Kenyan President Uhuru Kenyatta on Friday denied reports that China is preparing to seize the strategic port of Mombasa as compensation for delinquent loan payments, denouncing reports of the impending seizure as “propaganda.”
“We are ahead of our payment schedule for the SGR loan and there is no cause for alarm,” Kenyatta claimed.
“You have seen the Chinese Government say that nothing like that exists. If you want a copy of the contract we have with China I can get it to you”
Kenyatta described China as “a very strong development partner, just as is the World Bank, Japan, France, and Germany.” He said he would continue borrowing as much money as necessary to develop Kenya’s infrastructure, boasting that double the number of Kenyans now have access to electric power thanks to the loans he has taken.
SGR refers to the Mombasa-Nairobi Standard Gauge Railway, an enormous project folded into China’s Belt and Road international infrastructure program. The SGR has long been cited as an example of Chinese debt imperialism because the project required almost $5 billion in Chinese loans but is projected to lose $100 million from its first full year of operation, and may never actually turn a profit. The impending expiration of special promotional tariff rates, implemented to lure more cargo onto the under-utilized railway, may drive customers away and reduce the revenue stream even more.
The African Stand, which has published numerous articles portraying the SGR as a project deliberately intended to lose money so Beijing’s bill collectors could set about grabbing Kenyan assets, reported two weeks ago on rumors that plans to seize the Mombasa port and the Inland Container Depot in Nairobi are in motion.
The article was based largely on a report from the Kenyan Auditor General that said China’s loan agreements with Kenya make it possible for Beijing to seize the assets of the Kenya Port Authority (KPA), and the financial realities of the massive loan payments and underperforming railroad make this outcome all but inevitable:
“The China Exim Bank would become a principle in (over) KPA if Kenya Railways Corporation (KRC) defaults in its obligations and China Exim Bank exercise power over the escrow account security,” the audit reads in part.
[…] F.T Kimani, the auditor, cited in his report that KPA’s exposure is linked to a requirement that it feeds sufficient cargo to the Chinese-built railway project.
Failure to provide the requisite cargo would mean Kenya has gone against a critical clause in the loan agreement of guaranteeing specified “minimum volumes required for consignment”.
It is also indiscernible how KPA signed the loan agreement as a borrower, in one of the toxic clauses subsequently exposing its assets to the Chinese clamp.
“…any proceeding(s) against its assets (KPA) by the lender would not be protected by sovereign immunity since the Government waived the immunity on the Kenya Ports Assets by signing the agreement,” the auditor wrote.
Repayments for the loans are slated to start mid next year on expiry of a five-year grace period.
The key point in the Auditor General’s analysis is that Kenya waived sovereign immunity for the KPA’s assets, and the terms of the loan heavily favor China’s Exim Bank during potential arbitration hearings. With loan payments set to triple beginning in July, asset seizures could begin as soon as this summer.
This would make Kenyatta’s denials plausible: the loan payments are currently much lower than they will become in the summer, so it is possible Kenya is currently on schedule but will be unable to handle the higher rates to come. The media reports Kenyatta denounced as “propaganda” are speculations about the likely course of events in 2019, not claims that Chinese collections agents are already working on taking control of Mombasa.
As Kenyatta suggested in his press conference, Chinese officials deny they have designs on the port of Mombasa, and in fact challenged the authenticity of the entire Auditor General’s report.
“We have checked with the relevant Chinese financial institution and found that the allegation that Kenyan side used the Mombasa Port as collateral in its payment agreement with the Chinese financial institution for the Mombasa-Nairobi railway is not true,” the Chinese Foreign Ministry said on Christmas Day.