About Sh44.6 billion collected from standard gauge railway passenger fares and freight charges is sitting unused in joint accounts at KCB Bank because of escrow terms in Kenya’s loan deal with China Exim Bank, Treasury Cabinet Secretary John Mbadi has said.
Cash in the frozen accounts stood at $344 million, or about Sh44.63 billion. Under the 2014 financing arrangement, SGR operating revenues must be deposited into a special account managed jointly by Kenya Railways Corporation and the Chinese lender as security against default.
Taxes pay what railway cash cannot
Kenya borrowed three loans totalling about $5 billion (Sh648 billion) in 2014 and 2015 to build the line from Mombasa to Nairobi and later towards Naivasha. The Treasury services those sovereign obligations through Consolidated Fund Services, while recording the funds as on-lent loans that Kenya Railways is expected to reimburse.
The escrow rules have blocked the corporation from using its own revenues to repay the Treasury. Kenya Railways’ outstanding on-lent balance was unchanged at Sh547.378 billion in the year ended June 2026, according to the Annual Debt Management Report for 2025/26. The corporation accounted for 53 per cent of the government’s Sh1.145 trillion on-lent loan portfolio, a concentration the Treasury has flagged as a fiscal risk.
“The agreement that was signed included [a clause which requires] that some money should be paid into an escrow account as security, which was completely wrong in the first place,” Mr Mbadi said in a telephone interview reported by Business Daily.
He said the SGR loan continues to be paid like any other sovereign debt, and declined to say whether Nairobi has formally asked Beijing to amend the escrow terms. “I cannot start giving details of any possible agreements before it is reached… cannot even discuss if we have approached China until we have something concrete to report,” he said.
Earlier yuan restructuring cut the annual bill
Separate from the escrow fight, Kenya restructured the SGR loans in 2025 by converting dollar debt into Chinese yuan, extending maturities and securing more grace periods. Payments to Chinese lenders fell to Sh107.74 billion in the year ended June 2026 from Sh129.35 billion a year earlier and from a peak of Sh152.69 billion in 2023/24.
Mr Mbadi has previously said the switch from floating dollar rates above six per cent — SOFR plus a margin of about two percentage points — to a fixed renminbi rate of about three per cent saves the government roughly $215 million, or about Sh27.9 billion, a year. Renegotiating the escrow remains unfinished business if Kenya Railways is to start clearing its arrears to the Treasury while still funding operations and maintenance.
Sources: Business Daily | News African
Photo: Andrew Atina / Wikimedia Commons (CC BY-SA 4.0)
