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Storm Over Rail Tender:How Kibaki’s Men “ate” the Std Railway Gauge tender Billions

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In what would amount to Kenya’s priciest shame, three top State officials wedged themselves between a leading Chinese contractor and Kenya Railways in a bid to skim off billions from the Sh320 billion Standard Gauge Railway Construction project that involves erecting a 485km rail track from Mombasa to Nairobi.

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To accommodate the atrocious kickback, the tender was thus inflated by 46 per cent. The quartet shared out a staggering Sh32 billion (with the three state officers each receiving 30 per cent of the cut). A notorious Mombasa wheeler-dealer of Asian descent who brokered the deal took home a cool Sh3.2 billion, according to impeccable sources. By all standards, this is the most expensive bribe in Kenya’s history – far much bigger than the Sh13-billion Goldenberg infamy of the 1990s.

The taxpayer stands to lose a whopping Sh110 billion in inflated pricing, according to railway construction costing made available to this publication by Industry experts. The benchmark in this case is the Addis-Djibouti railway whose construction is to complete in 2015. “The unit cost of Mombasa-Nairobi railway is 49.3 percent higher than the unit cost of the 743km Addis Ababa-Djibouti railway,” said a report by one of the Industry experts working at the Ministry of Transport headquarters, Transcom House.

Inflating contract prices is an age-old fraud perfected by civil servants. That’s why it was convenient in this Railway contract, KRC/PLM/31/2012 and Tender KRC/PLM/31/11. One, the contractor, China Road and Bridge Corporation (CRBC) undertook the project’s feasibility study. By implication, the bill of quantities (BQ) was based on this study – a clear conflict of interest. With the absence of competition, owing to direct procurement, CRBC set its own price. Two, top officials in the Mwai Kibaki-Raila Odinga Coalition as well as Transport Ministry were eager to play ball for obvious purpose – scent of huge bribe.

It is against this backdrop that, according to documents in our possession, KR Corporation awarded CRBC, a Chinese state-owned company, the tender in circumstances clearly suspect. Not only is CRBC undercapitalized, it has never undertaken a project of such magnitude. And that’s apart from the foreboding queries the Public Procurements Oversight Authority (PPOA) raises, as we will see later in this article.

For legal reasons, this publication will not divulge identity details of the four swindlers of the public purse. However, we cannot hesitate to report that an immediate former Cabinet minister, a senior official in Ministry of Transport, and a top politician are the architects of the ignominious plan. They connived with an infamous Asian fixer who operates within Kenya Ports Authority and has vast business interests at the Coast.

Fear is rife this questionable deal will embarrass the Jubilee Cabinet. “This thing is bigger than you people regard,” said a senior official in the office of the Presidency. “It is bigger, ack on its initial plan to hire a more experienced and capitalized company. Officials of China Railway Construction Corporation (CRCC) Ltd – which is building the relatively inexpensive Addis-Djibouti Railway – met the Kenyan delegation in China last August where the project was discussed. CRCC is the largest state-owned engineering company in China; it has done railway works in Nigeria, Algeria, Saudi, Angola, Libya and Israel.

In fact, CRCC Board chair Mang Fengchao wrote to President Kenyatta September 30, 2013 to follow up on discussions he had with the Kenyan delegation. “It will be highly appreciated if (you) could facilitate and instruct the related ministries and authority to receive our (delegation coming to Kenya), and to negotiate and sign the (memorandum of understanding) on the captioned railway project according,” Mang wrote.

Only that Mang’s letter came a bit too late. It would appear part of the Kenyan delegation was on a fishing expedition in China – for the most generous briber. If anything, the existence of Kenya-CRBC MoU was common knowledge. Indeed, MoU had been signed on August 12, 2009. The then Minister for Transport Chirau Ali Mwakere and CRBC general manager Du Fei signed it, setting off events that would eventually lead to the contentious contracts. The MoU, interestingly, provided for the project’s feasibility study.

“Within 30 days from the execution of this Memorandum, CRBC shall provide MoT (Ministry of Transport) with a list of requirements with respect to information which CRBC would like MoT to supply for the study, within 30 days from receipt of the list MoT shall furnish CRBC with the information requested by CRBC provided such information is available to MoT. “As soon as practicable after execution of this (MoU), CRB shall organize and appoint a team of experts to undertake the (feasibility) study. The CRBC shall present the study to MoT within 5 months from the date of this Memorandum.”

It would appear the MoU and subsequent feasibility study was part of a bigger strategy to award the contract to CRBC. No wonder Transport Ministry moved exceedingly fast to cancel the project’s feasibility study contract KR had awarded an Italian firm, Italfer SPA, regardless of the fact that Parliament had in 2010 given the Ministry Sh700 million for the study.

“Where is transparency in an arrangement where a foreign contractor conducts the feasibility study on terms of references it has itself drawn, does the engineering designs on its own, and then proceeds to organise and facilitate for you to get a loan from his country? When a contractor does for you feasibility studies and designs, how can you be sure of getting value for money”, journalist Jaindi Kisero would later question in his column in the Daily Nation, August 20, 2013.

Indeed, experts see conflict of interest in this case. “They arrived at the project pricing based on their own study; interesting,” says an official in the Ministry of Transport convinced staff in his department were all along opposed to the project. “The Government didn’t have a say in this. Brokers did the bidding.” According to sources, the whiff of a scandal was first detected by the Public Procurements Oversight Authority and several other top State offices. Last month a senior State official in the Office of the Deputy President raised the matter in a letter to AG’s office. “We have reviewed documentation of the project … and we have detected numerous prima facie (apparent) anomalies in the tendering-award process and documentation contrary to Public Procurement and Disposal Act (Act no.3 of 2005) and other laws of the Republic of Kenya,” Chief of Staff Marianne Kitany told Prof Githu Muigai.

It is copied to Engineer Michael Kamau (Cabinet Secretary, Transport and Infrastructure), Joseph Kinyua (Chief of Staff, Office of President), and Maurice Juma (Director General, Public Procurement Oversight Authority). Incidentally and inexplicably, the same letter isn’t copied to the Kenya Railways as one would expect, given that the corporation awarded the tender to the Chinese company.

In the letter, Ms Kitany asks the government’s chief adviser to “expeditiously” review the project documentation and render “the requisite legal opinion regarding the same” by November 5, 2013. However, the letter hardly isolates the irregularities, an issue which the AG appears to raise too.

“We would like to request you to kindly highlight the anomalies that you have detected in the tendering-award process and documentation contrary to the Public Procurement and Disposal Act and other laws to enable us issue a comprehensive legal opinion on the matter,” Christine Agimba, the deputy solicitor general wrote back, November 7, 2013. Note the two-day delay!

A sequence of events reveals a very frightening situation – the procurement entity, KR in this case, tried as much as possible to justify awarding the tender to the Chinese company. It changed goal posts so to speak, to ensure CRBC eventually got the contract to build the 485km long rail and also provide the incidentals. As earlier noted, PPOA appeared to doubt KR’s shift in procurement procedure. If anything, it was the same KR that had on October 2, 2012 written to the Authority explaining its decision to use direct procurement. On January 15, 2013, PPOA director general Maurice Juma wrote to KR requesting justification of this method vis-à-vis Kenya’s law, the Public Procurement and Disposal Act.

According to PPOA, the tender was being procured “based on (an MoU)” between Ministry of Transport and the Chinese company – which was clearly irregular. The following month, Kenya Railways Corporation wrote to PPOA retracting the tendering it had submitted to the authority. The report, it said, “was in error” and “wished to withdraw”. It said it had withdrawn and opted for a G-to-G arrangement because the earlier method was against the spirit of the procurement law. Apparently, KR’s decision was unilateral. Neither PPOA nor the AG was involved in identifying the best procurement method for Kenya’s largest investment ever.

It now emerges that the AG had in fact forewarned KR about the tender award, as early as October 3, 2012 – a day after KR wrote to PPOA explaining its decision to use direct procurement. The government’s legal adviser had cautioned, thus “the procurement process shall be subjected to Financing Agreement and therefore Section 6 of the Public Procurement and Disposal Act shall apply”.

Based on the correspondence between KR and PPOA, it would appear the latter was thunderstruck by two conflicting statements in just a week, all from KR. On March 21, 2013, the rail corporation told the Authority that the G-to-G documents were unavailable because of the “ongoing discussions between the two governments on funding arrangements of this project by the Exim Bank of China”. Five days later, the same KR to PPOA to say it had cancelled the Chinese award tender. “The procurement is a G-to-G contract which is to be funded by negotiated grant/loan and is therefore exempt from the application of the PPDA 2005”.

On April 5, 2013, just after receiving letter from KR that annulled the initial contract, the Authority’s director general asked Prof Githu for counsel. Incidentally the office of the AG hadn’t received any documents on the G-to-G deal, over a month after KR’s cancellation of the contract. “To ventilate the question whether its provisions support the construction of a G-to-G arrangement, this office would need with full details of the relevant agreements.”

The AG appears to decline to talk about the merits of the case but he cautioned against selective use of a single piece of law to justify an action. “We must read the statute as a harmonious whole, and the separate parts … should be interpreted within their broader statutory context in a manner that furthers that statutory purpose. It is also general case that laws have meaning, and statutory interpretation must strive to give effect to the meaning”.

He says the PPDA 2005 was enacted to “promote fair competition, transparency and accountability, as well as local participation in public procurements in this country”.

“It created and sustains a framework of competition in public procurements that must be taken as establishing general rules, to which all actors in the realm ought to be deferent under the doctrines of the rule of law. In effect, any deviations from the general principles of application under the law must be the exception rather than the rule.”

As regards G-to-G contracts, Prof Githu says it shouldn’t be used as a means of procurement but “merely bases that could support procurement activities subsequently”. In effect, he says, “it is my opinion that a so-called government-to-government agreement is not a method for selecting suppliers so as to support the award of a contract absent an actual process of selecting project developers, and so on”.

In his letter to Mr Juma, the AG cites Article 227 of the Constitution, which, he says, should be respected to the uttermost.

“That is to say, public agencies are expected to implement procurement methods are fair, equitable, transparent, competitive and cost-effective, and in the instant case, the full application of Cap 412C Laws of Kenya, with the exceptional procurement methods being such, and not the norm.”

Contacted by The Nairobi Law Monthly, CBRC general manager (Kenya branch) Li Qiang discounted bribery claims. “There was no pressure or any kickbacks. The project is on, as much as I know. There wasn’t any bribery.”

Transport Cabinet Secretary Michael Kamau (who, incidentally, was the accounting officer, Roads Ministry in Mwai Kibaki government) is convinced all is well with the project.

“This is Kenya’s chance to prove that it is an economic powerhouse by linking East and West Africa. If this fails, the economic loss may be huge,” he was quoted by the Daily Nation. “The Judiciary should stop this thing,” Cofek’s Mutoro says. “The two attorneys, Amos Wako and (former) Githu Muigai should be held criminally liable for misleading the government and for withholding information from the public.” According to Mwalimu Mati, the Mars Group chief executive, “there are Chinese brokers in Kenya who have squeezed themselves between projects and senior state officers. They are salespeople.”

-Nairobi law monthly

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