The Kenya Railways Corporation (KRC) has defaulted on a six-year Standard Gauge Railway (SGR) loan worth Ksh569 billion, raising concerns over Kenya’s debt exposure and the viability of the multi-billion-shilling transport project.

According to the Auditor-General Nancy Gathungu’s report, for the financial year ending June 2024, KRC failed to meet the repayment obligations for the Chinese-financed SGR loan, triggering huge penalties and interest payments that are currently estimated at Ksh34.1 billion.

The audit reveals that out of the total debt, KRC incurred KSh28.85 in interest capitalized due to late payments and KSh5.3 billion in default penalties, costs the Auditor-General classified as “avoidable with proper financial planning and timely remittances.’

This loan, which was lent to KRC by the Government of Kenya from the Export-Import Bank of China, is currently at Sh646 billion, including accumulated interest.

The results are a bleak outlook of a parastatal that is working under an immense debt load, has a poor collection of revenue, and has weak internal controls.

Revenue Leakages and Poor Oversight

The report also reveals major weaknesses in the revenue management systems of KRC, especially in the metre-gauge commuter services in Nairobi and other towns.

Auditors discovered that ticketing and cash handling are poorly controlled, and there have been instances of cashiers both issuing and inspecting tickets, creating loopholes for theft and manipulation.

“The congestion of trains makes inspection nearly impossible, while MPESA transactions are not adequately safeguarded, “the report notes.

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KPA Lost Billions in freight revenue.

Also, inconsistency was observed in freight revenues received by Kenya Ports Authority (KPA) and the amount remitted to KRC.

KPA was reported to have collected Ksh22.6 billion and only remitted Ksh16.2 billion between July 2023 and December 2024, with the remaining Ksh6.3 billion unaccounted for.

The Auditor-General warned that failure to address such discrepancies could further cripple the financial stability of the corporation and undermine debt repayment efforts.

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Risk to the National Budget and Future Borrowing

The report points out that KRC is in the exposure of contingent liabilities worth Ksh28.1 billion, which, when realised, may affect the operations of the company and even overburden the taxpayers.

“The government remains the guarantor of the SGR loan; therefore, any default by KRC directly impacts the public debt portfolio,” the report warns.

Project Yet to Deliver Expected Returns.

Despite the SGR’s initial promise to transform transport and boost trade in the region, the Auditor-General observed that the full potential revenue is yet to be realised, leaving the corporation unable to service its loan obligations.

According to the report,” the project’s objectives have not been fully achieved and the debt continues to accumulate interest and penalties.”

To avoid further losses, the Auditor-General has recommended that the SGR loan be urgently restructured, internal control systems be enhanced, and the revenue collection process be transparent.

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Mombasa Railway Station under Kenya Railways Corporation
Image/R/X