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Burden on taxpayers as Treasury starts repayment of SGR loan

SGR cargo train at the Nairobi terminus station in April 2019. PHOTO | JEFF ANGOTE | NMG Kenya will from Thursday pay billions of shillings to China after a five-year grace period that Beijing had extended to Nairobi for the loans used to build the standard gauge railway (SGR) line ended on Tuesday.

Repayment of the principal loan extended to Kenya for the first phase of the mega railway project kicks off this week, according to an agreement signed with Exim Bank of China on May 11, 2014.

This is expected to add to the growing load on Kenyan taxpayers for costs related to the multi-billion shilling SGR line from Mombasa to Nairobi given that the Treasury has been servicing interest charges on the Chinese debt.

Loan repayments to China’s Exim Bank will jump from the Sh31 billion paid in the year to June to Sh71.4 billion in the current fiscal period, reflecting a 130 percent increase.

Taxpayers have been forced to shoulder the burden of the SGR loans because revenues generated from the passenger and cargo services on the track are not enough to meet the operation costs, which are estimated at Sh1.5 billion a month against average sales of Sh841 million.

Acting Treasury Cabinet Secretary Ukur Yattani on Wednesday confirmed that the government has made arrangements for the transfer of Sh10 billion to China’s Exim Bank.

“We have commenced the process of payment and money will hit their bank account by first week of January. This money has been captured in our budget,” Mr Yattani told the Business Daily .

“The income from railway, both cargo and passenger, will likely break even by next year and ease pressure on RDL (Railway Development Levy) and other budgetary supplements.”

INTEREST RATE

Kenya in May 2014 entered into a deal to borrow $3.233 billion (Sh324.01 billion) from China’s Exim Bank, comprising $1.633 billion commercial loan and $1.6 billion concessional to build the 385km modern railway between Mombasa and Nairobi.

The loan, whose interest is 3.6 percentage points above the six month average of London Inter-Bank Offered Rate (Libor) which serves as an international benchmark, is to be repaid in 15 years with a grace period of five years.The current one year Libor rate as of December 20, 2019 is two percent, a pointer that the loan comes with an interest rate of 5.6 percent.This is expensive compared to other concessional loans, especially from the World Bank. Kenya recently […]

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