Kenya Discloses Part Of Secret Railway Contract With China

Kenya Discloses Part of Secret Railway Contract With China

Kenya Discloses Part Of Secret Railway Contract With China

The publication of details of a 2014 loan agreement for a cross-country train fulfilled a campaign vow by President William Ruto and revealed Beijing’s tough terms.

Kenya’s government has disclosed some details of the loan agreement the country signed in 2014 with China to build a railway, a major step toward political accountability but one that could strain relations with Beijing, the country’s top financier of infrastructure projects.

The administration of President William Ruto of Kenya on Sunday published three documents from a contract used to construct the railway, a passenger and freight service that was funded, designed and built by China. The railway starts from Kenya’s coastal region but ends in the middle of nowhere.

Since the $4.7 billion rail project, known as the Standard Gauge Railway, began five years ago, it has cast a long shadow over the East African nation. It was over budget by millions of dollars and became the center of multiple criminal investigations, saddling the economy with ever-growing debt and ending with judges declaring it illegal because it contravened the country’s procurement laws.

Experts on China and Africa said the revelations were unprecedented, given that Chinese loan contracts were often shrouded in secrecy.

“It is a significant gesture toward transparency,” said Cobus van Staden, managing editor of the China Global South Project, a nonprofit researching Beijing’s engagement with Africa.

The three documents revealed how the railway’s financier, Exim Bank of China, had the upper hand in the negotiations. China is Kenya’s top trading partner, and the African country owes more bilateral debt to China than to any other nation.

The contract stipulated that any goods bought using proceeds from the railway would preferably be sourced from China. Any dispute that emerged from the agreement, the documents said, must be resolved through binding arbitration in China. The contract also could not be disclosed to any third parties without the financier’s consent, a move that, now completed, could strain relations between the two countries.

Although it wasn’t immediately clear whether the Kenyan authorities had consulted Beijing before releasing the documents, the Chinese Foreign Ministry issued a statement after the move.

“Chinese financial institutions provide financing support for China-Kenya cooperation in accordance with internationally accepted commercial and market principles, which alleviated Kenya’s lack of funds and enhanced Kenya’s capacity for independent development,” a spokesperson for the Chinese ministry said.

The documents also showed that the loan’s terms were costlier than expected, said Tony Watima, an economist based in Nairobi, the Kenyan capital. The loan’s interest rate was higher than what is typically found in a deal between two governments, he said.

Thomas Mukoya/Reuters

The agreement also stipulated that if Kenya defaulted on any other external loan, the default clause on the railway clone would automatically kick in, forcing Kenya to repay the loan and all accrued interest immediately and giving China the right to cease further disbursements.

“Despite it being negotiated as a government-to-government project where one expects a symbiotic relationship, all the risks were taken by the Kenyan taxpayer,” Mr. Watima said. “Whether the project pays for itself or defaults, the financiers are guaranteed their return.”

The deal was signed by the government of President Uhuru Kenyatta; Mr. Ruto was vice president at the time and part of the administration that launched and vigorously defended the project. But troubles with the railway mounted, and China balked at financing the last section, which would have been a link to neighboring Uganda.

To make the railway profitable, the Kenyan authorities issued a directive that all incoming cargo at the Mombasa port be transported by train — a move that led to huge protests, multiple court cases and growing unemployment. In the lead-up to the August elections, Mr. Ruto vowed to revisit the project. When he was inaugurated in September, he reversed the directive in a bid to restore thousands of jobs, particularly in Mombasa.

On Sunday, Kipchumba Murkomen, the cabinet secretary for transport, announced on Twitter that he was releasing the agreement as part of the new administration’s campaign promises.

But observers said on Monday that Mr. Ruto’s government should publish the full contract in order to allow activists and the public to scrutinize the agreement. That would reveal what the authorities offered as a guarantee to get the loan, and may reveal whether the deal was padded by Kenyan officials and Chinese contractors, said Mr. van Staden, of the China Global South Project.

If they did release the full details “it would probably add pressure to renegotiate the loan,” he added. “For incoming governments facing loans taken on by their predecessors, this could be an interesting precedent.”

Claire Fu contributed reporting.

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