In December of 2018, a letter showing up in the future through the workplace of Kenya’s Auditor General leaked to the public. It carried a caution that Kenya had allegedly staked its valuable Mombasa Port as collateral for the $3.6 billion loan from Asia for the construction associated with the Mombasa-Nairobi Standard Gauge Railway (SGR).
The revelation was serious. It emerged through the same period when reports were circulating of imminent transfer of Hambantota Port to fulfill element of Sri Lanka’s financial obligation to Asia. The rumor place Mombasa Port into the spotlight as another example of “China debt-trap diplomacy”.
Although both the Chinese and Kenyan governments have actually rejected that Mombasa Port ended up being used as collateral, the actual loan terms for the SGR loan have remained an enigma. Ergo, the rumor has continued to circulate.
Nevertheless, a fresh report released the other day by the China Africa Research Initiative (CARI) at the John Hopkins University class of Advanced Overseas Studies suggests that the Auditor General erred in concluding Mombasa Port ended up being used while the loan security.
“To our surprise, all of us unearthed that the collateral rumor stemmed from the seemingly tiny but critical misreading by the Auditor General (AG). The AG erroneously labelled KPA as being a borrower, accountable for repaying the SGR loans,” found the report’s authors.
For context, four stakeholders were involved in the SGR financing: Kenya’s National Treasury, the debtor; Kenya Railway Corporation (KRC), the task Company; Kenya Ports Authority (KPA), the key project customer and owner of Mombasa Port; and Asia’s Exim bank, the Lender. Underneath the regards to the contract, KPA decided to be the SGR’s major client – not the borrower, and not the security.
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Further, the report asserts that it is likely the AG misunderstood how a waiver of sovereign immunity – a typical feature of international commercial project finance – works in practice.
Within the AG’s leaked papers, he charged that Kenya’s government had “waived immunity” on KPA’s assets, expressly guaranteeing they might be used to settle the Chinese loan. This is a blunder, states the report.
It is unusual to find a global commercial loan or sovereign relationship agreement that doesn’t contain the sovereign immunity waiver clause. As you American attorney noted, “leaving out a sovereign immunity waiver in a worldwide commercial loan contract would have been a professional malpractice.”
Really, the clause provides for a dispute resolution avenue in international financing. Under international legislation, sovereign states therefore the entities they control have sovereign immunity. These are typically generally speaking resistant from lawsuits and may not be compelled to seem before a foreign court – unless they waive their sovereign resistance.
As an example, a published cache of loan agreements signed by Cameroon with banking institutions and export credit reporting agencies from Austria, Belgium, Asia, Turkey and the UK shows that most required comparable clauses.