EDITORIAL: Using public land as collateral for loans wrong

Reports that Kenya Railways (KR) has allowed 10 private firms in Mombasa to borrow more than Sh45 billion from local commercial banks using its leases is, to say the least, disturbing.

While we appreciate that leases are legal documents, and may be transferred to third parties anytime during the contract period; using strategic public land as collateral for long- term loans calls for a great deal of caution.

Without doubt, the core business of KR is transport. That can only imply that KR acquired the plots in question for purposes of boosting its core mandate. It is therefore not by coincidence that the leaseholders mainly include logistics-related firms such as warehouse operators, engineering entities and cargo handlers.

When these private firms begin to secure long-term loans using the leases, the question that should come to mind is what happens in case of debt default. Obviously, the commercial banks will ultimately auction the leases in their possession, but cannot force new lessees brought on board to stick to the business lines that are strategic to KR.

Think of a firm like Grain Bulk Handlers which has secured a Sh20bn loan using four KR plots yet it currently enjoys monopoly of grain clearance at the port of Mombasa. Picture an eventuality that forces it to lose its lease agreement to a firm that is not interested in its line of business. That can compromise national food security as import of rice, maize and wheat at Mombasa port get grounded.

But KR may just be a microcosm for a bigger mess. Most State agencies neither have inventory nor valuation of their assets. When Head of Public Service ordered state corporations to file details of land in their possession, only 27 out of 150 entities were able to comply within the deadline.

Kenyans have also watched previously as parastatal chiefs summoned on suspected cases of land grab show up in Parliament without crucial documents about the property in question.= That perhaps is why a firm is able to borrow billions of shillings against a property for which it pays annual rent of Sh3.3million. Parliament must take steps to safeguard public property.