenya would get a bad deal if it did not carry out its own feasibility study to find out the most suitable route, cost and financing modalities, in line with “normal practice in infrastructure projects”.
But Mr Muli would later realise the Chinese had been secretly conducting their own feasibility study, and his March 16, 2008 letter was three months late. He received their report six days later. Nevertheless, he made his point.
“The government does not have information to safeguard its interest during negotiation of the proposed G-to-G (government-to-government) arrangement and also during construction to ensure the envisaged specifications and benefits of the new railway line are achieved,” he wrote to the board, claiming Kenya Railways had been sidelined.
When Kenya Railways finally gave its assessment of the Chinese study, it was scathing. The Chinese were overly optimistic.
Read full story here: SGR pact with China a risk to Kenyan sovereignty, assets