Treasury seeks changes in borrowing laws to ease standard gauge rail loan
Finance Cabinet Secretary Henry Rotich when he appeared before Parliamentary Investment Committee early this year. The Treasury has proposed amendments to parts of Public Finance Management Act. FILE
What you need to know:
State wants amendment to pave the way for investors buying sovereign bond.
The Treasury has proposed changes to a law governing State borrowing in a bid to make the Sh172 billion sovereign bond succeed and clear the China Export Import Bank controversial financing of the standard gauge railway.
The Treasury wants the Public Finance Management Act, 2012 section 53(a)(4) which restricts issuance of state securities to local investors and section 50 (7), which requires lenders to deposit loans in the Consolidated Fund before offsetting supplier costs, amended.
“Financing agreements, especially from foreign lenders come with stringent conditionalities. Some demand that they will only release the money to suppliers on delivery of the project or goods,” said Parliament’s Budget Office senior deputy director Martin Masinde.
The changes would open the door for foreign investors to buy the Sh172 billion sovereign bond. It would also allow the China Export-Import Bank to directly pay suppliers on delivery of goods and services for the 609-kilometre railway line between Mombasa and Nairobi.
“We cannot force Exim Bank of China for instance to deposit the loan in Kenya’s Consolidated Fund Account, then the suppliers of the railway will be paid on authority of the minister,” said Mr Masinde.
Briefing the Budget and Appropriations Committee on the yet to be published Public Finance Management (Amendment) Bill, 2014, Mr Masinde said that the changes would also proscribe government guarantees for private borrowers.
A presentation by Treasury economic secretary Geoffrey Mwau to the committee last Wednesday showed that the Act would have to be amended to allow issuance of the sovereign bond.
“After deliberations, members agreed that the Bill proceeds and be published with amendments,” read parts of the minutes of a session held in camera signed by committee chairman Mutava Musyimi.
The minutes are attached to the committee report on the Budget Policy Statement that was tabled for debate last Thursday.
The government plans to issue sovereign bond to finance infrastructure projects such as the Lamu transport corridor, which includes new railways and roads.
The Treasury is also negotiating with Exim Bank of China for Sh277 billion concessional and commercial loan to finance the railway whose contract was awarded to China Road and Bridge Corporation.
This is 85 per cent of the total loan of Sh327 billion. The government will finance 15 per cent of the project — about Sh50 billion.
The cost of servicing the loan and rail facilities is Sh120 billion bringing the total project cost at Sh448 billion.
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