01-03-2019, 12:16 AM
*** 3-Jan-19 World View -- China may seize Kenya's Mombasa Port as debt repayments triple
This morning's key headlines from GenerationalDynamics.com
****
**** Kenya's debt repayments to China triple in July
****
![[Image: g190102b.jpg]](http://Media.GenerationalDynamics.com/ww2010/g190102b.jpg)
Kenya's Standard Gauge Railway (SGR), from Mombasa Port to Nairobi, built with funding from China
Starting in July, Kenya's annual debt repayment of loans to China
triples to $900 million.
Kenya has been on a borrowing binge in the last five years, having
borrowed a total of $50 billion. These loans have been used to build
roads, ports and railways, and were to be repaid with the revenue from
this infrastructure, but as with many loans, hopes and promises were
not kept.
Some $2.7 billion in loan repayments will be due to foreign lenders in
2019-20, a third of it to China. In addition, Kenya must pay $780
million for 2014 Eurobond note, including $2 billion in commercial
loans in the first half of 2019. This includes retiring a $787
million loan from Britain's Standard Chartered Bank and another $371
million loan from Trade and Development Bank, formerly PTA Bank.
The reason that payments to China are tripling in 2019 is because a
five-year grace period that China granted to Kenya in 2014 is now
expiring.
All of these loans are denominated in foreign currencies, usually US
dollars. Payments must be made out of the country's foreign reserves,
which are at $9 billion September 2018. Standard Media (Kenya) and The Nation (Kenya) and Tuko TV (Kenya)
****
**** Concerns grow that China may take control of Kenya's port at Mombasa
****
Kenya's government borrowed $4 billion from China to build the
Mombasa-Nairobi Standard Gauge Railway (SGR), a train that would
operate between the Port of Mombasa and the capital city Nairobi. It
was supposed to pay for itself with revenue to the Kenya Ports
Authority (KPA), but revenues have been far below the projections.
China requires that all the deals that China makes with countries
under the umbrella of the Belt and Road Initiative (BRI) be kept top
secret, even within the country making the deal. However, new details
about the SGR deal are now coming to light in a report by Kenya's
Auditor-General Edward Ouko, including a requirement that revenue of
the Kenya Ports Authority would be used to clear the debt of $2.27
billion owed to the Exim Bank of China.
The auditor also notes that the contract specifies that if there's any
disagreement or dispute between Kenya and the bank, then the
disagreement would be referred to arbitration within China, "whose
fairness is resolving the disagreement may not be guaranteed."
According to the auditor, "Exim Bank would become a principal over KPA
if [Kenya] defaults in its obligations and the Chinese bank exercises
power over the escrow account security."
China's foreign ministry spokesman was asked about this a week ago,
and responded as follows:
<QUOTE>"Regarding the issue you mentioned, we have checked
with the relevant Chinese financial institution and found that the
allegation that the Kenyan side used the Mombasa Port as a
collateral in its Mombasa-Nairobi Railway payment agreement with
the Chinese financial institution is not true. The report you just
cited said that the Kenyan side also has made clarifications on
it.
At present, the China-Kenya cooperation on the Mombasa-Nairobi
railway is progressing smoothly. When cooperating with African
countries including Kenya, Chinese companies and financial
institutions will always conduct joint and thorough scientific
study on the feasibility of the projects and then proceed to
determine the construction and funding plans and scales to guard
against causing debt risks and fiscal burdens for
Africa."<END QUOTE>
This is an evasive answer (standard practice from a Chinese official),
because the auditor's report does not claim that the port itself was
used as collateral.
Kenya media is becoming increasingly concerned that China's "Debt Book
Diplomacy" is going to ensnare Kenya in the way that it's forced other
countries to give control of its infrastructure to China.
The poster child for how it works is the Port of Hambantota, a Chinese
infrastructure project in Sri Lanka, funded with a loan from China,
with almost all the labor performed by Chinese workers. Sri Lanka was
unable to repay the loan, and the government was forced to give the
Port to China. So now Sri Lanka has a large seaport owned by China,
and a large Chinese enclave with hundreds of Chinese families, with no
benefit to itself and to its own people.
There are examples in Africa as well.
In 2007, Democratic Republic of Congo (DRC) entered into a $10 billion
resource-financed infrastructure agreement with China, where copper
and cobalt mining licenses 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 came to light only when DRC could
not make the debt payments, and China's Exim bank took control of a
portion of the mines.
In 2010, the government of Ghana informally secured $3 billion loan
from China without parliamentary scrutiny and over 15 years Ghana
would supply 750 million barrels (13,000 barrels per day) for
servicing the debt. When oil prices crashed, China's Exim bank
demanded that the amount of oil used to service the debt would
increase from 13,000 to 15,000 barrels per day, and that the agreed
fixed price to be paid would 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
was forced to cancel half of the agreed $3 billion loan.
In all three of these cases, the details of these agreements were kept
secret, per China's demands, until they were revealed because debt
repayments could not be met, and China then enforced repayment by
seizing assets.
It's now feared that the same thing will happen in Kenya, and China
will seize Kenya's Port of Mombasa. The governments of both Kenya and
China insist that there's no problem, but it still remains the case
that the SGR is generating far less revenue than had been assumed when
the original loan agreement was signed in 2014.
China has used "debt trap diplomacy" in several countries. They loan
a country to build infrastructure proects that will strategically
benefit China by helping China to exploit the countries natural
resources, but and only marginally benefit the local population. They
require that the loan money be used to purchase parts and services
from Chinese firms, and that almost all workers must be Chinese. So
instead of benefiting the local factories and workers, the money goes
back to China to benefit factories and people there. And then the
country still has to repay the loan, which means that they're repaying
the loan twice.
In the case of Kenya, China is being accuse of "neo-colonialism,
racism and blatant discrimination" towards Kenya workers. Racism is
rampant, and the Chinese allow Kenyans to perform only menial tasks.
The Chinese are supposed to train the Kenyans, many of whom have
engineering degrees, to do the jobs, but instead blatantly exclude the
Kenyan workers. The Nation (Kenya) and China Foreign Ministry (24-Dec) and African Stand
Related Articles
KEYS: Generational Dynamics, China, Kenya, Mombasa Port,
Standard Gauge Railway, SGR, Exim Bank,
Kenya Ports Authority, KPA, Belt and Road Initiative, BRI,
Edward Ouko, Sri Lanka, Port of Hambantota,
Democratic Republic of Congo, DRC, Ghana
Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal
John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe
This morning's key headlines from GenerationalDynamics.com
- Kenya's debt repayments to China triple in July
- Concerns grow that China may take control of Kenya's port at Mombasa
****
**** Kenya's debt repayments to China triple in July
****
Kenya's Standard Gauge Railway (SGR), from Mombasa Port to Nairobi, built with funding from China
Starting in July, Kenya's annual debt repayment of loans to China
triples to $900 million.
Kenya has been on a borrowing binge in the last five years, having
borrowed a total of $50 billion. These loans have been used to build
roads, ports and railways, and were to be repaid with the revenue from
this infrastructure, but as with many loans, hopes and promises were
not kept.
Some $2.7 billion in loan repayments will be due to foreign lenders in
2019-20, a third of it to China. In addition, Kenya must pay $780
million for 2014 Eurobond note, including $2 billion in commercial
loans in the first half of 2019. This includes retiring a $787
million loan from Britain's Standard Chartered Bank and another $371
million loan from Trade and Development Bank, formerly PTA Bank.
The reason that payments to China are tripling in 2019 is because a
five-year grace period that China granted to Kenya in 2014 is now
expiring.
All of these loans are denominated in foreign currencies, usually US
dollars. Payments must be made out of the country's foreign reserves,
which are at $9 billion September 2018. Standard Media (Kenya) and The Nation (Kenya) and Tuko TV (Kenya)
****
**** Concerns grow that China may take control of Kenya's port at Mombasa
****
Kenya's government borrowed $4 billion from China to build the
Mombasa-Nairobi Standard Gauge Railway (SGR), a train that would
operate between the Port of Mombasa and the capital city Nairobi. It
was supposed to pay for itself with revenue to the Kenya Ports
Authority (KPA), but revenues have been far below the projections.
China requires that all the deals that China makes with countries
under the umbrella of the Belt and Road Initiative (BRI) be kept top
secret, even within the country making the deal. However, new details
about the SGR deal are now coming to light in a report by Kenya's
Auditor-General Edward Ouko, including a requirement that revenue of
the Kenya Ports Authority would be used to clear the debt of $2.27
billion owed to the Exim Bank of China.
The auditor also notes that the contract specifies that if there's any
disagreement or dispute between Kenya and the bank, then the
disagreement would be referred to arbitration within China, "whose
fairness is resolving the disagreement may not be guaranteed."
According to the auditor, "Exim Bank would become a principal over KPA
if [Kenya] defaults in its obligations and the Chinese bank exercises
power over the escrow account security."
China's foreign ministry spokesman was asked about this a week ago,
and responded as follows:
<QUOTE>"Regarding the issue you mentioned, we have checked
with the relevant Chinese financial institution and found that the
allegation that the Kenyan side used the Mombasa Port as a
collateral in its Mombasa-Nairobi Railway payment agreement with
the Chinese financial institution is not true. The report you just
cited said that the Kenyan side also has made clarifications on
it.
At present, the China-Kenya cooperation on the Mombasa-Nairobi
railway is progressing smoothly. When cooperating with African
countries including Kenya, Chinese companies and financial
institutions will always conduct joint and thorough scientific
study on the feasibility of the projects and then proceed to
determine the construction and funding plans and scales to guard
against causing debt risks and fiscal burdens for
Africa."<END QUOTE>
This is an evasive answer (standard practice from a Chinese official),
because the auditor's report does not claim that the port itself was
used as collateral.
Kenya media is becoming increasingly concerned that China's "Debt Book
Diplomacy" is going to ensnare Kenya in the way that it's forced other
countries to give control of its infrastructure to China.
The poster child for how it works is the Port of Hambantota, a Chinese
infrastructure project in Sri Lanka, funded with a loan from China,
with almost all the labor performed by Chinese workers. Sri Lanka was
unable to repay the loan, and the government was forced to give the
Port to China. So now Sri Lanka has a large seaport owned by China,
and a large Chinese enclave with hundreds of Chinese families, with no
benefit to itself and to its own people.
There are examples in Africa as well.
In 2007, Democratic Republic of Congo (DRC) entered into a $10 billion
resource-financed infrastructure agreement with China, where copper
and cobalt mining licenses 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 came to light only when DRC could
not make the debt payments, and China's Exim bank took control of a
portion of the mines.
In 2010, the government of Ghana informally secured $3 billion loan
from China without parliamentary scrutiny and over 15 years Ghana
would supply 750 million barrels (13,000 barrels per day) for
servicing the debt. When oil prices crashed, China's Exim bank
demanded that the amount of oil used to service the debt would
increase from 13,000 to 15,000 barrels per day, and that the agreed
fixed price to be paid would 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
was forced to cancel half of the agreed $3 billion loan.
In all three of these cases, the details of these agreements were kept
secret, per China's demands, until they were revealed because debt
repayments could not be met, and China then enforced repayment by
seizing assets.
It's now feared that the same thing will happen in Kenya, and China
will seize Kenya's Port of Mombasa. The governments of both Kenya and
China insist that there's no problem, but it still remains the case
that the SGR is generating far less revenue than had been assumed when
the original loan agreement was signed in 2014.
China has used "debt trap diplomacy" in several countries. They loan
a country to build infrastructure proects that will strategically
benefit China by helping China to exploit the countries natural
resources, but and only marginally benefit the local population. They
require that the loan money be used to purchase parts and services
from Chinese firms, and that almost all workers must be Chinese. So
instead of benefiting the local factories and workers, the money goes
back to China to benefit factories and people there. And then the
country still has to repay the loan, which means that they're repaying
the loan twice.
In the case of Kenya, China is being accuse of "neo-colonialism,
racism and blatant discrimination" towards Kenya workers. Racism is
rampant, and the Chinese allow Kenyans to perform only menial tasks.
The Chinese are supposed to train the Kenyans, many of whom have
engineering degrees, to do the jobs, but instead blatantly exclude the
Kenyan workers. The Nation (Kenya) and China Foreign Ministry (24-Dec) and African Stand
Related Articles
- China's railway contractor in Kenya accused of 'neo-colonialism, racism and blatant discrimination' (14-Jul-2018)
- African Cédric Bakambu joins China's Sinobo Guoan Football Club (04-Mar-2018)
- China-built railway in Kenya raises questions about 'debt trap diplomacy' (02-Jun-2017)
- Pakistan faces imminent financial crisis threatening China's CPEC (07-Aug-2018)
- Violent protests in Sri Lanka over China's takeover of Hambantota seaport (08-Jan-2017)
KEYS: Generational Dynamics, China, Kenya, Mombasa Port,
Standard Gauge Railway, SGR, Exim Bank,
Kenya Ports Authority, KPA, Belt and Road Initiative, BRI,
Edward Ouko, Sri Lanka, Port of Hambantota,
Democratic Republic of Congo, DRC, Ghana
Permanent web link to this article
Receive daily World View columns by e-mail
Contribute to Generational Dynamics via PayPal
John J. Xenakis
100 Memorial Drive Apt 8-13A
Cambridge, MA 02142
Phone: 617-864-0010
E-mail: john@GenerationalDynamics.com
Web site: http://www.GenerationalDynamics.com
Forum: http://www.gdxforum.com/forum
Subscribe to World View: http://generationaldynamics.com/subscribe
