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Renegotiate SGR loan terms to avoid default, House tells Kenyan Treasury

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SGR cargo train at the Nairobi terminus on April 27, 2019. Kenyan law makers want the government to renegotiate the loan agreements signed with China for the Standard Gauge Railway (SGR). PHOTO | FILE | NMG 


Kenyan law makers want the government to renegotiate the loan agreements signed with China for the Standard Gauge Railway (SGR) whose viability has come into question despite injection of billions of dollars into the project.

The EastAfrican has learnt that the National Treasury is seeking a whopping Ksh94 billion ($940 million) in interest and principal instalments to pay off the Chinese government, Chinese Exim Bank and the China Development Bank before the end of this month.

Interestingly, this amount excludes the Ksh38 billion ($380 million) in accumulated bills owed to Africa Star Railway Operation Company Ltd (Afristar) the Chinese firm operating the railway line.

In April, Treasury Cabinet Secretary Ukur Yatani tabled a supplementary Budget before parliament seeking approval to allocate funds to pay off the Chinese Government Ksh180.71 million ($1.8 million), Chinese Exim Bank Ksh71.4 billion ($714 million) and China Development Bank Ksh22.34 billion ($223.4 million).

During the mini-budget Mr Yatani reduced the debt redemption (excluding interest) to the Chinese Exim Bank by Ksh10.53 billion ($105.3 million) to Ksh23.03 billion ($230.3 million) from Ksh33.56 billion ($335.6 million).

But it remains unclear whether there was an agreement with Chinese Exim Bank or the amount will be carried forward as pending bills.

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“There are some investment decisions we have taken that are not in the best interest of the country, so it is time we start re-evaluating them and renegotiating with people who gave us the money so that we are able to survive. We must renegotiate our debts with the Chinese otherwise we are headed for a very difficult time,” Kimani Ichung’wa, chairman of the Parliamentary Budget and Appropriate Committee told The EastAfrican.

“It is very easy to resolve this issue of loan repayment by just sitting down with the Chinese and telling them we made a mistake. We owe you all this money but you are also demanding so much from us in terms of repayment. This is a debt. Look, our economy is beaten and we are not able to pay. We are not saying the debt is not there, but we simply want to renegotiate what we owe you and the terms of payment.”

Beijing, the single largest creditor to Africa, has already agreed to suspend both principal repayments and interest payments starting May 1, 2020, until the end of the year for many African countries struggling to cope with the effects of the Covid-19 pandemic.

According to Mr Ichung’wa the heavy investment in SGR, particularly the section between Nairobi and Naivasha is questionable in terms of its viability.

“It time we ask ourselves what we are getting from the SGR and take a walk down to Naivasha. How many trains utilise this railway?” queried Ichung’wa.

“If you read our Public Investments Committee report in the past parliament, you know that the viability of the line ends here (Nairobi), unless if you interconnected the port of Mombasa with landlocked countries, but without that interconnection, it is not possible.”

Kenya has been pushing for compulsory freight from Mombasa to Naivasha via the SGR to make it economically viable, a move that has put the country on to a collision course with some of its regional peers and truck drivers.

Early this month, the presidents of Kenya, Uganda, Rwanda and South Sudan agreed vide a virtual meeting that all goods imported through Kenya with final destinations being neighbouring landlocked countries be transported on the SGR from Mombasa to Naivasha Inland Container deport.

However, Uganda backed out of the deal arguing the use of SGR should be optional and not compulsory.

On the other hand, truck drivers complain loss of jobs and businesses if forced to use the SGR to ferry cargo.

Kenya completed its initial phase of the 487 km SGR line from Mombasa to Nairobi at a cost of $3.8 billion with the bulk of the loan secured from the Chinese Exim Bank in May 2014 with a grace period of five years and repayment period of 15 years. It also secured a further $ 1.5 billion loan from the same bank to extend the SGR network to Naivasha, 120 km west of Nairobi.

But Madaraka Express operating between Mombasa and Nairobi is not generating enough revenues to cover its operational costs and repay the loans whose repayment starts in the current the fiscal year (2019/20).

Although Kenya has completed its initial phase of the project linking Mombasa to Nairobi, and the second phase from Nairobi to Naivasha the subsequent phases from Naivasha to Kisumu and then to Malaba (Uganda) has stalled largely due to funding constraints.

Concerns over SGR’s viability have caused Uganda to show little enthusiasm for the grand project prompting the government to consider restoring the old railway line linking Kampala to Malaba on the Kenyan border.

—— AUTO – GENERATED; Published (Halifax Canada Time AST) on: June 22, 2020 at 07:41PM

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