Sh2.4bn scandal unravels, 30 years after dubious deal

Kenyans are repaying loans for a company that collapsed when President Kibaki was Finance Minister in the 1970s.

The payments began in 2003 when he became President, even though there had been litigation over the deal.

Parliament’s Public Accounts Committee (PAC) has questioned the payments as no goods or services were delivered in the deal to set up a fertilizer factory.

“The government had been defrauded Sh1,057,621,935.00 through questionable agreements executed over thirty years ago,” notes the PAC report tabled in the House last Thursday by the chairman, Dr Boni Khalwale.

The fraud began in 1975 when the Government entered a joint venture with N-Ren, an American firm, with a mouth-watering goal to set up KenRen Chemical and Fertilizers Limited.

KenRen was to manufacture fertiliser for domestic and export markets.KenRen, in turn, signed financing agreements with Austrian and Belgian banks and suppliers, with the government as the guarantor.

The suppliers were Coppee Lavalin of Belgium and Voest Alpine of Austria. They never delivered any equipment “except for some crates whose contents were not verified.”

Three years later, the project collapsed and KenRen went under. The government, as a guarantor, became responsible for the debts.

“Though no goods or services were supplied, the foreign banks involved claimed to have paid the suppliers in full and were therefore owed money by KenRen as per the financing agreements.

“As KenRen never actually commenced business, the government as the guarantor became liable for the debt,” the report says, quoting Treasury permanent secretary Joseph Kinyua, who appeared before the committee in person and was sometimes represented by the financial secretary, Mr Mutua Kilaka.

The banks and suppliers sued the government in the International Chamber of Commerce Court of Arbitration. A total of five cases were filed in London, Paris and Cyprus.

The London courts ruled that “Kenya was a victim of deceit” by Voest, and awarded the government $3 million (Sh240 million).

“Voest declined to pay” and rushed to a Cyprus court where it obtained a ruling in its favour that was to see the government pay Sh2.4 billion (Austrian Schilling 300 million).

The government panicked and rushed to Brussels on August 2000 to “work out an amicable solution to the court cases.” The AG retained lawyers to handle the matter.

The question is why the government saw it fit to cut a deal on the Cyprus ruling yet it was not an appeal on the London ruling.