Members of Parliament now want a clause in the Sh364 billion Standard Gauge Railway (SGR) loan agreement with China, which attaches the Port of Mombasa as collateral, to be reviewed.
The National Assembly’s Public Investments Committee (PIC) says in a report submitted to the House that the loan agreement against the Kenya Port Authority (KPA) has been distorted and should be renegotiated.
The committee, chaired by Mvita MP Abdulswamad Nassir, says the Loan Repayment Agreement lists KPA and Kenya Railways Corporation (KRC) as borrowers and is therefore obliged to the Repay loans owed to China Exim Bank in case of default.
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Ken ia has waived its immunity on the matter, meaning the country would surrender KPA assets, the most important being the Port of Mombasa, if it does not repay.
“A reading of the agreement left no doubt that KPA and KRC were borrowers and were obliged to repay the loan through their assets without immunity. This put KPA’s assets at risk in the event of a default,” reads the report.
Renegotiate payment agreement
“The committee recommends this to The National Treasury should renegotiate the entire payment arrangement to release KPA from the contract and replace it with KRC,” the report said. In response, KPA said it was not competent to exercise sovereign authority and therefore could not invoke sovereign immunity.
“Only the Government of Kenya had such authority . The clause could not be enforced against KPA. This was an error that was obvious at first glance,” said KPA. It added that it did not have copies of the preferential loan agreement as it was not a party to the agreements.
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More shockingly, the committee found that the placement of KPA in repaying the loan was without the approval of the board, the senior ministry and cabinet. According to the report, the repayment of the Loan Agreement in Clause 17.5 referred to KPA as the borrower, contrary to the statement that KPA’s only obligation was to facilitate minimum freight volumes in order to meet the requirements of the long-term service agreement.< h2>Free market
“It was unthinkable that KPA could sign an agreement with KRC, which would agree to allocate a certain amount of goods for transport through the SGR and to be held liable in the event of failure in a free-market economy where hauliers were free to use any mode of transport, including the road,” the report said. If KRC fails to pay the freight and service charges levied by China Exim Bank, KPA would be forced to deposit the amount owed to KRC into a bank account designated by the bank.
Both KPA and KRC indicated to the committee that the required tonnage had not been reached, forcing KPA to pay China Exim Bank through KRC.
The Report, however, does not disclose the amount paid by KPA to China so far. According to the report, the loan amount consisted of a Sh161.6 billion preferential loan agreement dated May 11, 2014 and a Sh202.36 billion buyer loan agreement dated May 11, 2014, all for Sh363.96 billion from China Exim Bank.
Separate Loan Agreements
However, the Committee noted that the two loans had separate agreements that were not submitted for review. In a shocking revelation included in the report, both KPA and KRC management claimed no access to such documents.
The two loan agreements were also not presented to Parliament. The committee’s written requests to Attorney General Paul Kihara and the National Treasury for production of the documents remained unanswered until the report was presented to the House of Representatives.
The Committee recommended that the Chief Civil Officer submit the two SGR loan agreements to the Office of the Comptroller General for review during the 2022/2023 audit cycle. The committee has also objected to the terms of the agreement, which it stresses are unfavorable to KRC, the government and KPA, as all disputes should be referred to China.
Subject to the agreement in Section 17.2, disputes by either party shall be referred to the China International Economic and Trade Arbitration Commission (Cietac) for arbitration in accordance with applicable Cietac Rules. The place of arbitration is Beijing.
The report is scheduled for consideration by the House of Representatives next week.