Rail firm ‘technically insolvent’

Government auditors have declared loss making Kenya Railways Corporation “technically insolvent”.

The auditors also questioned the manner in which the rail firm put some of its prime land and buildings worth millions of shillings on long term leases without following proper procurement procedures.

Technically insolvent

By branding the corporation “technically insolvent” the Controller and Auditor-General implies it can no longer meet its financial obligations with its lenders as debts become due.

If the government does not move in to inject funds, this could lead to court proceedings, in which legal action may be taken against it and its assets liquidated to pay debts.

“The financial statements have been prepared on a going concern basis on the assumption of continued financial support from the government and creditors,” said the report by Controller and Auditor general A.S. Gatumbu.

The management has, however, attributed its negative working capital to loan interest charges and arrears amounting to Sh16 billion as at June 20 last year.

In the audit report dated May 6, the auditors queried the manner in which the corporation leased out three plots on a long term basis without providing evidence of competitive bidding.

There was nothing to show that the plots — number 209/121180, 209/500 29H and 209/6500 — had been valued before leasing.

“In the circumstances, it has not been possible to ascertain that the corporation obtained reasonable value for money,” said the report.

In one of the transactions, a company entered into a 40-year lease agreement with the corporation at a “stand premium” of Sh19.8 million and an annual rent of Sh3.9 million.

But there was no valuation, hence no clear evidence on how the stand premium and the annual rent were arrived at. That implied the lease was single-sourced, contrary to the Public Procurement and Disposal Act, according to the report.

Some of the corporation’s land had been allocated to private developers by either the commissioner of lands or local authorities without the consent of the firm.

They include three acres at Limuru Railway Station, which constitutes the corporation’s industrial plots number 7882/2-10.

The report paints a gloomy picture of the firm, whose Sh800 million profit was all swallowed up by what authorities said were “historical financial holes”.

That resulted into a combined net loss of Sh2.2 billion, up from a net loss of Sh481 million in 2008.