Kenya Railways lost over Ksh3.5 billion to the company operating the Standard Gauge Railway (SGR) in the agreement contract.
According to reports, Kenya Railways was compelled to lend the Chinese operator Ksh3.5 billion in a sweetheart deal without any interest on repayment and generous grace period.
Yesterday, it was revealed that the SGR is not directly run by China Road and Bridge Corporation (CRBC), a State-owned Chinese company with Kenyan offices, as agreed in the initial contract.
Instead, the line is operated by a “special purpose operating company” formed in May 2017, Africa Star Railway Operation Company, which received the Ksh3.5 billion ‘loan’.
A special reserve account was also set up to be maintained with Ksh3 billion to cushion the operator.
The contract also put punitive clauses pushing Kenya to start operating the railway by June 1, 2017. Any delay in starting the line would attract a fine of Ksh24.2 million a day, the contract shows.
The company is majority-owned by CRBC, but the other shareholders remain a mystery with details unavailable at the Registrar of Companies in Nairobi.
The revelations come at a time when the project is unable to generate enough money to sustain its daily operations, depending on the government for budgetary allocations to fund its expenses.
The project built through Chinese loans could face more hurdles, as the maturity of the loans will be on January 2020.
In the first year of operations, the project generated Ksh5.7 billion.
According to data from Kenya Railways Corporation, the project has largely benefited foreigners and not Kenyans as initially ‘intended’.
According to the data, for every 7.8 tonnes of cargo ferried inland by the trains, just 1.01 tonnes is railed back to the port.
The data reveals that since inception, 3.7 million tonnes have left the port through the railway service with only 484,197 tonnes ferried back via SGR.
The government ferries approximately 300 containers every month on SGR after a circular was issued in mid-2018, requiring that all government agencies use the SGR to transport their goods.
The operator, Africa Star Railway Operation Company, is now demanding a whooping Ksh30 billion from Kenya Railways, which it terms as ‘pending payments’ and a penalty of Ksh800 million for late payments.