Beijing visit paves way for Sh350bn Kisumu SGR loan

Senior Treasury and Ministry of Transport officials have spent the past one week in Beijing holding talks with their Chinese counterparts amid plans by the government to borrow yet another multi-billion-shilling loan to finance construction of the Naivasha-Kisumu stretch of the Standard Gauge Railway (SGR).

The high-powered delegation, comprising officials from the Treasury, Kenya Railways Corporation, Ministry of Transport and State Law Office, left for the Chinese capital last Friday and are expected to return today.

Transport Principal Secretary Esther Koimett is the senior-most State official in the team, which also includes Kenya Railways acting MD Charles Mainga, senior economist at the Transport ministry Duncan Hunda and Kenya Railways engineer Maxwell Mengich among others.

The team is said to have been sent to hammer out finer details of the planned borrowing ahead of the official signing to be held either in Beijing or Nairobi. Treasury Secretary Henry Rotich and his Transport counterpart, James Macharia, declined to discuss the visit’s agenda.

“They are going for normal bilateral government business,” said Mr Macharia, while Mr Rotich referred all our queries to the Ministry of Transport. Ms Koimett and Mr Mainga did not respond to our requests for comment.

A Kenya Railways official had this month hinted at ongoing negotiations to get the funding for what has been described as “Phase 2B” of the railway line.

It is estimated that the Naivasha to Kisumu phase of the SGR will cost Sh350 billion to complete. The Mombasa-Nairobi line was built at a cost of Sh327 billion while the Nairobi to Naivasha stretch, which is about two months to completion, is budgeted at Sh150 billion.

President Uhuru Kenyatta and his Ugandan counterpart, Yoweri Museveni, on Wednesday affirmed the two countries’ commitment to stick to the original plans of stretching the SGR all the way to Kampala, in an indication that Kenya could require yet another loan to build the Kisumu-to-Malaba border section. The two countries have been differing over financing of the cross-border SGR, with China Exim Bank insisting that Kampala has to get Kenya’s commitment to build the section from Kisumu to Malaba before Uganda can secure funding for the line running from Kampala to the common border.

Kenya’s fears over the mounting public debt had seen Nairobi put priority on the line to Kisumu port as part of the plan to have Uganda and Rwanda evacuate their goods via Lake Victoria, dimming prospects for a seamless SGR connection between the Port of Mombasa and Kampala. During this week’s visit to Mombasa together with his Ugandan counterpart, Mr Kenyatta said he was “now keen on the joint development of the SGR line to Kampala”. Mr Museveni described the agreement to extend the line as a “game-changer.”

The Kenyan delegation in Beijing, according to our source, was to engage officials of the Exim Bank of China to finalise on financing negotiations for the construction of the Naivasha-Kisumu line. The second phase of the SGR, which was split into two, is set to be concluded by 2022. The construction contract details had been reportedly concluded when construction of the 120-kilometre stretch to Naivasha commenced in 2016.

A 2016 Cabinet brief put the construction cost of the Naivasha-Malaba section at Sh526 billion, with more infrastructure including the Kisumu port and the way-leave compensation between Kisumu and Malaba factored in. “The Sh526,584,271,147 for the development of the Naivasha-Kisumu/Malaba SGR Section, new Kisumu Port and ICD will therefore be sought from Exim Bank of China under three separate Commercial contracts,” the Cabinet was told in February 2016.

With construction of the new Kisumu Port already under way at a reported cost of about Sh16 billion, the Treasury will need to secure about Sh350 billion for the Naivasha-Kisumu section. The SGR loan repayment details have remained a tightly-guarded government secret. Mr Kenyatta promised to make public the details of the Mombasa Nairobi SGR financing deal after it emerged that the Chinese had demanded the Mombasa port as collateral for the debt, but no information has been released yet.

A leaked copy of the agreement showed that Kenya had committed to tough repayment conditions, expensive fees and a requirement that the country waives sovereign immunity on any asset should the loan fall in default.

The loan agreement was also set to be governed by the laws of China and any arbitration to be done by the China International Economic and Trade Arbitration Commission (CIETAC) in Beijing.

Exim Bank also made it a mandatory requirement that the commercial loan be insured by the China Export and Credit Insurance Corporation (SinoSure).

Although inevitable since Kenya has already done half of the second phase of the line, the latest attempt to seek funding revives debate on Kenya’s ballooning debt even as taxpayers face more pressure to fund the flagship project for the Jubilee administration.

Strategies to ensure the loan used to construct the first phase get repaid involved the push for a ‘take-or-pay’ agreement with the Kenya Ports Authority to have the State agency ensure that cargo from the port is transported on the railway line.

This agreement got KPA on the receiving end last year as auditors queried its exposure as a collateral to the SGR loan.

Taxpayers also felt the heat when the government introduced the Railway Development Levy on all imports into the country.

The government in its financing model for the project was to initiate road transit toll levy, a green tax in new vehicle registration among other taxes to fund the SGR loans.