China Eximbank provides $1.39 billion buyer’s credit loan for Phase 2A of the Standard Gauge Railway Project (Linked to Project ID#37103, #31777)

On December 3, 2015, China Eximbank and the Government of the Republic of Kenya (represented by the National Treasury of the Republic of Kenya) signed a buyer’s credit loan (BCL) agreement [Contract No. BLA201508] worth $1,397,927,373.27 for Phase 2A of the Standard Gauge Railway Project (also known as the Nairobi-Naivasha Standard Gauge Railway Project). The BCL carries the following borrowing terms: a 20.5 year maturity, a 5 year grace period, an interest rate of 6-month LIBOR plus a 3% margin, a 0.5% ($6,989,636.87) management fee, a 0.5% commitment fee, and a 1% default interest rate. It is scheduled for 30 semi-annual repayments between January 21, 2021 and July 21, 2036. The loan is backed by a credit insurance policy from China Export & Credit Insurance Corporation (Sinosure). The total cost of the Sinosure insurance premium is $161,875,409.70. The borrower was expected to use the proceeds of the loan (BCL) to finance (a) 85% ($1,260,333,275.02) of the total cost of a $1,482,745,029.40 commercial contract between Kenya Railways Corporation (KRC) and China Road and Bridge Corporation (CRBC), which was signed on September 19, 2015; and (b) 85% of the total cost ($137,594,098.25 out of $161,875,409.70) of the medium-long term buyer’s credit insurance premium from Sinosure. The remaining 15% ($222,411,754.41) of the $1,482,745,029.40 commercial contract cost was to be paid by Kenya Railways Corporation to China Road and Bridge Corporation as counterpart financing. The National Treasury of the Republic of Kenya on-lent the proceeds of the BCL to the project’s ‘end-user’ (Kenya Railways Corporation). The loan is also secured by (i.e. collateralized against) project revenues from the Railway Development Fund (RDF), which are deposited in an escrow account. According to the audited financial statements of Kenya Railways Corporation, the cash balances in the escrow account (Account No. 1203286473) were as follows: KES 239,914,450 (USD 2,327,170.16) in June 2017, KES 241,215,828 (USD 2,388,036.69) in June 2018, KES 2,816,826,324 (USD 27,604,897.97) in June 2019, and KES 2,853,104,749 (USD 26,819,184.64) in June 2020. According to the Government of Kenya’s External Public Debt Register, a loan disbursement of $126,033,327.50 took place between July 1, 2020 and June 30, 2021 (Fiscal Year 2020-2021). The borrower made principal repayments worth $46,101,100.98 between July 1, 2021 and June 30, 2022 (Fiscal Year 2021-2022). The loan’s amount outstanding was $1,256,999,701.81 as of June 30, 2020, $1,383,033,029.31 as of June 30, 2021, and $1,336,931,928.33 as of June 30, 2022. The purpose of the railway extension project was to construct a 120 km railway — including a 5.3 kilometer tunnel to be built in Great Rift Valley and a 6.5 viaduct across Nairobi National Park — that would link special industrial zones in Naivasha (home to the Olkaria geothermal power plants) to Nairobi and Mombasa. The 120 km stretch of railway starts from the west end of the Nairobi South Hub (end point of the Mombasa – Nairobi SGR); then it turns south-westwards through the Nairobi National Park and west past Twala and Ongata Rongai Towns; then it crosses Magadi Road next to the Adventists University and Ngong Road at Embulbul; then it descends into Rift Valley through a tunnel located North-West of Ngong Hills; then it proceeds North-West to the proposed Industrial Parks at Mai Mahiu and Suswa; then it crosses B3 at Duka Moja. China Communications Construction Company and China Bridge and Road Corporation (CRBC) were the contractors responsible for project implementation. This project was formally launched by the President of Kenya on October 19, 2016 (through a foundation stone-laying ceremony). Construction was originally expected to be complete by June 2019. Construction ultimately commenced on January 12, 2018 and reached completion on September 19, 2019. The railway line from Nairobi to Naivasha was opened to traffic on October 16, 2019. However, this project encountered local resistance and provoked significant controversy. In April 2018, China Eximbank reportedly decided to withhold loan disbursements worth KES 32 billion due to a barrage of court cases against the project.

Additional details

1. This project is also known as the Development of Nairobi to Naivasha Standard Gauge Railway Project and the Nairobi-Malaba Railway Project. The Chinese project title is 肯尼亚内罗毕至马拉巴铁路项目. 2. Project ID#37103 and ID#31777 capture the China Eximbank loans for Phase 1 of the Standard Gauge Railway Project. The other phases of this project include Phase 2B (262 km) from Naivasha to Narok to Bomet to Nyamira (which includes a new Kisumu Port) and Phase 2C (107 km) from Kisumu to Yala to Mumias to Malaba. 3. AidData has estimated the all-in interest rate by adding 3% to the average 6-month LIBOR rate in December 2015 (0.764%). 4. The Kenya Electronic Project Management Information System (e-ProMIS) identification and reference numbers for this project are 2014/055202 and CHINA-001, respectively. 5. The loan identification number in the National Treasury’s public debt register is 2015023 (or 2015023_1). 6. The 2014 China Eximbank buyer’s credit loan for the Mombasa-Nairobi Section of the SGR Project can be accessed in its entirety via https://www.dropbox.com/s/5j3alwun2tv8wk2/SGR%20BCL%202014.pdf?dl=0 and https://www.dropbox.com/s/m98rfi886dl3jjd/SGR%20BCL%202014%20Published%20by%20Government%20of%20Kenya.pdf?dl=0. The 2014 China Eximbank preferential buyer’s credit for the Mombasa-Nairobi Section of the SGR Project can be accessed in its entirety via https://www.dropbox.com/s/4r65hnvegvqwzao/SGR%20PBC%202014.pdf?dl=0 and https://www.dropbox.com/s/6ejzkjhjc8yr7cn/SGR%20PBC%202014%20Loan%20Contract%20Published%20by%20Government%20of%20Kenya.pdf?dl=0. The escrow agreement for the Mombasa-Nairobi Section of the SGR Project can be accessed in its entirety via https://www.dropbox.com/s/sseiuktq7zdoim7/SGR%20Escrow%20Agreement.pdf?dl=0. The 2015 China Eximbank buyer’s credit loan for the Nairobi-Naivasha Section of the SGR Project can be accessed in its entirety via https://www.dropbox.com/s/0vhgyylakdrfgac/SGR%20BCL%202015%20Published%20Online%20by%20Government%20of%20Kenya.pdf?dl=0 and https://www.dropbox.com/s/zy6zgzk8cufl6z7/SGR%20BCL%202015.pdf?dl=0. 7. According to Section 12.2 (the ‘Credit Enhancement Arrangement’ Section) of the December 3, 2015 BCL agreement, “[t]he Borrower undertakes and agrees with the Lender that throughout the continuance of this Agreement and so long as the Loan or any other sum remains outstanding, the repayment of principal and payment of interest and fees under this Agreement shall be credit enhanced and secured by the Security Documents (if any) and other relevant arrangements, including without limitation the [Railway Development Fund] which will be applied in priority to repay all loans drawn under this Agreement for the Project. The detailed arrangement of the credit enhancement and security arrangements (if any) will be set out by the Borrower, the Lender and other relevant parties under the relevant Security Documents. The Borrowers shall ensure that the relevant parties will perform their obligations under the relevant Security Documents. The Lender shall be entitled to examine and supervise the execution and performance of the Security Documents. Notwithstanding the existing of the Security Documents, the Borrower shall be fully liable for the payment and repayment obligations under this Agreement. The Borrower’s obligations under this Agreement shall not be affected or undermined by the relevant parties of such Security Documents and the On-Lending Agreement. 8. The December 3, 2015 BCL agreement defines “On-Lending Agreement” as the “loan agreement entered into between the Borrower [The Government of the Republic of Kenya (represented by the National Treasury of the Republic of Kenya)] and the End-User, whereby the Facility is on-lent by the Borrower to the End-User [Kenya Railways Corporation] to implement the Project. 9. According to page 2 of the September 30, 2014 take-or-pay agreement (the ‘Delivery and Movement of Freight to the Embakasi Container Depot’ agreement), ‘the repayment of the principal and payment of interest and fees of the loans are to be secured, inter alia, by a long term service agreement with an aim of guaranteeing a minimum amount of freight throughout the term of the agreements to be charged and received by the operator of the project, which shall be used to secure the repayment of principal and interest. 10. King & Wood Mallesons Beijing Office served as Chinese Counsel to the Lende. Mboya Wangong’u & Waiyaki Advocates served as Kenyan Counsel to the Lender. 11. The amounts outstanding and repayments data are drawn from the Kenyan Treasury’s External Public Debt Register. See https://www.dropbox.com/s/549ixt2gj1jbjvi/External-Public-Debt-Register-as-at-End-June-2022.pdf?dl=0 and https://www.dropbox.com/s/0et4jg1qfg1bo7r/External-Public-Debt-Register-as-at-End-June-2021.pdf?dl=0 and https://www.dropbox.com/s/233j706743q7f1g/External-Public-Debt-Register-as-at-End-June-2020.pdf?dl=0 and https://www.dropbox.com/s/qkoybr9ja0ohemy/External-Public-Debt-Register-as-at-End-June-2009.pdf?dl=0 and https://www.dropbox.com/s/thy3s6ggjcjd97z/External-Public-Debt-Register-as-at-End-June-2012.pdf?dl=0 and https://www.dropbox.com/s/fzbfq01vas6m0i9/External-Public-Debt-Register-as-at-End-June-2019.pdf?dl=0 and https://www.dropbox.com/s/ennrl6d4zd2nizs/External-Public-Debt-Register-as-at-End-June-2018.pdf?dl=0 and https://www.dropbox.com/s/8ibazrj1a8oho2d/External-Public-Debt-Register-as-at-End-June-2017.pdf?dl=0 and https://www.dropbox.com/s/wdbjl0wq49i09x1/External-Public-Debt-Register-as-at-End-June-2015.pdf?dl=0

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