Taxpayers risk losing billions over contracts

Kenya could be exposed to billions of shillings in penalties with the spate of dubious contracts signed by State corporations and government ministries that are now being cancelled by Cabinet Secretaries.

For instance, Mining Secretary Najib Balala has cancelled more than 40 licences and contracts awarded earlier this year while Labour Secretary Kazungu Kambu stopped NSSF from awarding new contracts. He also ordered an audit into all ongoing projects initiated by the fund.

In many of the cancellations, the Attorney-General was not consulted nor were the terms outlined for cancellation observed.

Already, the Auditor-General has warned that the Kenya Ports Authority (KPA) of potential losses running into hundreds of millions of shillings after it suspended a contract for a second container terminal two years ago.

Lawyers for the affected companies have started filing cases against the public officials and institutions involved.

The NSSF projects that Mr Kambi ordered to be audited include construction worth Sh6.7 billion at Hazina Trade Centre, currently hosting Nakumatt Lifestyle Supermarket, the extension of a parking silo at the NSSF building and development of 100 flats in the Milimani area of Nairobi. Others are construction of phase six of the Nyayo-Embakasi housing and shopping malls.

Documents seen by the Nation show that these three tenders were awarded in February.

NSSF CONTRACTS

A report seen by the Nation shows that on February 13, 2013, the then Permanent Secretary for Labour, Mrs Beatrice Kituyi, had written to NSSF asking it not to approve contracts during the transition ahead of the March 4 General Election.

Mrs Kituyi’s letter had asked NSSF not to award the Sh7.1 billion Hazina Trade Centre Office Tower tender, the Sh2.1 billion Nyayo Phase VI-Embakasi housing tender and the Sh600 million NSSF Parking Silo tender.

“The government is concerned about the transparency, accountability and prudence of awarding contracts with a heavy financial outlay at this time of transition. Further, the law forbids use of public resources to initiate new development projects three months before an election,” Mrs Kituyi’s letter said in part. “You are further directed to suspend the implementation of any contract awarded in 2013 until due diligence has been conducted by the relevant government agencies.”

However, in a rejoinder, dated February 18, the then NSSF managing trustee Tom Odongo wrote a detailed report on the status of the three tenders and the general status of contracts at NSSF. Mr Odongo was sacked by Mr Kambi in July.

At the Ministry of Mining, Mr Balala cancelled 43 mining licenses earlier this month, including the one issued to Cortec Mining-Kenya for the mining of Niobium in Kwale County. Last week, Cortec went to court to challenge the decision.

The firm claimed that it would lose $600 billion (Sh53 trillion) in investments. One of the company’s officials, Mr Jacob Juma, accused Mr Balala of soliciting a bribe, a claim the Cabinet Secretary has denied.

Also in jeopardy is the construction of the controversial Sh22 billion National Hospital Insurance Fund (NHIF) hospital in Karen which has been disowned by the Ministry of Finance.

NHIF Chief Executive Officer Simeon Kirgotty, has since requested for direction from the Cabinet Secretary for Health James Macharia.

A report on the status on contracts at NSSF shows that the three projects that were among those that Mr Kambi ordered to be audited had been included in the fund’s procurement plan for 2012/2013 approved the NSSF Board of Trustees and the Treasury.

CHINESE FIRM

The status report shows that a Sh2.1 billion tender for the construction of 324 houses and shops in the proposed Nyayo Phase VI-Embakasi estate, the tender was awarded to a Chinese firm, M/S China Jiangxi International Kenya Ltd on February 5, 2013.

The Sh7.1 billion Hazina Trade Centre tender was also awarded to M/S China Jiangxi International Kenya Ltd on February 12, 2013.

In the case involving KPA, the Auditor-General has said that the ports authority did not consider the legal and financial implications of a government directive that the Sh56.8 million ($667,707) project be stopped.

“The authority successfully tendered and awarded the contract for the project consultancy service (transaction advisory service) for selecting the terminal operator,” Mr Ouko said in a report tabled in Parliament by Majority Leader Adan Duale last Thursday.

A contract agreement was executed at a contract price of 256,792,725 yen or $667,707 for foreign currency and local component of Sh57.2 million. The consultant was expected to commence work in March 2011, but the government directed it be suspended. Mr Ouko observed that the initial budget to compensate people affected by the project was first estimated at Sh500 million based on a 2007 valuation report.

“Compensation was not done soon after the valuation. At the time of paying out the compensation (2011), the value of the properties had gone up with the current estimate being Sh692.32 million or Sh192.32 more than the first valuation,” the report says.