Kenyan Port Could Be at Stake in Railway Contract
As Kenya and China square off in court over a $3.2 billion contract to build a railway system, the future of Mombasa Port, one of East Africa’s greatest assets, could be at stake.
Kenya’s Court of Appeals has ruled that the contract for the country’s new Standard Gauge Railway (SGR) was illegally bid. Kenya Railways awarded the contract to the China Road and Bridge Corp. after a memorandum of understanding dating to 2011. Three years later, a Kenyan activist and the country’s leading bar association went to court to stop construction on the project, saying the Chinese company won the project without going through a proper public bidding process.
In June 2020, appeals court judges ruled that the bidding process violated Article 227 of the Kenyan Constitution.
The railway is part of China’s Belt and Road Initiative (BRI) project, spreading Chinese-financed infrastructure throughout the world. Since the worldwide COVID-19 outbreak, many countries have had to balance paying bills to China and protecting their economies and citizens’ health.
Ninety percent of the project’s cost is financed by the Exim Bank of China in the form of two $1.6 billion loans. Business Daily Africa reports that Exim made the loans conditional on the appointment of a Chinese contractor to build and operate the line, meaning it could not go to a public tender.
The Sentinel of India has reported that since 2013, Kenya has accepted more than $5 billion in loans from China for railway construction. But in the railway’s first year of operation, it had losses of $98 million, “making Kenya’s serving of the loans unmanageable.”
Under the terms of the loan, the Mombasa Port’s assets are collateral. The Sentinel reported that as collateral, the assets are not protected by Kenya’s sovereign immunity due to a waiver in the contract. The Inland Container Depot in Nairobi, which receives and dispatches freight hauled on the new cargo trains from the seaport, also is at stake, according to the Hellenic Shipping News.
The port is the largest in East Africa and the primary gateway for goods coming into Kenya. It also serves the neighboring nations of Burundi, the Democratic Republic of the Congo, Rwanda, South Sudan and Uganda.
University of Sheffield scholar Huang Zhengli has spent years studying the financial relationships between China and its African business partners. She determined that taking over the Port of Mombasa would be a “strategic disaster for Beijing and its desire to repel accusations that it’s a predatory lender,” according to The China Africa Project. She said it would undermine faith in BRI with ripple effects felt across the world.
Journalist Edwin Okoth has written about the financial arrangement for the Nairobi-based Daily Nation. He said Kenya may have overextended itself when it accepted the terms of the huge Chinese loan five years ago.
“What I was able to find out, which is shocking, is that none of the national assets normally protected by sovereignty have been left out in regard to that loan agreement,” Okoth told Radio France Internationale.
Critics have alleged that China is practicing “debt-trap diplomacy.” The term refers to Beijing lending large sums to poorer countries to build infrastructure, with the intention of extracting further concessions when the country inevitably defaults on the interest repayment.
The Institute for Security Studies says that some analysts see the current COVID-19 pandemic as widening the opportunity for Chinese takeovers. Sam Parker, a co-author of a 2018 study on debt-trap diplomacy, told The Guardianthat the pandemic is in “the early stages” of influencing China’s next moves.
“Whatever debt leverage China had over countries is going to increase,” Parker said. “Whatever bad consequences were going to happen as a result of being unable to repay China, I think the timeline could be severely accelerated.”