Fakoyejo Olalekan
The Chinese government has requested for N4.71 billion (Sh1.312 billion) penalty fee from Kenya, after the government failed to service the loan it obtained to build the Standard Gauge Railway (SGR).
Kenya was expected to service the loan in the financial year ending June 2021, but the country was unable to achieve that as revenue from the railway service fell below the cost of operation.
Join our WhatsApp ChannelThe amount represents the one percent interest on the defaulting loan, as China, led by its creditor, Export-Import Bank of China, had borrowed Kenya over half a trillion shillings.
This comes as the Standard Gauge Railway reported Sh3.4 billion operational loss. During the period ended June, it was learnt that the Standard Gauge Railway recorded Sh18.5 billion as operational cost.
Standard Gauge Railway expenses is more than the Sh15 billion generated from revenue, making it impossible for the Kenyan government to meet its loan obligation.
China’s decision put Nigeria under the spotlight, as the Chinese accounts for $3.92 billion out of the total foreign debt owned, with Interest Rates of 2.50% p.a., Tenor of Twenty (20) years and Grace Period (Moratorium) of Seven (7) years.
In order to meet up with its rising debt, Nigeria’s debt service has risen above its generated revenue.
There have been fears that Nigeria could also come under the harmer from the Chinese government, because Chinese loans in Nigeria are also tied with infrastructure.
Commenting on if China can take possession of the projects financed by them if Nigeria defaults in the servicing of the loan, the debt office of Nigeria (DMO), had stated in 2020, that “Firstly, Nigeria explicitly provides for Debt Service on its External and Domestic Debt in its Annual Budgets.
“In effect, this means that Debt Service is recognised and payment is planned for. In addition, a number of the projects being (and to be) financed by the Loans are either revenue generating or have the potential to generate revenue.”
