Only a citizen’s audit of SGR debt will unravel public heist of resources

29 February 2020 by David Calleb Otieno

Early this week, Kenyans woke up to blockbuster like stories of how prices of items and commodities related to the Kenyan Standard Gauge Rail (SGR) project were extremely inflated perhaps explaining why the Kenyan SGR is far much more expensive than the Tanzania SGR.

According to the Daily Nation, Kenya ended up paying twice more for a diesel train than what Tanzania negotiated for an electric train. The Tanzanian line is not just cheaper but also faster as it will support a maximum speed of 160 kilometres per hour for passenger trains and 120 kilometres per hour for freight compared to Kenyan SGR that has 120 kilometre per hour for passenger trains and 80 kilometres per hour on freight haulers.

Planting of grass that dots SGR stations cost Kenyan taxpayer about KES 1 Billion (USD10 million) while airtime allowance for lead engineer was KES 5 million (USD50,000) in 3 years. The Kenyan taxpayer forked another KES 57 million (USD 570 million) to provide the office furniture for the lead engineer and another KES 239 million (USD2.3 million) was used to provide for entertainment of the lead engineer and his staff for a period of 3 years.

Perhaps what baffled Kenyans most were revelations that the prices of some items were extremely exaggerated. For instance an A3 laser printer that cost an average of KES 75,000 (USD 750) each in Nairobi was priced at KED 513,700 (USD 5,137) each. This contributed to a higher cost of the Kenyan SGR. According to the contracts signed between Kenyan Government and China Road and Bridge Corporation (CRBC), for SGR to break even, it had to generate an average of KES 1.5 billion (USD 15 million) per month but currently it only manages a sales of KES 841 million (USD 8.4 million) meaning it is far below the target.

It is worth noting that Kenya Railways raised the issue of inflated prices at a meeting with CRBC in June 2012 meaning that Kenya Railways which should actually been the lead negotiator on the Kenyan side actually had no say in the negotiations that bore no fruit as far as reduction of the COST of SGR are concerned.

A question that lingers in the mind of Kenyans is how CRBC went ahead with the SGR loan issue despite glaring evidence of inflated prices of items and red flag raised by Kenya Railways? To answer this question we need to examine how the borrowed money is often used in developing countries.

According to United Nations Development Program (UNDP UNDP
United Nations Development Programme
The UNDP, founded in 1965 and based in New York, is the UN’s main agency of technical assistance. It helps the DC, without any political restrictions, to set up basic administrative and technical services, trains managerial staff, tries to respond to some of the essential needs of populations, takes the initiative in regional co-operation programmes and co-ordinates, theoretically at least, the local activities of all the UN operations. The UNDP generally relies on Western expertise and techniques, but a third of its contingent of experts come from the Third World. The UNDP publishes an annual Human Development Report which, among other things, classifies countries by their Human Development Rating (HDR).

) Global Human Development Report of 2002, in many countries, the debt strangles the public purse and is often for money spent unproductively long ago by authoritarian regimes.

History is rich with cases where huge sums of borrowed money is embezzled by corrupt authoritarian regimes in complicit with creditors where the former are ready to lead their countries into huge unproductive debts, mostly infrastructure as long as they can skim off commissions for themselves in the process. It is a win-win situation for them and the creditors since the creditors get business, the corrupt authoritarian leaders laugh all the way to the banks.

Mobutu Sese Seko ruled Zaire, now Democratic Republic of Congo (DRC) for 30 years and left with a fortune of about USD 8 billion equivalent to over two-thirds of his country’s debt. But how could IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.
, World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

and other creditors in the Western countries continue giving loans to an authoritarian corrupt leader like Mobutu fully aware that the money was not going to areas that are beneficial to the public?

The debt is always structured in a way that a big percentage of the debt hardly reaches the coffers of the poor countries that incur the debts but remains in the accounts of the same borrowing countries or banks in form of deposits that are always at a lower interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rate than that of the loan it self. The poor countries Central Banks then have to borrow from such banks at higher interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
and through this, the private banks and creditors are able to make a kill.

While all this is happening, the corrupt authoritarian leaders are allowed to embezzle the loans through skimmed off commissions and inflated prices as long as they keep the stolen money in accounts of the same banks often located in the creditor countries. Through such schemes, the creditors are sure that the loan money does not actually leave the creditor countries and it is available to be loaned again to others in an endless cycle of debts. Interestingly, all this happens with the knowledge of IMF, World Banks and creditor countries.

In the case of the Kenyan SGR, the loan money was moved directly from the China Exim Bank to the CRBC accounts denying Kenya any benefits that would have trickled in on account of local purchases. The contract between Kenya and CRBC state that “the buyer (Kenya) shall pay those amounts due to seller (CRBC) which are financed by the financial institutions of China to the seller (CRBC) through the financial institutions of China”.

This is why the Kenyan Social Movements for the Abolition of Illegitimate Debts (KSM-AID) and the Kenyan Peasants League (KPL) are planning a Citizen Audit of the SGR Debt to question and establish its legitimacy as well as to shed more light on the Kenyan SGR debt.

The Citizen Audit of the SGR will seek to establish the purpose of SGR loan, who decided to contract the SGR loans on behalf of Kenyans, whether Kenya received the entire amount of the SGR loan money, who hold the SGR debt, who has so far profited from the SGR loans, the interest rate of repayment, what interest has been paid so far, the portion of Kenyan budget that is used to service the SGR debt, the creditors conditions, how Kenya is financing repayment of the SGR debt and the social, economic, ecological, gender & regional effects of the SGR loans as well as the impact of SGR loans on the lives of the people of Kenya.

All the above will be done with a view of assessing the legality, sustainability and legitimacy of the Kenyan SGR debt with a view of breaking the taboo of debt repayment that Kenya cannot stop repaying SGR debts if the Citizen Audit reveal that the SGR debt did not benefit the majority of the Kenyan people; the SGR debt facility violated Kenyan domestic finance laws like the principles of public finance management; the SGR loan can not be serviced without seriously impairing the ability of the Kenyan government to fulfil basic human rights obligations to Kenyan citizens and that the SGR loan agreement included terms and conditions that are grossly unfair to Kenyans, violate the human rights standards, social justice.

“Debt cannot be repaid, first because if we don’t repay, lenders will not die. That is for sure. But if we repay, we are going to die” - Thomas Sankara

David Calleb Otieno

KPL International Coordinator and Convener, Kenyan Social Movements for Abolition of Illegitimate Debts



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