The port of Mombasa could be under the control of the Chinese if the government defaults on the Sh364 billion SGR loan.
The Auditor General reveals that the assets of Kenya Ports Authority were used as collateral for the Sh363.96 billion Standard Gauge Railway loan.
In a report tabled in Parliament, the Auditor General reveals officially for the first time that Kenya waived its immunity in the event of a legal dispute linked to default of servicing the loan.
The borrowers – KPA and Kenya Railways Corporation – gave up claim to any immunity from legal proceedings or any of their assets.
This would be in respect of any cases filed today or in future in connection with the agreement.
In what brings the risk closer to home, KPA is referred to as the borrower, contrary to details that KPA’s only obligation was to facilitate or rather guarantee minimum freight volumes.
This means a default on the part of Kenya in respect of the SGR loans would see the country surrender KPA assets, the main one being the Mombasa port.
“KPA assets are exposed to the risk of takeover by the lender since the authority signed the payment arrangement agreement,” the audit reads.
Also troubling, the auditor pointed out, is that “KPA shall make good any shortfall arising either on account of failure to reach the minimum volume of cargo.”
It will be required to pay Kenya Railways “such an amount as is required to make good the shortfall within a period of 30 days after completion of reconciliation.”
“In the event that KRC defaults to pay China Exim Bank freight and service charges, KPA would be compelled to deposit the amount due to KRC to a bank account designated by the Exim Bank.”
The auditor decried that the two agreements in respect of the SGR loan from the Export Import Bank of China signed in November 2014 were not provided 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 agreement.