Kenyan government risks losing the lucrative Mombasa port to China should the country fail to repay huge loans advanced by Chinese lenders.
In December 2017, the Sri Lankan government lost its Hambantota port to China for a lease period of 99 years after failing to show commitment in the payment of billions of dollars in loans.
The transfer, according to the New York Times, gave China control of the territory just a few hundred miles off the shores of rival India.
It is a strategic foothold along a critical commercial and military waterway.
“The case is one of the examples of China’s ambitious use of loans and aid to gain influence around the world and of its willingness to play hardball to collect,” says the New York Times of December 12, 2017.
In the likely scenario that China takes over the port, Kenya would be joining Sri Lanka -another debt-distressed nation- in losing a strategic asset.
It is possible because the SGR –operated by the Chinese, is a hugely loss-making venture, meaning it cannot generate enough money to repay loans.
SGR reported a near Sh10 billion loss in its first year of operations.
The Auditor General has warned that the eventuality is likely because of a lopsided loan agreement that greatly favours the China Exim Bank, who advanced Kenya the loan.
Specifically, Kenya got the short end of the stick in the agreement where any disputes arising from the debt servicing would be arbitrated in China.
An audit completed last month indicates that Kenya Ports Authority’s (KPA) assets, which include the Mombasa port, could be taken over if the SGR does not generate enough cash to pay off the debts.
“The China Exim Bank would become a principle in (over) KPA if Kenya Railways Corporation (KRC) defaults in its obligations and China Exim Bank exercise power over the escrow account security,” the audit reads in part.