One of the major revelations that sparked a storm in 2022 was promise by Transport Cabinet Secretary Kipchumba Murkomen to lay bare the Standard Gauge Railway (SGR) loan agreements, the key point was whether the Port of Mombasa was pledged as a collateral.

The debate left analysts split on whether there is another document that may not have been disclosed alongside the three SGR loan agreements tying Kenya Ports Authority assets to the loan.

After the minister shared what he called the documents behind the deal analysts and lawyers, however, disagreed, saying the dossiers were missing and that the two governments had agreed to keep the agreement secret. 

Lawyer Ahmednasir Abdullahi claimed that the main agreement was not disclosed. “This isn’t the SGR contract. This is one of the finance agreements. The SGR contract is dynamite…you won’t see it easily,” he said. London-based Corporate lawyer Mugambi Nandi also added that the primary document called concession agreement that guides all the other financial agreements has not been disclosed. 

Financing agreement

“From a legal perspective, the financing agreement is just one set of agreements, the main agreement is the concession agreement. That is the first document before you even get to the financing bit,” he added.

“The concession agreement which defines the built, operate and transfer details has not been disclosed, as far as I am aware. The SGR arrangement was not in the interest of the country. It was a scam to line up the pockets of some people,” said the corporate lawyer.

“The whole thing stinks, you cannot have a government saying that it cannot disclose the agreements yet it is being financed by the taxpayers, the constitution demands that this agreement is disclosed,” said Nandi. “However, I highly doubt that the port is collateral for the loan,” he added. Economist Mohamed Wehliye, however, says the Port of Mombasa was secure and that Kenyans are looking for what is not there.

“I do not think Port of Mombasa was listed as a security, however, the main problem with this agreement was lack of transparency and given that terms of the agreement were that the details should not be disclosed,” he said.Wehliye also said that the people who signed the project rushed it and could have been desperate and driven by rent seeking.

Key among the issues also is China demanding that in case of a dispute, the arbitration should happen in China and not elsewhere. An audit of the Kenya Ports Authority (KPA) by Auditor-General showed that its revenues will be used to fund the SGR repayments if the government was not able to pay the loan.

“It is clear that the difference in shortfall will come from KPA profits, financial statements from KPA show that 25 per cent of KPA profits are going to Kenya Railway, to service the loan,” said Wehliye. 

Standard Gauge Railway evenues last year were at Sh15 billion while the expenses of the railway were Sh17 billion making it a loss-making project. There has been a 25 per cent shortfall in the amount of cargo that should be on SGR to make it profitable.

Loan terms

Although both the Chinese and Kenyan governments have denied that Mombasa port was used as collateral, the exact loan terms for the SGR loan have remained an enigma. Hence, the rumour has continued to circulate.

However, a report by the China Africa Research Initiative at the John Hopkins University School of Advanced International Studies shows that the Auditor General erred in concluding that Mombasa Port was used in the agreement as the SGR loan collateral.