Chinese Loan Terms Keep SGR Earnings Away From Repayments
Key Highlights
- Kenya's SGR financing deal requires a KSh 25B ($193M) minimum balance in a joint escrow account that has never been reached, so no railway revenue has gone to repayments, Business Daily reported.
- The Treasury says the terms had pushed arrears on the SGR project to KSh 413.4B ($3.19B) by June 2025, even as the railway kept earning income.
- The Treasury budgeted KSh 129.9B ($1.0B) for repayments on Chinese loans in the year to June 2026, with most of it going to SGR debt.
- Kenya is asking China to loosen the escrow rule, but Mwenendo has not seen the loan agreement and no change has been confirmed.
Kenya cannot use money earned by the Standard Gauge Railway (SGR) to repay the loan that built it, because a clause in the Chinese financing deal sets a KSh 25B ($193M) floor that the railway's own account has never reached, Business Daily reported.
The National Treasury says the terms require Kenya Railways Corporation (KRC) to keep a minimum balance of KSh 25B ($193M) in a special account, Business Daily reported. The Treasury says those terms had driven arrears on the SGR project to KSh 413.4B ($3.19B) by June 2025.
The effect is that railway earnings and loan repayments sit in separate boxes, and taxpayers fill the gap.
How the escrow account works
Under the financing deal, all SGR revenues are paid into an escrow account, a locked account that KRC manages jointly with the lender, China's Export-Import Bank (Exim). The minimum balance must be in place before any surplus can be applied to loan servicing.
Business Daily reported that the account has never reached the KSh 25B ($193M) threshold. As a result, no repayments have flowed from SGR revenues, and KRC's loan arrears to the Treasury have kept growing while the railway continues to earn income.
Mwenendo has reported that the corridor now covers its running costs from daily operations. The escrow clause helps explain why that improvement has not translated into debt repayment.
What taxpayers pay
The Treasury budgeted KSh 129.9B ($1.0B) for repayments on loans from China in the year to June 2026, Business Daily reported, with the bulk of it going to SGR debt. The sum is split between KSh 95.64B ($737M) in principal and KSh 34.26B ($264M) in interest. Kenya borrowed $5.08B (about KSh 659B) from Exim for the two phases of the railway.
In practice, that means repayments come from the national budget, not from ticket and freight revenue. Money spent there is not available for other spending, a pressure also visible in the Treasury's talks on water-sector loan repayment terms.
The port's cargo promise
The loan terms also lean on the Kenya Ports Authority (KPA). A take-or-pay agreement signed in 2014 between Exim, KRC and KPA required the port to direct a minimum volume of cargo through the SGR each year: one million tonnes at the start, rising to six million tonnes by 2024 and 6.77 million tonnes in the year to June 2025, Business Daily reported.
Auditor-General Nancy Gathungu said KPA's failure to deposit KSh 5.9B ($45.8M) into the escrow account breached the loan terms and exposed taxpayers to penalties, according to Business Daily's report on a dispute between KPA and KRC. KRC and KPA are locked in a disagreement over that transfer.
What Kenya is asking China to change
Kenya is pressing China to review the escrow terms, Business Daily reported. The push follows the conversion of three dollar-denominated Exim loans into yuan, a switch expected to save about KSh 27.9B ($215M) a year in interest.
The loans were initially set to be repaid by 2035. The Treasury estimates it has been spending about KSh 50B ($385M) a year to service the three SGR loans, and now expects the cost to fall to KSh 37B ($285M) a year.
Mwenendo's reading is that the clause is as important as the interest rate. A lower interest bill helps, but as long as the account must reach KSh 25B ($193M) first, railway revenue stays out of repayments. Mwenendo has not seen the loan agreement itself, and whether China agrees to loosen the rule has not been confirmed.
Readers should watch three things: any announcement that Exim has agreed to change the minimum balance, whether the escrow account balance starts to rise, and whether the KPA and KRC dispute over the KSh 5.9B ($45.8M) deposit is settled.
In Summary
- What does the SGR escrow clause require?
- A minimum balance of KSh 25 billion ($193 million) must sit in a joint escrow account before any surplus can be applied to loan repayments.
- Why has railway income not repaid the loan?
- The account has never reached the threshold, so no repayments have flowed from SGR revenues, Business Daily reported.
- How do taxpayers carry the cost?
- The Treasury budgeted KSh 129.9 billion ($1.0 billion) for repayments on Chinese loans in the year to June 2026, with most going to SGR debt.