The Chinese government could take over the Port of Mombasa over Ksh363.96 billion Standard Gauge Railway (SGR) loan, the auditor general Nancy Gathungu has warned.
According to the report tabled in Parliament, the Kenyan government used assets of Kenya Ports Authority (KPA) as security in the loan agreement.
The report signed by former Auditor General Edward Ouko in April 2019 revealed that KPA and Kenya Railways Corporation gave up claim to any immunity from legal proceedings or any of their assets, in case the government defaulted.
“Under this clause (17.5) the borrowers – KPA and KRC – agree that any proceedings against them or their assets in connection with the agreement, no immunity from such proceedings shall be claimed by it or with respect to its assets…and they irrevocably waive any right of immunity whether characterised as sovereign immunity or otherwise,” read the report in part.
In the contract cited by the auditor, KPA shall make good any shortfall arising either on account of failure to reach the minimum volume of cargo.
“KPA assets are exposed to the risk of takeover by the lender since the authority signed the payment arrangement agreement. 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,” added the audit report.
Contractual agreements regarding the loan from Export Import Bank of China were not provided for audit, according to the report.
Also, any arbitrations will be referred to the China International Economic and Trade Arbitration Commission.
“The place of arbitration shall be Beijing, PRC. The language of arbitration shall be English. Each arbitration award shall be final and binding on all parties,” adds the report.
The government is already facing difficulties in repaying the loan, with Ksh162 billion loan for Nairobi-Naivasha line starting on January 21.