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Kenya’s Standard Gauge Railway has accumulated about Sh44.6 billion in restricted bank accounts, raising a question that goes beyond how much the trains earn: why is the government still paying railway loans from public funds while railway revenue remains tied up?
Business Daily reported on October 12 that Treasury Cabinet Secretary John Mbadi put the balance at $344 million, approximately Sh44.63 billion, held in accounts at KCB under the SGR financing arrangement with China’s Export-Import Bank.
The explanation lies in the rules governing access to the money—and the separate repayment obligations of Treasury and Kenya Railways.
What is an escrow account?
An escrow account holds money subject to agreed conditions. Having cash in the account does not automatically give the account holder permission to withdraw or spend it. Release depends on the agreement governing the funds.
For the SGR, Treasury’s 2024/25 public debt report explains that railway revenue goes into an escrow account jointly managed by Kenya Railways and the financier.
The arrangement requires a minimum balance to be maintained before surplus funds can go towards loan repayment. Treasury identified this condition as an obstacle to Kenya Railways servicing its obligations, despite continued railway operations.
That helps explain how a railway can generate revenue while struggling to contribute towards repayment of the money borrowed to build it.
Who actually pays the SGR loan?
There are two financial relationships to understand.
The national government owes the external lender. Kenya Railways, which received the borrowed funds through an on-lending arrangement, owes Treasury.
According to Mbadi’s explanation reported by Business Daily, the government continues servicing the sovereign loan through its main public accounts. Restrictions on railway revenue complicate Kenya Railways’ ability to reimburse Treasury.
Consequently, Kenya Railways falling behind on payments to Treasury does not, by itself, mean Kenya has defaulted on the Chinese lender.
The larger debt behind the Sh45 billion
Treasury’s latest Annual Public Debt Management Report shows Kenya Railways had an outstanding government loan balance of Sh547.38 billion at June 30, 2026, unchanged from a year earlier.
It also records Sh473.17 billion in overdue principal and interest attributable to the corporation:
- Sh322.53 billion in principal arrears.
- Sh150.64 billion in interest arrears.
Kenya Railways accounted for approximately 84 per cent of total arrears on government on-lent and direct loans. Treasury identifies this concentration as a major recovery risk.
The outstanding loan balance and arrears measure different things. The former is the remaining loan balance; the latter includes payments already overdue, together with accumulated interest. They should not be added together as though they were separate loans.
Would releasing the money solve the problem?
The figures suggest that access to the restricted funds could help, but would not clear Kenya Railways’ obligations.
The reported Sh44.63 billion is equivalent to roughly 8 per cent of its Sh547.38 billion outstanding government loan balance. That comparison illustrates the scale of the money involved; it does not establish that the entire account balance could immediately be used for repayment.
Railway revenue must also be assessed alongside operating expenses, maintenance needs and financing costs. Money collected from passengers and cargo is not automatically profit.
What Treasury wants changed
In its 2024/25 debt report, Treasury recommended renegotiating the escrow terms so railway revenue could support debt service alongside operating and maintenance costs.
However, Mbadi did not confirm to Business Daily whether formal discussions on changing those account restrictions were underway, or provide a completion date. There is therefore no confirmed timetable for unlocking the reported balance.
For taxpayers, the question is how much the railway can contribute towards its own financing obligations. A revised arrangement would need to protect the lender, keep the trains running and establish a workable route for Kenya Railways to reimburse Treasury.
