Why Is A Parliamentary Panel Urging Kenya To Renegotiate Rail Loan

An aerial view shows a train on the Standard Gauge Railway (SGR) line constructed by the China Road and Bridge Corporation (CRBC) and financed by Chinese government in Kimuka, Kenya October 16, 2019. REUTERS/Thomas Mukoya/File Photo
Credit: Today Online

As COVID-19 keeps ravaging the economies and finances of many African countries, the issue of loans and debts between African countries and their development partners, especially Beijing, looms large with a new case in Kenya. 

In a recent report, Kenya’s Parliament’s transport committee has urged the country to renegotiate a $4.5bn loan it secured from China to build its 3.2bn standard gauge railway (SGR). In the report presented by Committee chair David Pkosingto to the national assembly, the committee advised the government to initiate the process of renegotiating the loan terms of the SGR. Thus “the government should initiate the process of renegotiating the loan terms of the SGR with the lender due to the prevailing economic distress occasioned by the effects of COVID-19,” the report said. 

The report, according to Reuters.com, also urged renegotiation of the contract for running the line. China Road and Bridge Corporation, which built the railway, holds that contract through its Kenya subsidiary Africa Star Operations. The committee’s report also recommended renegotiating the current operation agreement by planning to reduce the operation cost by at least 50% initiated by the government. ”

Speaking to The EastAfrican earlier, Kimani Ichung’wa, chairman of the Parliamentary Budget and Appropriate Committee, said “there are some investment decisions we have taken that are not in the best interest of the country, so it is time we start re-evaluating them and renegotiating with people who gave us the money so that we are able to survive.“ 

Kiamani also added that it is very easy to resolve this issue of loan repayment by just sitting down with the Chinese and telling them we made a mistake. We owe you all this money but you are also demanding so much from us in terms of repayment. This is a debt. Look, our economy is beaten and we are not able to pay. We are not saying the debt is not there, but we simply want to renegotiate what we owe you and the terms of payment.”

Kenya’s COVID-19 Induced SGR Operation Crisis

Early this year, there was news that Kenya was falling behind in its debt service payment for the new China financed and built railway line. In its 2020-2021 budget report, the National Assembly’s Budget and Appropriations Committee revealed that Kenya Railways failed to settle its bills to Africa Star Railway Operation Company Ltd, the Chinese company that operates the Madaraka Express passenger and cargo line. 

The committee’s chairperson Kikuyu Member of Parliament, Kimani Ichung, said “pending bills arising from operations of the standard gauge railway have accumulated to Sh38 billion and this may force the operator to pull out of the daily operations of the project.” According to Business Daily, “the Sh38 billion in pending bills add to the Sh420 billion that Kenya borrowed to build the modern line from Mombasa to Nairobi and purchase of engines and coaches.”

Revenue from the operations of the railway fell due to infrequent operation, thanks to COVID-19. “Data from the Kenya National Bureau of Statistics shows that the SGR cargo and passenger trains generated Sh3.92 billion in the four months to April, from Sh4.27 billion in a similar period last year. The data shows that cargo revenues fell to Sh3.57 billion in the period under review from Sh3.72 billion while the passenger trains raised Sh354.9 million in the four months to April from Sh548 million last year,” Business Daily reported. 

Kenya currently pays Africa Star $1m a month to run the service. Since 2017, Kenya has failed to meet the monthly payment for 21 months, according to the Voice of America news site. At present, Kenya owes Africa Star about $380m in unpaid bills.  

Kenya’s Case Is Similar To Ethiopia And Angola

Kenya is not the only African country that has found the need to renegotiate its loans with China. So far, the two countries that have successfully renegotiated loan deals with Beijing are Ethiopia and Angola. In March this year, South China Morning Post reported that “Ethiopia is renegotiating billions of dollars in loans from Beijing for a railway that links the Ethiopian capital to neighboring Djibouti, to avoid being buried by “serious” debt woes tied to China’s controversial infrastructure push.” In late 2018, China agreed to restructure debt that included a loan for a $4 billion railway linking its capital Addis Ababa with neighboring Djibouti. 

Similarly, MacauHub reported that representatives of Angola are in touch with the authorities and financial institutions in China intending to obtain debt relief for their country. 

What is the best option for Kenya to repay its SGR loan debts and service operation cost? 

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