Kenya Railways is grappling with severe financial challenges following revelations of its failure to service loans borrowed for the construction of the Standard Gauge Railway (SGR). The corporation has accumulated penalties and interest charges totaling Ksh 41 billion, including a Ksh 3.5 billion penalty for defaulting on its obligations to China Exim Bank. This alarming situation was highlighted in a scathing report by Auditor General Nancy Gathungu, tabled in Parliament.
The Auditor General issued an adverse opinion on Kenya Railways’ financial books for the fiscal year ending June 30, 2024, citing poor management and lack of transparency. According to the report, the corporation did not make any repayments to the Exim Bank during the review period, resulting in penalties and accrued charges due to non-settlement of maturing obligations.
Alarming Financial Mismanagement
The Auditor General’s report criticized Kenya Railways’ management for failing to provide an explanation for its inability to meet loan repayment deadlines. The penalties, termed as “avoidable charges to public funds,” signal deep-rooted inefficiencies in the management of the state-run entity.
Gathungu stated that the railway’s operational revenue was insufficient to cover maturing obligations, a fact that exacerbates the financial strain on the corporation. This admission points to systemic weaknesses in planning and revenue generation, leaving the corporation vulnerable to financial instability.
Further compounding Kenya Railways’ woes are potential liabilities totaling Ksh 27 billion from pending court awards, including Ksh 15 billion linked to claims for illegal demolitions of leased properties. Should these liabilities materialize, they could push the already struggling entity further into financial ruin.
Procurement Irregularities
The audit also flagged serious breaches in procurement processes, highlighting the misuse of Ksh 9 billion through direct or restricted tendering methods that were not justified. Gathungu noted that open tendering would have been more appropriate in the prevailing circumstances.
Particularly egregious was the procurement of supplies worth Ksh 2 billion, which were delivered without inspection. Inspection and Acceptance Committees were formed weeks after delivery, raising concerns about irregular practices and potential wastage of public funds. Security and cleaning services contracts were also awarded in breach of legal protocols, with tenders executed before formal contract agreements were signed.
These practices, the Auditor General warned, expose Kenya Railways to revenue leakages and undermine public trust in the corporation’s operations.
Rising Losses and Operational Inefficiencies
Kenya Railways has emerged as the biggest loss-making state corporation in Kenya, posting a staggering Ksh 50 billion loss in the period under review. This raises concerns about the sustainability of its operations and the potential exposure of taxpayers to mounting debts.
Despite assurances during the Uhuru Kenyatta administration that the SGR loans posed minimal risk, the latest developments may reignite fears about the potential seizure of Kenyan assets in the event of further defaults. The penalties and accrued interest represent not only a burden on public funds but also a stark reminder of the need for robust financial oversight and accountability.
Calls for Reform
The Auditor General’s findings underscore the urgent need for structural reforms in Kenya Railways to address financial mismanagement, improve procurement practices, and boost revenue generation. Failure to act could deepen the corporation’s financial crisis, with far-reaching implications for Kenya’s transportation sector and public resources.
In light of these revelations, the government and stakeholders must prioritize corrective measures to ensure prudent management of resources and restore public confidence in Kenya Railways’ ability to deliver on its mandate. Only through accountability and transparency can the corporation hope to navigate its mounting challenges and secure a sustainable future.
