Kenya Railways Corporation has come under scrutiny for accumulating KES 34.1bn ($263.32mn) in avoidable interest and penalties on a loan from China’s Exim Bank that financed the Standard Gauge Railway (SGR).

According to Auditor-General Nancy Gathungu’s report for the financial year ending June 2024, the charges stem from delays in servicing the on-lent loan, which forms part of the KES 646bn ($4.99bn) still owed to the Chinese lender.

“The financial statements reflect a balance of KES 646bn ($4.99bn) in respect of the Exim bank loan,” Gathungu stated. “Included in the amount is KES 28.85bn ($222.78mn) being interest on loan capitalised… Further… is an amount of KES 5.3bn ($40.93mn) being default penalties payable.”

She also flagged weak oversight in revenue from the Metre Gauge Railway (MGR), including KES 133.8mn ($1.03mn) from the Nairobi Commuter Railway. Overcrowding, poor ticket verification, unsecured receipts and lack of segregation of cashier duties were cited as risks exposing the Corporation to revenue loss.

Gathungu further cited contingent liabilities totalling KES 28.1bn ($216.99mn), warning they could disrupt operations if triggered.

The findings highlight broader fiscal risks tied to China-funded infrastructure in Kenya. The SGR, launched in 2017 and built by China Road and Bridge Corporation, was financed largely through commercial and concessional loans from China’s Exim Bank. These were arranged via the National Treasury and documented in official agreements. The China Africa Research Initiative (CARI) at Johns Hopkins University confirms this financing structure and outlines risk-mitigation measures such as escrow accounts and cargo guarantees. Kenya Railways, a state-owned agency overseeing rail transport and infrastructure, has faced persistent liquidity pressures, depending on Treasury support and loan restructuring.

In her report, Gathungu also warned that fare payments via M-Pesa were poorly coordinated and vulnerable to manipulation. Receipts were not securely discarded, and mobile transactions were not consistently verified, increasing fraud risk.

As bne IntelliNews reported, in November 2024, Kenya Railways denied defaulting on a KES 167.5bn ($1.29bn) SGR loan, clarifying in a November 13 statement that the facility was on-lent and handled by the National Treasury.