Excerpt : In March 2006, Mr Uhuru Kenyatta, then the Parliamentary Public Accountants Committee chairman, gave one of his most eloquent speeches while moving the motion for the adoption of a special audit report on 18 Anglo Leasing contracts valued at Sh55 billion
In March 2006, Mr Uhuru Kenyatta, then the Parliamentary Public Accountants Committee chairman, gave one of his most eloquent speeches while moving the motion for the adoption of a special audit report on 18 Anglo Leasing contracts valued at Sh55 billion.
He said the projects “represented three of the most prominent characteristics of corruption in Kenya — impunity, negligence and recklessness in the management of public resources… the regrettable feature of lack of responsibility and unaccountable conscience on the part of those charged with managing national resources”.
The government of President Daniel arap Moi, under pressure following the suspension of donor funding, approved the use of supplier financing arrangements where a contractor would obtain lease financing to supply security equipment/projects to the State.
It led to overpriced, inflated contracts, most of which were not delivered, but the government ended up paying the financiers.
Mr Kenyatta said the deals were conceived by Kanu while the National Rainbow Coalition steamrollered them into a gravy train”.
“Unless this House takes action, they will continue to exist even in the governments to come,” he warned.
The key recommendation in the report was that the government should never adopt a supplier or contractor financing arrangement for its projects.
The Sh700 billion dam projects his government has embarked on in recent years are essentially Anglo Leasing-type contracts modelled on the same principle, which explains why our debts have risen considerably.
And like Anglo Leasing, some some of these projects are probably not approved by Parliament and were secured by circumventing the budgetary process, often obscured under the loan schedules.
Following the Sh21 billion Arror and Kimwarer dams story, Treasury CS Henry Rotich issued a statement saying the government had adopted a method where the contractor not only engineers, procures and builds the project, but also finances it.
He termed it a “one-stop shop by the contractor which will save funds upfront”. Mr Rotich stated that the money paid so far “was part of the loan facility advanced by the contractor, SACE, and not from the exchequer”.
The sweetener for these deals is a small grant portion that the minister said “meets our borrowing policy”.
Under the Jubilee administration, the government invites contractors to seek self-financing through their countries’ Exim banks or export credit agencies.
The projects are largely contractor-driven. The key element is the financing arrangement. In Anglo Leasing, the financiers were private companies but the government was required to guarantee them.
In the dams deals, the financing is government-to-government through State-owned Export Credit Agencies or Exim banks, but with private entities fronting the deals as lead banks.
The government will make the repayments whether the projects collapse or there is no value for money, the Rotich bank guarantees notwithstanding.
It is, however, unusual that a government-to-government loan, which has a sovereign backing,
will again be insured upfront to cover the risk of default by our government.
The characteristics of such deals include huge capital outlays involved from inflated contracts, large upfront payments, projects failing to start, single sourcing of contractors, inadequate due diligence, value-for-money questions and phantom projects.
Work on five of these dams valued at Sh142 billion began in 2013; they are not yet complete.
The numbers regarding these dams are as follows: Arror and Kimwarer dams Sh63 billion; Thwake (Sh37 billion); Siyoi Muruny (Sh5 billion); Itare (Sh28 billion); Karemenu (Sh24 billion); Mwache (Sh13 billion); Sh20 billion Bosto (Sh20 billion); Ruiru II (Sh17 billion) and others.
During his tenure, President Kibaki launched works on five dams valued at Sh9.8 billion: Maruba, Kiserian, Umaa, Badasa and Chemusus. All were government-funded though some are yet to be completed.
Mr President, let’s stop these contractor-financed projects that are fleecing the country. It is ‘Anglo Leasing’ by any name!