INTERNATIONAL BUSINESS

$200 million revenue loss: Kenya cancels Chinese contract 5 years earlier


The Kenyan government has successfully terminated an existing contract which allows a Chinese company called Africa Star Railway Operation Company (Afristar) to manage the Standard Gauge Railway (SGR) for a period of ten years; cutting the initially agreed period by five years.

From the beginning of the project back in 2014, the Kenyan government contracted a loan of $3.2 from the Chinese government, through Exim Bank for the construction of the railway connecting the port of Mombasa to the nation’s capital, Nairobi. A further $1.5 billion loan was taken to expand the facility by 75 miles to Naivasha located in the northwest region of Nairobi.

Typical of the Chinese government, major parts of the construction contract was awarded to a Chinese company called the China Road and Bridge Corporation (CRBC) on conditions that, the CRBC will run the passenger and cargo services of the facility through its African subsidiary, Afristar for a period of ten years before handing over to the Kenyan government.

This arrangement between the two governments generated lots of concerns from Kenyans and African political thinkers alike. These concerns heightened after a series of revenue losses recorded under the Chinese management. A report by Kenya’s Transport Ministry which was presented to parliament stated that a revenue loss of $200 million was recorded over a period of three years. The same report detailed that, within the stated period, the facility generated revenue of $230.7 million as against an operational cost of $430.5 million. This means that the difference has to always be taken care of by the Kenyan tax-payer.   

This has since triggered an open debate of whether China, through Afristar is deliberately generating such losses to lead Kenya into a debt default and a possible total take-over of the facility or the Chinese administration managing the Railway is just inherently incompetent. The Kenyan State Law Office joined the numerous voices by calling on the government earlier to stop Afristar from operating the facility due to the excessive loss of revenue.

Fortunate for Kenya, the initial agreement of a ten-year operation and maintenance by Afristar made provisions for review. The government has drawn on this provision to renegotiate and successfully terminate the contract. The Kenyan Railway Corporation (KRC) announced that it would assume responsibility for all functions of the railway by May next year; cutting the original agreement by five years.

This transition is expected to be gradual until full control is assumed. Chairman of the Kenyan Railway Corporation (KRC), Omudho Awitta revealed that Kenya has already taken control over the security, ticketing, and fueling services. “We have negotiated with the contractor so that we take over the running of the Standard Gauge Railway.” He added.

-Eye Gambia

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