China Eximbank provides $1.6 billon preferential buyer's credit for Phase 1 of the Standard Gauge Railway Project (Linked to #37103, #47025)

On May 11, 2014, China Eximbank and the Government of Kenya signed two loan agreements worth $3.604 billion for Phase 1 of the Standard Gauge Railway Project (or the Development of Mombasa to Nairobi Standard Gauge Railway Project). The first was a buyer’s credit loan (BCL) worth $2,003,584,028.87 and it was provided on the following terms: 5 year grace period, 15 year maturity, Libor + 3.6% interest rate (USD 6-month LIBOR for May 2014 used: 0.323%+3.6%=3.923%), 0.75% commitment fee, 0.75% management fee, and 6.93% insurance premium. Sinosure provided buyer’s credit insurance for the BCL. The second loan (see #31777) was a preferential buyer's credit (PBC) worth $1,600,000,000 and it was provided on the following terms: 2 percent interest rate, 7 year grace period, 20 year maturity, 0.75% commitment fee, and a 0.75% management fee. In order to facilitate repayment of its debts to China Eximbank, the Government of Kenya agreed to levy a new tax on imported goods and deposit rail traffic revenues in an escrow account. The Kenyan Government was also criticized by civic monitors and the country's Auditor General for agreeing to a sovereign immunity waiver in the loan agreement, which purportedly creates the possibility that China Eximbank could seize assets of the Kenya Ports Authority (KPA), such as Mombasa Port, in the event of loan default.The purpose of this project was to construct a 485 km railway from the Kenyan port of Mombasa to Nairobi and then onward to Uganda, Rwanda, Burundi, and South Sudan. The railway will have a total track length of 609 km. The project sought to transport passengers and cargo from Nairobi to the southeastern port city of Mombasa at 120 kilometers per hour, thus reducing travel time between Nairobi and Mombasa from more than 10 hours to more than 4 hours. The project is also expected to reduce travel times and transport costs by as much as 60 percent. If properly implemented, the Kenyan government estimated that the railway would increase the country’s annual rate of economic growth by 1.5 percentage points. $2.5 billion of the loan proceeds were earmarked for the standard gauge railway (SGR) construction and $1.25 billion of the loan proceeds were earmarked for rolling stock which include trains and wagons. China Road & Bridge Corporation (CRBC) was selected as the contractor responsible for project implementation, and Kenya Railway Corporation (KR) supervised its work. The project was initiated on December 12, 2014, and completed on May 31, 2017, eighteen months ahead of schedule.President Kenyatta scheduled the completion ceremony just two months before voters would go to the polls and on Madaraka Day—a national holiday that commemorates the day when colonial Britain granted Kenya the right to internal self-rule. At the project completion ceremony, President Kenyatta gave a speech and said that “[our] history … was first started 122 years ago when the British, who had colonised this nation, kicked off the train to nowhere ... it was then dubbed the ‘Lunatic Express’. Today... despite again a lot of criticism we now celebrate not the ‘Lunatic Express’ but the Madaraka Express that will begin to reshape the story of Kenya for the next 100 years.'In 2018, the SGR project became a target of an anti-corruption drive by Kenya's Department of Public Prosecutions (DPP). According to Reuters, the “Kenyan authorities … arrested the head of the agency that manages public land and the boss of the state railway on suspicion of corruption over land allocation for the new $3-billion flagship Nairobi-Mombasa railway. … Mohammed Abdalla Swazuri, the chairman of National Land Commission, was one of 18 officials, businesspeople and companies named in a statement listing arrests that was posted …on the prosecutor’s office’s Twitter feed. Also arrested was Atanas Kariuki Maina, managing director of the Kenya Railways Corporation. …The investigation that led to the arrests centers on allegations that officials siphoned taxpayer money through [fraudulent] compensation claims for land used for the railway.'

Additional details

In December 2018, a letter from Kenya’s Auditor General to the Kenya Ports Authority was leaked to the media. It suggested that the Port of Mombasa’s assets were sources of collateral that could be seized in the event that the Kenyan government could not repay its loans to China Eximbank. The letter also suggested that the Kenyan government had waived its sovereign immunity rights in order to make this pledge of collateral. The possibility that Beijing would seize a strategic asset like the Port of Mombasa provokes a public outcry in Kenya. President Kenyatta dismissed the criticism that the Kenyan government had mortgaged the Port of Mombasa to Beijing as “pure propaganda.” He told a group of journalists that “if you want a copy of the [SGR loan] contract we have with China I can get it to you tomorrow. […]”. But neither the BCL contract nor the PBC contract was ever made public. It is unclear if any of the Port of Mombasa’s assets are identified as sources of collateral in the BCL contract or the PBC contract.

Number of official sources

19

Number of unofficial sources

20