Kenya Railways is facing scrutiny after an audit revealed it has incurred a hefty penalty of Sh3.5 billion for defaulting on loans borrowed for the construction of the standard gauge railway (SGR).
The penalty stems from unpaid and accumulated charges related to a loan from China Exim Bank, which the corporation failed to settle in time.
In a detailed report presented in Parliament, Auditor General Nancy Gathungu highlighted the financial mismanagement plaguing the state-owned corporation.She issued an adverse opinion on Kenya Railways' financial accounts as of June 30, 2024, citing the lack of proper controls and unsatisfactory explanations for the loan defaults.
It is emerging that Kenya Railways made no repayments to China Exim Bank during the year under review, resulting in the accumulation of Sh41 billion in outstanding loan repayments and penalties.
"Loan records revealed that the corporation incurred the penalties and interest due to non-settlement of the maturing obligations as and when they became due,” Gathungu said.No justification for default
Further compounding the crisis, Gathungu noted that the corporation's management did not provide any justification for failing to settle the loans.
"Management did not provide an explanation for this unsatisfactory matter. The effectiveness of controls in relation to the settlement of the on-lent loans could not be confirmed," she said.
The audit also revealed that Kenya Railways' revenue from its operations was insufficient to cover the maturing loan obligations, leading to additional penalties.
This financial shortfall has drawn attention to the ongoing mismanagement within the organisation, with the corporation now at risk of facing further financial and operational challenges.
A recent report from the National Treasury revealed that Kenya Railways made a staggering Sh50 billion loss, the highest recorded among state corporations in the period under review.
Despite this, Gathungu stressed that the penalties were avoidable and represented an unnecessary burden on public funds.
