Treasury tried to quietly pay off Anglo Leasing firms

The government was preparing to quietly pay off the two Anglo Leasing companies that are pursuing Sh1.4 billion from the Treasury before it had received parliamentary approval, the Sunday Nation can reveal.

After studying the pile of documents submitted to support the request for payments, Controller of Budget Agnes Odhiambo told the National Treasury that such an expense could only be done with parliamentary approval.

On Saturday, Ms Odhiambo said she had asked Treasury to get approval from Parliament because of the constitutional requirement of transparency and in line with the principles of public finance management.

“In the light of the great public interest in the repayment of the loans and the requirement as per Article 201 of the Constitution on openness and accountability in public finance management, it was imperative that the repayment of the loans should be approved by Parliament being the representative of the people,” she said.

She explained that parliamentary approval was meant to ensure transparency and accountability in the payment process.

Treasury had made the request for approval earlier in April after it began engaging the Budget and Finance Committees, which had started asking after the matter in February.

Had the Controller of Budget approved the payment, the MPs would have in effect been discussing a done deal.

According to the report tabled in Parliament, the deadline for paying the Sh1.4 billion was April 28, failing which Kenya’s assets would be attached.

Suba MP John Mbadi accuses the Treasury of trying to make the payment without the approval of MPs and the knowledge of the public, which would have ended up embarrassing the Jubilee government.

INTERNATIONAL COURT ORDER

The matter, which is currently before the House, has attracted criticism even before it comes up for a vote. Should MPs reject the request for approval, the Jubilee government says it would be in dire straits since it has been served with an international court order requiring it to pay up.

“It’s not that they are being transparent. The truth is that we busted this thing,” said Mr Mbadi, in reference to inquiries by the Budget team that uncovered the “quiet” activities that would eventually lead to the current furore in Parliament.

That was the genesis of the process that ended in disarray on Wednesday when Cord and Jubilee MPs united in vowing to reject a motion that would have given the Treasury the greenlight to pay the Sh1.4 billion to First Mercantile Securities Corporation and Universal Satspace.

In the face of an imminent embarrassment orchestrated by the MPs, who figured approving the payment would cast them in the worst possible light, the Budget and Appropriations Committee chairman, the Rev Mutava Musyimi, withdrew the motion.

The forced retreat likely confirmed the Treasury’s worst fears when it became clear earlier in the year that MPs, who have now taken a one-month break from the House, would have to be convinced that paying the debts would be beneficial to the country’s financial reputation.

Treasury first cautiously approached the Budget committee in February.

The first meeting organised with the largest and one of the most powerful National Assembly committees, was held on February 19.

The Rev Musyimi’s committee normally holds its meetings in the small dining room in Parliament Buildings, where the clinking and clanging of utensils in the kitchen next door interferes with proceedings. But this meeting was taken to the recently refurbished County Hall.

The entrance to County Hall is manned by policemen, who barred journalists from covering the meeting. Later, parliamentary reporters were informed that the meeting was private. The reason for this privacy has eventually emerged.

According to the report of the joint Finance and Budget committees, the Treasury was represented at that meeting by PS Kamau Thugge, Mrs Felister Kivisi and Charles Kairu.

So confidential was the agenda that a member of the committee told the Sunday Nation that the documents distributed to MPs as Dr Thugge sought to buttress his argument were collected at the end of the meeting and carted away by the Treasury team.

An MP who attended the meeting said that Treasury was keen to have the matter kept away from media.

That succeeded to a certain extent because it was made to look like the meeting was about the Supplementary Budget Estimates, which the Budget committee was examining at the time.

The truth, however, said Mr Mbadi, was that MPs were concerned that Treasury had not reported on progress on the issuing of the sovereign bond of $1.5 billion in the Irish Stock Exchange by February 14, 2014.

NO WIGGLE ROOM

MPs were told there were two hurdles to the bond: changes to the Public Finance Management Act and the need to settle debts arising from judgments made against Kenya overseas.

The PFM Act needed to be changed to include provisions lifted from the repealed External Loans Act that would allow Kenya to float the bond. MPs had no problem with that and the PFM Act was amended on Wednesday morning.

The debts were the bigger issue and when the MPs pushed for answers, they were informed that these were the judgments against the government in the cases with First Mercantile Securities Corporation and Universal Satspace.

“But these are Anglo Leasing!” Mr Mbadi reports the MPs asking.

At that meeting, the committee demanded that the Treasury provides additional information; the Attorney General’s opinion and proof that the Cabinet had allowed the payment.

Minutes from that gathering indicate that the committee agreed to support the Treasury so that the sovereign bond could be issued once the information requested was provided.

At the next meeting, which was held on April 22 in the main chamber to accommodate the 42 MPs who attended, Treasury Cabinet Secretary Henry Rotich explained the intricacies around the case with First Mercantile Securities Corporation and Universal Satspace.

Attorney-General Githu Muigai told the committees about the successful filing of the case against the Kenya government in July 2006, and the subsequent appeal and how the case moved to mediation, where Kenya lost again.

“The mediation process brought down a claim of $14 million to $7.6 million,” he said.

But the claimant had not been paid 10 months later and Kenya was taken to a court in London. The judgment was upheld and Kenya was ordered to pay $7.8 million.

“Kenya received advice from local and international lawyers and investment bankers that the debt needed to be disclosed before any payments are made,” Prof Muigai said.

The upshot of their  presentations was that on the advice by Dentons, a United Kingdom firm hired by the AG to advise Kenya on the matter, there was no more legal space for manoeuvre; Kenya had to pay.

“Subsequently, the AG and the Cabinet Secretary (Mr Rotich) engaged the counsel for the claimants in negotiations on 28 March 28 and April 1, 2014 with the aim of reaching an agreement on settlement of the debts,” the minutes read.

The outcome of these was an agreement by the claimant to forgo 50 per cent interest on the First Mercantile case. This reduced the debt from $18.7 million (Sh1.6 billion) to $16.4 million (Sh1.4 billion).

Another MP who attended the meeting said the Treasury wanted the two committees to approve the payment but some MPs were not happy with the idea and insisted the approval would have to come from the National Assembly.

It is not clear why the Treasury went ahead to prepare the documents for the Controller of Budget for approval when it was clear that the committees were yet to give their report on the matter to the rest of the National Assembly for debate and possible adoption.

POLITICALLY DAMAGING MATTER

Yesterday, Ms Odhiambo also alluded to this in an e-mailed response to inquiries from Sunday Nation.

“Prior to submitting the request for repayment of the loans to the Controller of Budget, the Treasury had already engaged the Budget and Appropriations and the Finance, Planning and Trade Committees of Parliament seeking approval for repayment of the loans.”

She added: “The two committees had requested the National Treasury to furnish them with the legal opinion from the Attorney-General and the Executive approval for further direction. It was, therefore, important that Parliamentary approval is obtained before payment is made.”

At the meeting in the main chamber, MPs were agitated and asked why the Executive was drawing them into such a sensitive and politically damaging matter and asked for progress in bringing the culprits to book. Mr Rotich is reported to have told the committee that because the matter had been investigated by the Public Accounts Committee of the Ninth Parliament, which recommended negotiations with the creditors, it was necessary that Parliament be involved.

“Further, the peculiarity of the case necessitated the Executive to involve Parliament,” the minutes say.

For President Uhuru Kenyatta, this peculiar case looks set to become a long-term headache.

President Kenyatta was the head of the Public Accounts Committee in the Ninth Parliament, whose report on the contracts in the Anglo Leasing affair in March 2006 demanded the legal termination of the projects that had not taken off.

Then the MP for Gatundu South, President Kenyatta led the team that handled the investigations after former Ethics Permanent Secretary John Githongo exposed the Anglo Leasing scandal.