Kenya on the Verge of Losing Strategic Assets to China Over Piling SGR Debt - Claims a Leading Nigerian Daily

Kenya is on the verge of falling into a debt trap and losing a part of its sovereignty to China thanks to unscrupulous and dodgy deals it had to be agreed with in order to secure funds for construction of a railway line between the port city of Mombasa and Nairobi - a leading Nigerian daily, The Guardian, reports.

Initially, the fears were restricted to only losing Mombasa port, however, some leaked documents show the risk is beyond the port.

"Neither the borrower (Kenya) nor any of its assets is entitled to any right of immunity on the grounds of sovereignty or otherwise from arbitration, suit, execution or any other legal process with respect to its obligations under this Agreement," - reads clause 5.5 of the Preferential Buyer Credit Loan Agreement on the Mombasa-Nairobi SGR.

The blanket reference to 'any asset' exposed vulnerability of Kenya in case of default as Chinese can take over critical resources such as airports, natural key resources or even diplomatic missions abroad.

Global ratings firm Moody’s Investor Service also has raised concerns over Kenya losing strategic assets to China over the pile of debt it owes Beijing. 

Interestingly, the clauses of the loan pact not just bars Kenyan government from sharing the details with people but also asserts the agreement would be "governed by and construed in accordance with the laws of China". 

Another clause also gives China the "right to refuse" any payment Kenya manages to secure to offset the Chinese loan in lump sum.

Kenya’s is already falling behind in its debt service payments for the SGR line where it is supposed to pay USD888 million in interest and principal instalments to clear off the Chinese loans.

Kenya’s debt stock/Source - GoK.

In the event of a dispute that is now very likely, Kenya would have no option but to agree with Beijing’s terms as one clause in the Mombasa- Nairobi loan pact says any disputes on the loan would only be resolved in Beijing through the China International Economic and Trade Arbitration Commission (Cietac). And shockingly, Kenya has been made to sign that it would never dispute the choice of Cietac as an arbitrator and to take its decision.

If one studies the clauses in the loan agreement in detail, one could easily come to conclusion that Kenya would not be able to repay the loan and thus allowing China to seize Kenyan assets.

The possibility of the impending disastrous situation was predicted after Kenyan government ignored carrying out own feasibility study to find out appropriate route, financial modalities, cost and revenue.

CHART OF INTEREST

Credit/Statista

Interestingly, Chinese carried out own feasibility study secretly but it lacked market study or financial modelling reports to indicate viability. The study also lacked an environmental and social assessment.

Were the Chinese not aware about possible fall in revenue?

The overall behaviour of Beijing in this episode raises doubts over its intentions. Two escrow accounts were established in order to safeguard lenders in the wake of default by Kenya.

However, both accounts were set up with full control of Chinese, a clear departure from the global norm of hiring a neutral party.