A fresh audit submitted to lawmakers has lifted the lid on how freight income tied to the Standard Gauge Railway failed to reach its loan account, pushing Kenya Railways into default.
The findings show that a large portion of the money collected from goods hauled on the Mombasa-Malaba line did not make it to the escrow account set up for repaying the SGR loan, leaving the corporation unable to settle its debt commitments.
In her report to the National Assembly Public Debt and Privatization Committee, Auditor-General Nancy Gathungu explained that the Kenya Ports Authority kept part of the freight collections instead of transferring the full amount to Kenya Railways’ loan account as required.
The retained funds, she noted, were withheld despite the terms of the agreement guiding SGR revenue usage.
The audit shows that from July 2023 to December 2024, KPA collected Sh22 billion from cargo moved on the railway. However, only Sh16 billion was directed to the escrow account, while Sh6 billion remained in the ports agency’s hands.
“The audit established that the retained revenues catered for potential refund claims arising from tariff disputes and discounts, despite lack of a provision for the retention in the Take or Pay Agreement,” reads the report.
The report stresses that the Take or Pay deal under which KPA collects freight income for the railway requires full remittance after deducting an agreed service fee.
Gathungu pointed out that the arrangement leaves no room for keeping extra funds.
“This unauthorised revenue retention deprived Kenya Railways of sufficient funds required for loan repayment. It further indicated KPA’s non-compliance with the agreement and adversely affected Kenya Railway’s financial obligations towards repayment of on-lent loans,” reads the document.
The audit further highlights that the withheld money weakened the state rail agency’s ability to service the loan acquired for the SGR extension to Malaba.
The analysis on on-lent loans shows Kenya Railways is struggling to repay the Sh568 billion borrowed from China to build the line in phases. The credit agreements, signed in 2014 and 2015, covered four stages of the railway project.
“Review of loan records and interviews held with the Managing Director, Kenya Railways Corporation was not meeting revealed that the corporation was not meeting its loan obligations for three on-lent loans totaling to Sh569 billion inclusive of capitalized interest accrued during the grace period,” reads the report.
The revelations add to growing questions over the financial model behind Kenya’s flagship rail project and cast a spotlight on the fragile balance between state agencies tasked with collecting and managing key public transport revenues.
