Query as Kenya Railways slapped with Sh644m penalty for defaulting on Chinese loan

Auditor General says managers irregularly ignored obligations which fell due

In Summary

• Charges on the Kenya Railways loan have accrued to the tune of Sh50.9 billion.

• Auditor General Nancy Gathungu further casts doubt on land compensation of Sh1 billion.

Passengers board a train at the SGR Mombasa Terminus
Passengers board a train at the SGR Mombasa Terminus
Image: FILE

Kenya Railways managers exposed Kenyans to paying Sh644 million in penalties for an unpaid loan the corporation borrowed from the Exim Bank.

A new audit report for the year to June 30, 2022, reveals the management didn't make any repayments towards the said loan during the year under review.


Auditor General Nancy Gathungu further revealed the charges on the Kenya Railways loan have accrued to the tune of Sh50.9 billion, detailing the burden to be borne by taxpayers.


Part of the payables and accrued charges was the default penalty payable balance of Sh644,343,297 amid fears the amount may increase.

As per the audit, the penalty would have been avoided had the corporation settled the maturing obligations.

“Loan records revealed that the corporation incurred the penalties and interests on the on-lent due to non-settlement of the maturing obligations as and when they fell due,” Gathungu said.

“In the circumstances, the corporation continues to be exposed financially due to non-settlement of the loan obligation,” she said.

The audit has further flagged an unsupported SGR passenger income to the tune of Sh1.32 billion.

The books showed the SGR passenger income for the year was to the tune of Sh1.36 billion, which only a portion was accounted for.

Gathungu said the income was not supported by the system or manually generated SGR daily passenger records and extracts of passenger travel manifest.

“As such, it was not possible to confirm the amounts posted and as indicated in the ledgers provided for audit.”

“In the circumstances, the completeness and accuracy of the SGR passenger income amounting to Sh1,321,041,380 could not be confirmed,” Gathungu said.

Also in doubt is Sh1.04 billion which the corporation reported as having paid to project-affected persons.

Gathungu said the corporation did not provide a list of the beneficiaries, copies of national identity cards, PIN certificates, and title surrenders from the National Land Commission to back up the payment.

The auditor further flagged an overpayment of Sh14.7 million made to some of the projected affected persons.

Whereas the lot was entitled to receive Sh1 million, Kenya Railways ended up paying them Sh15.7 million.

Kenya Railways, the audit further shows, has since recovered Sh5.7 million but a balance of Sh8.9 million remains outstanding.

“The accuracy and completeness of the compensation to the project-affected persons (PAPs) amount of Sh1,043,439,897 could not be confirmed,” Gathungu added.

Kenya Railways has further been flagged for failing to collect Sh131 million to settle pending bills owed to staff by the Transport ministry in a World Bank project.

It is, however, not clear what informed the bills but the auditor is concerned there was no way the cash would be recovered from the World Bank.

Gathungu said the balance arose during the pre-concession period and has been outstanding for a long time.

“It is, however, not clear how the management intends to recover the outstanding balance from the World Bank and thus casting doubts on the recoverability of the stated amount,” the auditor said.

The queries have emerged in the face of an ongoing review of the corporation’s spending by a House committee.

The Public Investments Committee chaired by Pokot South MP David Pkosing is looking into among others an operating loss of Sh24 billion that Kenya Railways posted in 2020.

PIC also seeks to review the illegal allocation of land citing nine industrial plots within Limuru railway station, three in Kikuyu and parcels adjacent to the Mombasa railway station.

The parcels, including 529 others across the country in question, have been allocated to third parties with some already developed.

In the latest report, the auditor has further flagged various parcels in dispute, where tenants have not been paying their lease, as well as encroached parcels.

Among the parcels is the one hosting the Nakuru bus park and another at the Nakuru railway station, which has been encroached on by the Nakuru county government.

The land has been allocated to tenants on a long-term lease of 25 years with the auditor casting doubt the corporation is putting any effort to recover the parcel.

“Management has not explained the steps being taken to revert the land to the tenants. The corporation continues to lose the opportunity to collect rent of Sh13.3 million annually.”

A Sh3 billion variance in freight revenue from the Standard Gauge Railway is also under probe by MPs.

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