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Leaked Railway Contract with China Poses a Risk to Kenyan Sovereignty

According to Kenya’s largest independent newspaper, the Daily Nation, the Kenyan government is trying to cope with the news that a multi-billion dollar contract with China may jeopardize its sovereignty.

On Sunday, January 13, 2019, the newspaper published part of the details of a contract between the Export-Import Bank of China and the Republic of Kenya, which was generated in  2014. It revealed the details of the Standard Gauge Railway (SGR) loan. SGR is the country’s largest infrastructure project since Kenya’s achieved independence.

A clause in the contract regarding the scope of assets that would be confiscated in the event of a loan default raised the greatest concern. Clause 5.5 of the Preferential Buyer Credit Loan Agreement on the Mombasa-Nairobi SGR reads as follows: “Neither the borrower (Kenya) nor any of its assets is entitled to any right of immunity on the grounds of sovereignty or otherwise from arbitration, suit, execution, or any other legal process with respect to its obligations under this Agreement, as the case may be in any jurisdiction.”

In the deal, Kenya is also compelled to import goods, technology and services from China.

The confidentiality clause reads, “Without the prior written consent of the lender (China), the borrower shall not disclose any information hereunder or in connection with this agreement to any third party unless required by applicable law.”

The disclosure of these details provides the most convincing evidence to date that the Chinese government may adopt “debt-trap diplomacy” to force a country to surrender land, minerals, or strategic assets in the event of a default.

The wording in the document fits well with the contract for the “Belt and Road” project in Serbia, Kyrgyzstan and Guyana, as Voice of America revealed earlier. The “Belt and Road” is China’s multi-trillion dollar global infrastructure project. This suggests that the terms of the Kenyan loan – from asset confiscation and confidentiality provisions to the requirement to use Chinese suppliers – may be a reflection of the Beijing’s model of lending in Africa and in other places.

Another worrisome aspect is a clause that states that any disputes on the loan would only be resolved in Beijing through the China International Economic and Trade Arbitration Commission (Cietac).

The agreement says, “The arbitration award shall be final and binding on both parties. The arbitration shall take place in Beijing.”  This effectively blocks other international commercial dispute resolution avenues.

Source: Voice of America, January 16, 2019