Auditor wants payment to fertiliser firm stopped

In 2012/13 financial year, Treasury paid Sh644.4 million to Ken Ren even after Parliament directed that the payments should be stopped.

A total of Sh644.4 million was incurred last year on a project which did not take off and against which no value for money was achieved

It appears Kenya is literary paying dearly for the “sins of their fathers”, according to the latest Auditor’s General report. President Uhuru Kenyatta and former President Kibaki’s regimes paid a cool Sh644 million towards a dubious debt guaranteed by the Government. The controversial payments were made in the 2012/2013  financial year.

Details of the “illegal” payments – which Parliament has twice said they should be stopped, and which the Auditor General has insisted are a waste of public funds are contained in the latest report of the Auditor General Edward Ouko. The payments are being made because Kenya guaranteed the loan to have a fertiliser factory built in Changamwe, in Mombasa County but the factory was never built. Suppliers sued and the Government lost. “Although the Government continues to service these debts, it is a matter of concern that a total of Sh644.4 million was incurred during the year on a project which did not take off and against which no value for money was achieved,” Ouko noted in the report now before the Public Accounts Committee.

The Auditor General’s report show that National Treasury under Kibaki’s then Finance Minister Njeru Githae, and under Kenyatta’s minister, Henry Rotich, paid the colossal amount in that financial year. He noted that Sh620 million was payment towards principal loan repayments, while Sh24 million was interest. The payment is besides Sh1.4 billion paid to fictitious firms Universal Satspace Company and First Mercantile Securities Corporation, part of Anglo-Leasing contracts. The Ken-Ren Fertiliser Factory was a joint venture entered into in the mid-1970s between the Government and a now bankrupt American firm known as N-REN Corporation, to form a company registered as Ken-Ren Chemical and Fertilisers Company Ltd. The plan was to save Kenya huge amounts of money then being spent on importing fertiliser. The firm was to build a factory at Changamwe, Mombasa to manufacture fertiliser for domestic consumption.

Breach of contract

KenRen entered into several financing and equipment procurement contracts with Austrian and Belgian banks and suppliers with Kenya as a guarantor. The banks involved were Banque Bruxelles Lambert and Office of National Du Ducroire of Belgium and Bank Fur Arbeit Und Wirtschaft (Bawag) of Austria. The suppliers were Coppee Lavalin of Belgium and Voest Alpine of Austria. No equipment was delivered to KenRen except for some crates whose contents were not verified. The project collapsed and KenRen went into liquidation in 1978. Kenya, as a guarantor was sued by the foreign firms at the International Chamber of Commerce Court for breach of contract, where, and after protracted proceedings, the final awards were made in favour of the firms.

Kenya agreed and signed a debt restructuring agreement dated November 14, 2000 with Bawag, an Austrian company to facilitate settlement of the principal debt due of Euros 16,635,156.16 at an interest rate of 1.5 per cent per annum. Repayments for the debt commenced in October 2003 and were scheduled for completion in March 2010. In the last financial year, Treasury paid Sh448.6 million to Bawag, with Sh117 million budgeted in this financial year and Sh129 million during 2015/16.