China-funded secret railway contract unearthed in Kenya

The Kenyan government has published three unforeseen contracts, using which, a railway, a passenger and a freight service were funded, designed and built by China.

According to the New York Times, the USD 4.7 billion rail project known as the Standard Gauge Railway starts from Kenya's coastal region, began five years ago and has become the focus of multiple criminal investigations, weighing down the country's economy with debt.

Experts on China and Africa said the revelations were unprecedented, given the secrecy surrounding Chinese loan contracts. Furthermore, because China is Kenya's top trading partner, the African country now owes China an excessive bilateral debt.

It was always unclear whether the Kenyan authorities had consulted Beijing before releasing the documents, however, the Chinese Foreign Ministry issued a statement after the move.

"Chinese financial institutions provide financing support for China-Kenya cooperation in accordance with internationally accepted commercial and market principles, which alleviated Kenya's lack of funds and enhanced Kenya's capacity for independent development," a spokesperson for the Chinese Ministry said, reported the New York Times.

Chinese banks fined Kenya 1.312 billion Kenyan shillings in the year ended June for defaults on loans provided to build the standard gauge railway (SGR).

Kenya tapped over half a trillion shillings from Chinese lenders, led by the Export-Import Bank of China, to fund the construction of the SGR from Mombasa to Naivasha.

"This (Sh1.312 billion) relates to the cost of default on interest at one per cent of the due amount," said the disclosure documents seen by Business Daily Africa.

China, which accounted for about one-third of Kenya's 2021-22 external debt service costs, is the nation's biggest foreign creditor after the World Bank. Kenya spent a total of Sh 117.7 billion on Chinese debt in the period, of which about Sh 24.7 billion is in interest payments and almost Sh 93 billion in redemptions, according to budget documents.

Repayment of the SGR loan started in January 2020 after the lapse of a five-year grace period that Beijing had given Kenya. Former President Uhuru Kenyatta's administration largely took loans from China from 2014 to build roads, bridges, power plants and the SGR.

The deal to fund the first phase of the SGR, Kenya's single-largest infrastructure project by cost since independence, saw China overtake Japan as Kenya's largest bilateral lender. Kenya's debt increased more than four-fold to Sh 8.58 trillion under the Kenyatta administration.

The surge in liabilities left the country at high risk of debt distress, according to the International Monetary Fund (IMF).