Alarm in Kenya over risk of Chinese “takeover” of Mombasa port

Alarm flared in Kenya before Christmas at the prospect of a Chinese "takeover" of the country’s main port of Mombasa after a letter purportedly from Kenya’s auditor-general warned that China could seize the assets of the Kenya Ports Authority (KPA) if terms of China’s loan for a new railway were not met.

Senators, public figures and the general public decried the "sellout" allegedly perpetrated by the government of President Uhuru Kenyatta, even as the auditor-general’s office and the Chinese foreign ministry denied the claim.

In unison, newspapers drew a comparison to Sri Lanka’s signing its port of Hambantota over to China for 99 years in December 2017, after the country struggled to repay Chinese loans for infrastructure projects.  

The furore erupted on 18 December when anti-corruption campaigner John Githongo, who served as an anti-graft tsar under former President Kibaki, tweeted scans of pages from a "management letter" dated 16 November 2018, sent to the KPA from the Office of the Auditor-General, signed by an F.T. Kimani on behalf of the Auditor General, Edward Ouko. 

One scanned section warns the KPA that: "The payment arrangement agreement substantively means that the Authority’s revenue would be used to pay the Government of Kenya’s debt to China Exim bank if the minimum volumes required for consignment are not meet [sic] as per schedule one."

Kenya owes China $2.27bn (227 billion Kenyan shillings) for the historic standard gauge railway between Nairobi and Mombasa, which opened in May 2017, newspapers said.  

The letter goes on: "The China Exim bank would become a principle in over KPA if KRC [Kenya Railways Corporation] defaults in its obligations and China Exim bank exercise power over the escrow account security."

It warns that KPA’s assets would not be protected against any proceedings by the bank because the government waived sovereign immunity in the loan agreement.

F.T. Kimani called the agreement "biased" because any dispute with the lender would be arbitrated in China, "whose fairness in resolving the disagreement may not be guaranteed".

Kimani then states: "The authority did not disclose these guarantee [sic] in the financial statements", before recommending that the authority "disclose the pertinent issues and risk in the financial statements".

KPA’s revenue rose 7.9% in the year ending 30 June 2018, to 42.736 billion shillings, Kimani notes.

The story broke in the Kenyan media the following day, 19 December, with The Standard warning: "Implications of a takeover would be grave, including the thousands of port workers who would be forced to work under the Chinese lenders."

That day, the Office of the Auditor-General issued a bland denial, tweeting: "Our attention has been drawn to reports that @OAG_Kenya has released an audit report on @Kenya_Ports for FY 2017/18. This is to clarify that the Office has not released any such report." 

The Chinese government weighed in a week later, with its foreign ministry spokeswoman Hua Chunying saying: "We have checked with the relevant Chinese financial institution and found that the allegation that the Kenyan government used the Mombasa port as a collateral in its payment agreement for Nairobi-Mombasa railway is not true."  

It took President Kenyatta until 28 December to respond, when he told a televised press conference that "the issue of the takeover of Mombasa Port by China is pure propaganda", and said, "we are ahead of our payment schedule for the SGR loan and there is no cause of alarm", Chinese broadcaster CGTN reported.

Image: Cruise passengers are welcomed to Mombasa on 24 December 2018 (Kenya Ports Authority/Twitter)

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