Chinese Funded Rail Track Plunges Kenya into Debt

Built at huge costs

Kenyan government has published partial accounts of a controversial railway contract signed with China in 2014. A contract whose high rates has engulfed Kenya in huge debts.

Built at the huge cost of $4.7 billion the railway line (known as the Standard Gauge Railway) is marred by corruption scandals and alleged criminality.

The project is reported to have overshot budget estimates by millions. Data from Kenya National Bureau of Statistics show that the country owes more bilateral debt to China than to any other state.

Significantly, in 2020, a Kenyan appellate court declared the rail contract between Kenya and the China Road and Bridge Corporation, illegal.

Railway Ends in Open Field 

The rail track runs from the coastal city of Mombasa through the Kenyan capital of Nairobi but ends abruptly in an empty field in the Rift Valley. Fully 320 km short of its planned destination of Kampala in Uganda.

As construction progressed, and Kenya struggled to pay up loan installments, Beijing pulled the plug on extending the track to Uganda.

Partial accounts now made public by Kenya’s transport and infrastructure cabinet secretary Kipchumba Murkomen reveal the irregularities inherent in most development financing project with China.

Sweeping Powers Given China 

The published documents highlight the sweeping powers the contract gave Beijing, including holding all dispute arbitration in China. The contract also mandates that details of the deal not be made public without clearance from China.

High interest rates

The documents reveal that interest rates from project financier Export-Import Bank of China, are far higher than the usual rates for government-to-government contracts.

 “The agreement stipulated that if Kenya defaulted on any other external loan, the default clause on the railway loan would automatically kick in, forcing Kenya to repay the loan and all accrued interest immediately and giving China the right to cease further disbursements.” Writes the New York Times. “Whether the project pays for itself or defaults, the financiers are guaranteed their return,” the paper concludes.

High interest rates and short-term maturities are central to China’s development financing across the world — as seen in the debt-inducing nature of China’s investment in the Gwadar Port in Pakistan and Hambantota Port in Sri Lanka, both of which are now on lease to China, since the host countries could no longer pay back the loans.

Lawmakers Demand Complete Disclosure

The railway line contract was signed by the government of previous Kenyan president Uhuru Kenyatta, with strong backing from then Vice President William Ruto.

Mounting criticism and controversies over the project is now causing President Ruto and others around him to rethink their stance.

Partial accounts of the contract will now be tabled in the Kenyan Parliament. Where lawmakers are demanding full discloser. Details of the collateral put up by Kenya for the deal are not known, Nairobi based East African Standard has reported.

The Chinese are known to insist on non-disclosure clauses in their bilateral agreements.