Thursday, March 28, 2024

Danger of losing Mombasa Port to China is real

Can China take over Mombasa Port: BY TONY WATIMA: In 2007, Democratic Republic of Congo (DRC) entered into a $10 billion resource-financed infrastructure agreement with China where copper and cobalt mining licences would be allocated to a Chinese consortium.

In exchange, the consortium would secure financing of $6.56 billion worth of infrastructure projects and invest $3 billion in mining projects.

The agreement only came to the limelight after international financial institutions flagged it saying DRC did not have the overhead to take $10 billion in debt, its debt-to-GDP was standing at 73 percent.

China and DRC were forced to renegotiate the deal to $3 billion and three years later the latter found itself cornered. China EXIM Bank rescinded the agreement saying the 25-year reimbursement period agreed upon was too long and demanded the remaining stake in the mines’ deal held by the DRC government, whilst the other stake held by a Chinese consortium be mortgaged until the loans were reimbursed.

Moving on to Ghana, in 2010 the government informally secured $3 billion loan from China without parliamentary scrutiny and in the deal a 15 year-off taker agreement was to be given to a Chinese firm for supply of 750 million barrels (13,000 barrels per day) of crude oil for servicing the debt.

Three years later during the sharp drop in global oil prices, China EXIM Bank renegotiated for an increase in barrels of oil collateralised for debt service from 13,000 to 15,000 barrels a day, and also demanded that the agreed fixed price paid for crude oil going for debt service be reduced from $100 to $85 per barrel. According to Ghana’s then Finance minister, that $15 difference would have seen Ghanaians pay $6.4 billion to repay a $3 billion loan. Ghana decided to cancel half of the agreed $3 billion loan.

These two anecdotes are always used to herald the lack of transparency in Chinese contracts entered by African governments which later unravel and hurt China-Africa investment relations.

Kenya seems to be creating its own page of anecdotes after a document purported to be a leaked letter from the Auditor- General’s office detailed that Kenya Ports Authority (KPA) assets risk being seized by the Chinese in the event of a default.

The government when securing the SGR debt financing collateralised Kenya ports assets and waived the port’s sovereign immunity giving China EXIM Bank the power to step in as principal shareholder of Kenyan ports in the event of a loan default.

Now for the Kenyan case, it seem to have entered into a Chinese dungeon we will not be getting out of anytime soon.

Recently, the government listed Kenya Ports Authority among the many parastatals it intends to privatise. Unfortunately, this can’t happen without an agreement with China EXIM Bank since the sovereign immunity waiver technically gives it powers to veto any privatisation deal. And if government is really desperate to privatise KPA, then it’s the Chinese who will get first priority because any other bidder stands vetoed by China EXIM Bank.

The auditor-general has refused to deny or confirm the authenticity of the document. But the letter whether fake or not is already a Pandora’s box. The SGR loan dominates more than 60 percent of China-Kenya’s debt and is expected to go up with the extension to Kisumu and Malaba making it the largest Chinese investment in Africa and pushing Kenya’s debt-GDP up by five points.

This means that the risk of port seizure is actually real if the letter is true and unless government makes the agreements public, this storm is not going away anytime soon. It’s worth noting that there is no reliable database, even in China, listing Chinese-funded projects with the terms and conditions attached to the bilateral loans.

This paucity of data is one of a major concern, making it difficult for general public in Africa to appraise sustainable Chinese projects.

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