Kenya to lose main port to China through debt

Dec 23, 2018 News

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The same fate that befell countries like Sri Lanka, Pakistan and Zambia is now looming in Kenya. That African country is at risk of losing its main port to China. Kenya will lose its lucrative Mombasa port to China should the country fail to repay huge loans advanced by Chinese lenders.
The loans have been granted for the development of the Standard Gauge Railway (SGR). Also at stake is the Inland Container Depot in Nairobi, which receives and dispatches freight hauled on the new cargo trains from the sea port.
Implications of a takeover would be grave, including the thousands of port workers who would be forced to work under the Chinese lenders. Management changes would immediately follow the port seizure since the Chinese would naturally want to secure their interests.
Further, revenues from the port would be directly sent to China for the servicing of an estimated Sh500 billion lent for the construction of the two sections of the SGR.
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 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.
Last September, Zambia lost Kenneth Kaunda International Airport to China over debt repayment.
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.
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.
Escrow account
An escrow account is a contractual arrangement in which a third party receives and disburses money for the primary transacting parties, with the disbursement dependent on conditions agreed to by the transacting parties.
According to the loan agreement, funds generated from the SGR were to be deposited in an escrow account – controlled by an unknown third party on behalf of KRC and China Exim Bank.
At the current estimates, KPA generates Sh50 billion a month or Sh600 billion a year in revenues.
Failure to provide the requisite cargo would mean Kenya has gone against a critical clause in the loan agreement of guaranteeing specified “minimum volumes required for consignment”.
It is also indiscernible how KPA signed the loan agreement as a borrower, in one of the toxic clauses subsequently exposing its assets to the Chinese clamp.
Repayments for the loans are slated to start mid next year on expiry of a five-year grace period.

African countries and others like Pakistan and Sri Lanka are not the only ones being “targeted” by China. Latin America is also in the proverbial hit list.
China’s heightened interest in Latin America is flaunted through its extravagant but stained Belt and Road Initiative.
Chinese interests in Latin American commercial ports combine military and economic aspects that align with the goals of its Belt and Road Initiative. With this initiative, the Chinese government intends to connect Asia, Oceania, Europe, Africa, and the Americas via roads, railways, and oil and gas pipelines.
This was recently highlighted by Dialogo, a military magazine.
Dialogo stated that Latin America seems to be an easy target for China as the region is hungry for infrastructural development and most countries do not have the money to invest.
Dialogo said, “…China is slowly taking over the region’s strategic trade and defense points. The tactic is clear, and China uses it in other parts of the world: money for ports in exchange for power.”
The magazine highlighted Panamá, a country with two of the most important ports in the region—Colón and Balboa. Panama is one of the nations in China’s line of sight.
The Dialogo stated, “The Chinese company—Landbridge Group—is building the Panamá Colón Container Port, a terminal for neo-Panama ships, with an investment of more than US$1 billion. In addition, China’s Harbour Engineering Company Ltd. is building a port station for cruises in the Amador area.”
The magazine pointed out that closer to Guyana, in Brazil, state-owned Chinese company Merchants Port controls the Paranaguá Port, the second largest in the country surpassed only by the Santos Port.
To gain control of the terminal, the Asian company bought Brazilian company Terminal de Contêineres Paranaguá, which managed the port, for $935 million in 2017.
In 2017, the Chinese company, China Construction, showed interest in developing and funding infrastructure in Mexico’s most important port, Manzanillo. Many Chinese business people are also interested in investing in the special economic zone Mexico seeks to develop around Lázaro Cárdenas Port, in Michoacán state.
The initiative needs an initial investment of US$90 million, and focuses on promoting metallurgic and steel industries near the port.
Further, Dialogo reported that in Peru, the Chinese company—Cosco Shipping—will develop Chancay Port with an investment of about US$2 billion. The governments of Colombia and China signed a memorandum of understanding in 2016, enabling the Asian nation to develop a series of projects near Buenaventura Port. China promised an investment of US$16 million in the area.
The magazine also noted that in Uruguay, Chinese company Shangdong Baoma Fishery propelled in 2016 the development of a fishing port requiring US$200 million. Apart from the terminal, the plan includes building a plant to store fishing equipment and manufacture fishmeal.

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