Kibaki administration pays out billions as election nears

By Alex Ndegwa

Typical of Kenya’s tradition when elections near, President Kibaki’s administration is on a spending spree and the purpose of payments questionable and justification suspect.

Consequently, the Controller of Budget wants the suspicious loan repayments in the region of billions of shillings, some funneled to ghost facilities, investigated.

In the last financial year alone, Sh729 million was paid to service a loan borrowed in 1978 when President Kibaki was Finance minister to set up a fertiliser factory that was never built.

Of the amount, Sh676 million was the principal and interest of Sh53.7 million, according to the 2011-2012 Budget Implementation Review Report by the office of Controller of Budget. Analysts argue that the KenRen project, given the

exchange rates of those days, was of the magnitude of the Anglo Leasing and Goldenberg scandals over the last two decades.  The figures are, however, only part payments for the dubious KenRen project, which parliamentary watchdog reports indicate will gobble in excess of Sh4 billion, most of it guzzled by interests over the last 34 years.

Records from public debt department indicate KenRen account shall be fully paid in 2015, according to Controller of Budget, Agnes Odhiambo.  This tallies with a 2007 House Public Accounts Committee report showing the last installment of Sh2.9 billion to a Belgium bank is scheduled on June 30, 2015.

Earlier, Sh1.5 billion would have been paid to an Austrian bank on March 31, 2014. The total amount comes to Sh4.4 billion. This adds to irregular payments of Sh953 million the Government made for a computerisation project that stalled in 1993.

PAC Chairman Boni Khalwale was incensed by payments made under President Kibaki’s tenure as settlement for the abortive computerisation of the Customs and Excise Department in 1993 was detailed.

“Former President Moi, who never went to London School of Economics (Kibaki is a graduate of the School) even refused to pay Kenren. That old man might have had a vision for this country,” argued Dr Khalwale.

PAC has recommended that Ethics and Anti-Corruption Commission (EACC) investigate the alleged loss of Sh1.8 billion in expensive short-term money printing contracts with De La Rue over which Transport minister Amos Kimunya is on a spot.

The National Rainbow Coalition’s administration in 2003 cancelled an expensive deal entered by the Kanu regime and set out to procure a competitive agreement.

However, the competitive long-term deal was cancelled in 2006 in favour of expensive single-sourced multiple interim orders that PAC concluded ripped off the taxpayer.

The wastage of public funds appears so blatant at a time the country is expected to tighten its belt to meet the huge expenses to sustain a devolved governance structure.

Parliamentary Budget Office estimates the recurrent costs for the bi-cameral Parliament will increase from Sh6.6 billion to Sh14.3 billion.

The cost of 47 new county legislatures is estimated at Sh22 billion. More expenditure arises from new constitutional order with the Controller of Budget reporting Sh3 billion was allocated last year, to cater for salaries and allowances for constitutional officeholders. The KenRen Chemical and Fertiliser Company has been the most intriguing because it was meant to benefit Kenyan farmers by saving them billions annually in reduced fertiliser import costs. 

Authorities, however, only entangled the country in a debt with financiers – Belgian (Ducroire) and Austrian (Bawag) banks – and the taxpayer was left footing the bills for the phantom project.

Claimants

Even more intriguing is that one of the claimants – Voist Ltd – was ordered by the international court to pay the Kenyan Government US$3 million after it lost its case.

The PAC report indicated the company had failed to pay and the Government had not made any effort to enforce the court order, yet it continued paying other claimants.

Parliament accused the Attorney General’s office of conflict of interest and bungling of cases, which have seen the Government, slapped with hefty compensation packages.

“The office having advised the Government to enter into these fraudulent contracts, lacked moral authority to represent the Government in court and arbitration of cases arising from the contracts,” PAC team concluded. 

The Finance Ministry had in 1989 engaged CAL in the computerisation of the Customs and Excise Department, but the contractor delayed the project prompting the Government to halt payments.  Eventually the project stalled in 1993, with the dispute ending up at the Chartered Institute of Arbitrators in London. The Government lost and had to fork out compensation and ex-gratia payments to the company.

An Auditor General’s report stated the poor handling of the project resulted in the Government incurring substantial unnecessary payments amounting to Sh953.2 million.

Yet the value of the contract was UD$6.2 million (foreign component) and Sh103.2 million (local component) for the project, which was to be completed in 1991.

Financial Secretary Mutua Kilaka last week told a PAC hearing an initial payment of Sh500 million was made to CAL.  A further Sh202 million and interest of Sh23 million were paid on September 17, 2010, raising the total compensation to Sh726 million.

It also emerged that the Government had overpaid CAL by some Sh200 million, which the pending bills closing committee recommended be recovered. The Controller of Budget has also raised the red flag on billions of shillings the Government has splashed on guaranteed loans.

By the close of the 2011-2012 Financial Year, the Exchequer had forked out Sh1.9 billion for loans default, which could not account for how the funds were spent.

Overdrafts

Among them were Nairobi City Council (Sh82 million), Tana and Athi River Development Authority Sh500 million, and Kenya Broadcasting Corporation (Sh1.4 billion). 

“The Government continues to spend resources to repay these loans yet the funds were borrowed for commercial ventures,” the report lamented.   Apart from KenRen, in the fourth quarter report to Parliament, the Controller of Budget cites two other questionable loans “that were paid during the period under review which require further analysis and or investigation”.

They include pre-1997 outstanding loans arising from overdrafts amounting to Sh36.9 billion by various Government ministries in their respective accounts at the Central Bank. The report explains the Government converted the overdraft into a long-term debt in 2003 to meet statutory requirements.

Cash flow constraints, however, forced the Government to suspend repayment of the debt. It resulted in an outstanding balance of Sh35.6 billion by 2007.  In the last financial year Sh1.1 billion was paid out of the Consolidated Fund as principal for the loan, and Sh850 million as interest. The report recommends information on the ministries that received the advances should be availed.

Another payment the Controller of Budget has questioned in last year’s budget is Sh568 million with regard to an Italian debt swap.