Kenya makes public SGR contract which gives China sweeping powers
Monday November 07 2022
The standard gauge railway (SGR) contract signed by Kenya gives sweeping powers to its Chinese lenders, including requiring arbitration of any dispute to be held in Beijing, documents released by the government after years of secrecy have shown.
In the contract, which helped retired President Uhuru Kenyatta build what was Kenya’s most expensive infrastructure project, Kenya was bound to keep the details of the deal under lock and key, the reason why authorities, including the former Head of State, refused to make the contract public even after a court order.
The contract was Sunday made public by Transport and Infrastructure Cabinet Secretary, Kipchumba Murkomen, ending years of speculation on what the country signed.
But while Mr Murkomen shared the contract, which he said will be tabled in Parliament, details of the collateral Kenya put up—reported by the media, led by the Nation, as being the Port of Mombasa and other assets of the Kenya Port Authority—were missing.
In the documents shared by Mr Murkomen, China was to lend Kenya $1.6 billion at 2 percent interest per annum, with a 0.25 percent commitment fee.
Taxpayers paid a management fee of $4 million 30 days after the signing of the contract.
The SGR deal, the contract shows, is a 20-year loan with a seven-year grace period. Kenya was to repay the amount in 156 months (13 years), and was to dedicate 42.06 per cent of the proceeds from the railway to repay the loan.
For the Nairobi -Naivasha route, Kenya inked a $1.2 billion in a 20-year loan facility.
Kenya was required to pay $137.59 million as insurance fees.
The contract also confirms fears that Kenya had been bound to seek resolution—in case of a dispute—only in China, which experts have said gives the Asian nation a big advantage.
“If no settlement is reached through friendly consultation, each party shall have a right to submit a dispute to the China International Economic and Trade Arbitration Committee for arbitration ...” the contract states.
In the deal, Kenya was bound to establish an inland container depot in Nairobi “and its mandatory customs clearance” as well as a Railway Development Fund, that China had said should be established “to be applied in priority to make repayment of loans in relation to the project”.
The contract also demanded that Kenya first approaches China to purchase any goods from the proceeds of SGR, before going to any other market.
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The deal, which was signed by former Treasury Cabinet Secretary Henry Rotich and Li Ruogu, the President of the Export and Import (Exim) Bank of China, also precludes Kenya from sharing its details.
“The Borrower shall keep all the terms and conditions hereunder in connections with this Agreement strictly confidential. Without the prior written consent of the Lender, the Borrower shall not disclose any information hereunder or in connection with this Agreement to any third party unless required by applicable law,” the deal reads.
During his vetting in Parliament, Mr Murkomen had promised to make the SGR contract public, saying Kenyans had the right to know what the government signed on their behalf.
“I have spoken to everybody whom I thought was a person of influence in government and privy to the SGR contract but they have said they have never seen the SGR agreement. I don’t want to name those I spoke to, but once I get into the office, I will look for it,” Mr Murkomen said.
Following exclusive reporting by the Nation on the SGR contract in 2020, especially on the collateral Kenya put up, the Chinese Foreign Ministry Spokesperson Hua Chunying said: “We have checked with the relevant Chinese financial institution and found that the allegation that Kenyan side used the Mombasa Port as a collateral in its payment agreement with the Chinese financial institution for the Mombasa-Nairobi Railway is not true.”
Since President Kenyatta promised on live television to make public the SGR contract in 2019, the government has been playing hide and seek with Kenyans on the matter, with the country left in the dark on just what it signed and what the Chinese were guaranteed in the process.
In January this year, the government, following a court order, cited a non-disclosure agreement with the Chinese lenders for its refusal to make the contract public. It argued that the contract contains non-disclosure clauses and its release would endanger national security and injure relations with China.
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Then Transport Principal Secretary Dr Joseph Njoroge said in January 2022 court documents that agreements entered between Kenya and Chinese contractors over the construction of the SGR have non-disclosure clauses.
In the case, activists Khelef Khalifa and Ms Wanjiru Gikonyo sought to have all contracts, agreements and studies related to the construction and operations of the SGR made public. They argued that keeping the documents confidential violates the law and discourages transparency in governance.
In May, Justice John Mativo ruled that public officers have a constitutional duty to make information available to Kenyans saying that any restriction on access to information from the government must have a genuine purpose and demonstrable effect of protecting a legitimate national security interest.
“It is clear that the respondents’ attempt to hide behind the provisions of sections 3(6) & (7) of the Official Secrets Act flies in the face of Article 35, section 29 of the Access to Information Act and falls to be rejected,” ruled Justice Mativo.
The judge argued that there are no two systems of law regulating access to information held by public bodies.
Most expensive projects
Mr Khelefa and Ms Gikonyo had, in the case, argued that documents related to the SGR project and its financing have never been made public despite being one of the most expensive projects undertaken by the government.
“SGR is the largest capital-intensive infrastructure project ever constructed in the country, but despite this extraordinary expenditure of public funds, the project has been undertaken with controversy and secrecy from its inception,” they argued.
-This story was first published on Daily Nation.