Melanated People

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China could seize Mombasa port in Kenya over Sh364bn SGR loan.

The port of Mombasa could be under the control of the Chinese if the government defaults on the Sh364 billion SGR loan. A report 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. “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,” the report, which has just surfaced despite being signed by former Auditor General Edward Ouko in April 2019, reads. 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. KPA and KRC are required to guarantee a minimum amount of freight throughout the term of the agreement to be charged and received by the operator China Road and Bridge Corporation, which built the railway, holds the contract through Africa Star Operations its Kenya subsidiary. By this, the CRBC is paid the monies which the agreement said would be used to secure the repayment of principal and interest. Kenya is further exposed in the sense that all disputes not settled by mutual agreement of the two parties are to 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,” the agreement reads, as quoted in the audit report. The auditor said the agreement means all KPA revenue would be used to pay Kenya’s debt to the China Exim Bank if the minimum cargo volumes are not met. Ouko further pointed out that the information was not disclosed in the KPA financial statements as required of accounting practice. The argument is that such disclosure reveals the impact of particular transactions, other events and conditions on the entity’s financial position and performance. “It appears from the payment arrangement agreement that KPA revenue and assets have expressly guaranteed the repayment of Sh363.96 billion financing the SGR, a material fact which has not been disclosed,” the audit reads. The SGR loan agreement is a tightly guarded secret which China itself, citing its laws, said cannot be revealed.

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