Parliament seek details of Chinese firms awarded state contracts

These loans have largely contributed to the country’s public debt that currently stands at Sh8 trillion against the ceiling of Sh9 trillion enacted in November 2018. 

On Thursday last week, National Assembly Speaker Justin Muturi directed the House Committee on Budget and Appropriations (BAC) to pursue the matter and report on the country’s historical debts following a request by Garissa Township MP Aden Duale.

“The issue of public debt is a serious matter,” Speaker Muturi said in response to Mr Duale’s request.

The Garissa Township MP had demanded that the House Committees in charge of Transport and Infrastructure, Energy and ICT, summon the relevant Cabinet Secretaries and report to the House.

However, Speaker Muturi directed Kieni MP Kanini Kega, who chairs BAC, to tell the House how he plans to confront the issue raised by Mr Duale. 

Mr Kega casually told the House that the various debt management strategy papers tabled in the House and which showcase the country’s debt status, will be included in his committee’s report on the 2021 Budget Policy Statement (BPS) in an apparent dismissal of Mr Duale’s request.

Overruled

But he was overruled by Speaker Muturi, who reminded him that the matter raised by Mr Duale- public debt- is serious and “valid.” 

Mr Duale told the House that quite a number of Medium Term Debt Management Strategy (MTDMS) papers, generated by the National Treasury are tabled in parliament periodically but BAC is yet to consider them and report to the House.  

“The high borrowing from China and awards of contracts to China State owned or Chinese linked companies has created a vicious cycle of borrowing from China to pay China,” said Mr Duale in his request to the House. 

“The over borrowing from China and awards of contracts to the Chinese linked companies has highly disadvantaged Kenya,” he added. 

While considering his request, Mr Duale wants the BAC, chaired by Kieni MP Kanini Kega to include a breakdown of contracts awarded by all the state agencies from the year 2013/14 to date. 

Mr Duale’s fears are anchored on the fact that the total stock of debt owed to China rose from Sh726.9 billion in September 2019 to Sh784.1 billion in September 2021, about 65 percent of total bilateral debts. This means that for every Sh100 bilateral debt, Sh65 is a debt owed to China.

Lucrative Kenyan contracts

The China State owned companies awarded lucrative Kenyan contracts include China Communications Construction Company (CCCC) and its subsidiary China Road and Bridges Corporation (CRBC) which holds the bulk of the road and railway contracts.  

Others include China Wu Yi, Synohydro, Jiangxi Engineering, China Railways 21 Bureau Group and Third Engineering Bureau of China City Construction Group that were awarded major government contracts at the expense of established local companies. 

Mr Kega did not have an option to give an undertaking to ensure the matter is addressed. 

“We will do a report next week and if the issues raised will not have not been covered we will canvas them after that. It is an issue that is alive with us and we will make sure that we bring a report alongside the BPS,” the Kieni MP said. 

Public debt

As of September 31, 2021, the status of public debt had increased by Sh875.7 billion to Sh7.996 trillion compared to Sh7.12 trillion as at the end of September 2020. 

The gross public debt comprised 50.8 percent external debt and 49.2 percent domestic debt. 

The National Treasury attributes the increase in the public debt during the period to external loan disbursements, exchange rate fluctuations and uptake of domestic debt during the period. 

This means that debt servicing costs are expected to rise to Sh1.36 trillion, which is 10 percent of the country's Gross Domestic Product (GDP) in the 2022/23 financial year. 

The projected debt servicing is a 77 percent growth from Sh765.9 billion spent in the year 2020/21. 

The implication of this is that the country will likely borrow about Sh1.1 trillion for the period ending June 2022.

The document Mr Duale tabled in the House shows that Sh645 billion or 65 percent of the total actual expenditure of Sh975.2 billion in the Energy, Infrastructure and ICT sector is linked to the China state owned companies. 

A breakdown of the Sh975.2 billion shows that Sh218.4 billion went into the construction of roads and bridges, Sh131.4 billion towards rehabilitation of roads and bridges, Sh226.4 billion for maintenance of roads and bridges and Sh2.4 billion for design of roads and bridges. 

The others include affordable Housing Sh4.7 billion, ICT infrastructure connectivity Sh8.1 billion and rural electrification Sh17.3 billion.

Disadvantages to Kenya

Borrowing from China to pay China owned companies, Mr Duale says, has had its fair share of disadvantages to Kenya. 

These include high currency risks associated with high demand for US dollars to settle debt owed and settlement of payment of contracts to Chinese linked companies. 

The exchange rate of 1 US Dollar to Kenya shilling has depreciated from about Sh80 in 2013 at the start of Standard Gauge Railway (SGR) project to Sh114 today. 

“Our local well-established companies in the Energy, Infrastructure and ICT are shutting down. They do not have the financial power and state support to compete against state backed companies from China,” said Mr Duale. 

“This has had a ripple effect in job creation as young brilliant graduates with engineering degrees have now resorted to menial jobs to survive,” the Garissa Township MP added. 

Mr Duale also wants the government to include in its response to the House, a breakdown of professional engineering graduates employed by the China State owned or Chinese linked companies from the year 2018/2019 to date.

The Garissa Township MP also wants the names of local companies and amounts of sub-contracts that the China State owned or Chinese linked companies have awarded them in capacity building and technology transfers from the year 2013/14 to date. 

Also required are the technical and financial verifiable measures that the government has put in place to support local contractors to effectively compete against the state backed companies from China.

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