How Kenyans may have lost Sh29b in SGR tender

President Uhuru Kenyatta flags-off the first freight train connecting Nairobi to Naivasha’s Inland Container Depot at the SGR Nairobi Terminus. [PSCU]

Pricing of the Standard Gauge Railway project may have been inflated by nearly Sh29 billion, fresh details from analysis of the tender documents show.

Kenya Railways Corporation allowed the contractor to adjust costs of the civil works by Sh11 billion (a 3.5 per cent increase) and Sh2.7 billion (2.5 per cent) for the accompanying facilities.

That is only part of a long list of price adjustments even before the construction of the Sh372 billion project started.

It has also emerged that separate tenders were awarded for the project, and not one as it has been believed all along.

One was entered into on July 10, 2012 for the civil works on the railway line while the other for supply and installation of facilities, locomotives and rolling stock on October 3, 2012.

Among the suspected items that were double procured, according to documents filed in court, is the design of the various aspects such as signaling while they were never custom-made for Kenya Railways.  

Locomotives and rolling stock were to be made to meet the Chinese standards as agreed in the contract, meaning there would be no need of executing fresh design works.

Documents filed in court as annexures to a petition challenging the award lay bare details of the country’s most controversial project yet.

Huge pricing variations were allowed to the selected contractor which led to major losses to the taxpayer, according to the petition filed by activist Okiya Omtatah.

A consortium of three firms, TSDI-APEC-EDON, was in May 2014 contracted to provide the design and construction supervision at Sh4.2 billion, yet the same works had been factored into the main tender won by the Chinese contractor.

China Road and Bridge Corporation, the contractor, had included the supervision works in its tender pricing it at Sh7 billion ($84.9 million) at the prevailing exchange rates.

Secret tender documents

These are among the new details of the top secret tender documents, which government officials have done everything to hide from the public.

President Uhuru Kenyatta publicly committed to share a copy with a reporter more than a year ago but the promise has never come to pass.

It all started in early 2010 when the idea of constructing a modern railway was mooted by the Mwai Kibaki administration. A double track for the entire length to Kisumu or Malaba, and an electricity-powered train service was desired. Passenger trains required in the invitation to tender were required to have a top speed of 220 kilometres per hour while freight trains would do 120 kilometres per hour.

It is unclear what became of the specific tendering process after then, until two years later when CRBC appeared after a supposed government-to-government negotiation.

CRBC presented its feasibility study to the Kenya Railways on June 26, 2012, to set off a chain of events that culminated in the award of the tender just two weeks later.

Within the two weeks, a negotiating team was formed, discussions of the proposals were done, and approvals from the relevant ministries and the Attorney General were sought.

Further, the Kenya Railways board of directors sat and approved the project, before the commercial agreements were negotiated and the contractor notified of the award and the contract signed.

In the negotiations, the contractor was found to have inflated the pricing of specific items on the bill of quantities by Sh2.6 billion, which was agreed to be knocked off to keep the price for civil works at Sh220.9 billion.

Accepted offer

On July 11, 2012, Kenya Railways wrote to CRBC informing it of the award before the contractor accepted the offer and responded the same day.

“We take this opportunity to convey our appreciation for the award of the contract, and look forward to signing the commercial contract with you at the earliest time,” Li Qiang wrote on behalf of CRBC.

The following day, then Kenya Railways Managing Director Nduva Muli, signed the commercial contract for the civil works.

Another contract was signed with the same firm on October 4, 2012 for the supply and installation of facilities, including the stations, locomotives and rolling stock for Sh96 billion.

In the negotiation for either contracts, CRBC was allowed variation in pricing of up to five per cent, which is also part of the subject of the petition.

Philip Mainga, the acting managing director of Kenya Railways, said yesterday he could not comment on the matter.