China could take over Mombasa port: Auditor general

kpaContainer tucking at the port of Mombasa

Kenya could lose the Mombasa port to China’s Exim Bank should the Kenya Railways Corporation (KRC) default in payment of Sh227 billion loan.

A letter by Auditor General to Kenya Ports Authority (KPA) reveals that port’s assets were charged as security to secure loans but KPA did not disclose this guarantee in the financial statements.

The government borrowed the billions to construct the Mombasa-Nairobi standard gauge railway (SGR).

A report by Auditor-General Edward Ouko states that the payment agreement substantively means the revenue of the Kenya Ports Authority would be used to clear the debt.

This is if the minimum volumes required for consignments are not met.

KPA’s statements of profit and loss and other comprehensive income reflected operating revenue of Sh42,736,520,000 being an increase of Sh3,132,843,00 from Sh39,603,677,00 in the year ended June 30 last year.

 “Exim Bank would become a principal over KPA if KRC defaults in its obligations and the Chinese bank exercises power over the escrow account security,” states a management letter sent to the KPA, that Mr FT Kimani signed on behalf of Mr Ouko.

The letter says, “KPA assets are exposed since the authority signed the agreement in which it has been referred to as a borrower under clause 17.5.”

“Any proceedings against its assets by the lender would not be protected by sovereign immunity since the government waived the immunity on the KPA assets by signing the agreement.” Adds the statement

The auditor notes that the agreement is biased since any non-performance or dispute with the bank would be referred to arbitration in China.

“The agreement is biased since any non-performance or dispute with the China Exim bank would be referred to arbitration in China,whose fairness in resolving the disagreement may not be guaranteed,” reads the auditor’s letter signed by F.T Kimani for the Auditor General.

The auditor general recommends that the authority discloses pertinent issues and risks related to the guarantee in the statements.

The KPA is also required to confirm in the management representation letter that its assets are not a floating charge to the government of Kenya loan.

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