Treasury spent Sh644m on failed fertiliser factory debt

More than Sh600 million was sent to pay for a non-existent fertiliser plant started in the 1970s, a State audit report shows.
A total of Sh644.4 million was wired for Ken-Ren Chemical and Fertiliser plant in the 2012/13 financial year, auditor-general Edward Ouko says.

“Although the government continues to service these debts, it is a matter of concern that a total of Sh644,424,717.42 was incurred during the year on a project which did not take off and against which no value for money was achieved,” Mr Ouko notes in 2012/13 financial year audit report.

The government paid Sh24,432,802.34 and Sh619,991,915.08 as interest and principal towards settlement of government-guaranteed debts incurred in 1970 on account of Ken-Ren chemical and fertiliser company.

GOVERNMENT AS GUARANTOR

He said a similar expenditure of Sh10,571,511,055 and Sh25,127,941,443 was incurred as external debt interest and external debt redemptions in the previous year.

N-Ren, a US firm, entered into a joint venture with the government to set up Ken-Ren Chemical and Fertilisers Ltd in the 1970s to make farm input for both domestic and export markets.

The entity signed financing agreements with Austrian and Belgian banks as well as suppliers, with the Kenya Government as a guarantor.

The suppliers — Coppee Lavalin of Belgium and Voest Alpine of Austria — did not deliver any equipment, “except for some crates whose contents were not verified,” according to a parliamentary report.

KEN-REN WENT UNDER
Three years later, the project collapsed and Ken-Ren went under.

The government, as the guarantor, started shouldering the debts, which have been the subject of investigations and heated debates in Parliament.

Efforts to set up a fertiliser factory would later resurface, with President Kibaki’s regime carrying out a study on its viability. Kenya even hinted at going it alone after Uganda and Tanzania declined to support a joint venture.

In the latest plan, the government has settled on a privately owned factory.

The need for a local company stems from constant complaints by farmers about the high cost of fertiliser.

LOWER COST

Experts in the agriculture business, however, urge caution on the establishment of such a factory, saying if it relied on imported raw materials, then cutting the costs of fertiliser may not be realised.

When Toyota Tsusho announced its intention to venture into making fertiliser in the country, the firm said the plan would significantly cut the cost of the farm input.

The discovery of oil in Kenya and gas in Tanzania has provided a new impetus to setting up a fertiliser plant in the country as the two energy sources are expected to lower the cost of production. Kenya has the highest fertiliser consumption rate in East Africa.

It is estimated that 500,000 tonnes are used every year in the country compared with Uganda’s 25,000 tonnes.