Implications of Appeals Court judgment go beyond China ties

A train on the SGR approaches the Mombasa terminus. The Court of Appeal has said Kenya Railways flouted the law in awarding the project to CRBC. FILE PHOTO | NATION MEDIA GROUP

What you need to know:

  • Beyond these Chinese parties, there are broader policy implications and questions which the ruling raises.
  • MoUs and commercial contracts are the vehicles that pave the way for single-sourced mega infrastructure projects such as the SGR.
  • But the Chinese are not alone in giving loans with conditions that preclude international competitive bidding.

What are the implications or significance of the recent Court of Appeal ruling on the standard gauge railway that the construction contract was procured not only illegally but unconstitutionally?

In a sense, it is moot point as the railway was completed, commissioned and has operated for months. Yet the judgment by the bench of four judges could carry major implications for our relations with China.

You can be sure that the news of the ruling has been received with a deep sense of foreboding and concern, especially in the corridors of Exim Bank of China, who financed the project. China Road and Bridge Corporation, the entity that signed the contracts and built the railway, has also been left exposed.

FOREIGN FINANCING

Beyond these Chinese parties, there are broader policy implications and questions which the ruling raises. For instance, does it now mean that the very popular arrangement of attracting foreign financing through ‘contractor negotiated loans’, and where projects are awarded without competitive bidding, must now be treated as unconstitutional?

What about the ‘tied aid’ arrangement, where participation in tenders is closed to contractors from countries that have lent the money? And those documents known as MoUs or commercial contracts that CSs have been liberally dolling out to Chines companies even before funds for the projects have been budgeted for?

Indeed, MoUs and commercial contracts are the vehicles that pave the way for single-sourced mega infrastructure projects such as the SGR. Do these arrangements have legal standing following the ruling?

These are pertinent questions because the SGR contract was just but one of the typical ‘contractor negotiated loan’ deals. Indeed, the majority of Chinese-funded mega infrastructure projects are of this type.

But the Chinese are not alone in giving loans with conditions that preclude international competitive bidding. A good example is the proposed Nairobi-Mombasa Express Highway. How did the American company, Bectel, come into the scene? Italians, Israelis and the French have been playing the same game.

CARRIES IMPLICATIONS

The exception I have seen recently was where an Indian-funded project in the electricity sector put out an open tender on condition that only Indian contractors bid.

What is my point? It is that the Court of Appeal’s declaration that the SGR contract was illegal and unconstitutional carries implications that go beyond our relations with China. Tied aid is a reality. By declaring the SGR contract as unlawful and unconstitutional, the court has waded into the space where big money is made.

This is the arena where one of the most viciously fought political battles is happening — the opportunity to broker projects negotiated through MoUs and commercial contracts with Chinese contractors.

Segments within the Jubilee administration have been at each other’s throat over a chance to broker big projects. It became lucrative to be a broker or political linkman for large projects negotiated through MoUs and dodgy commercial contracts.

How exactly is the game played? A Chinese contractor, with his local allies and agents, approaches a CS or parastatal MD to hawk a project which he has conceived and that has not been budgeted for by Parliament. The contractor comes with a promise to arrange for financing.

An MoU is then hurriedly signed between the contractor and the CS or parastatal boss. Then follows a commercial contract between the parastatal or its parent ministry and the contractor.

SECURE PROJECT

The contractor goes back to China to secure a loan for the project. Finally, the National Treasury is only invited to sign financing agreements with Exim Bank of China. This way, a new project funded by the Chinese will have entered the budget. This is how the SGR project came about.

Why do the corrupt prefer the route of introducing projects through these shady MoUs and commercial contracts to the conventional competitive procurement? It makes it easy to conspire with the Chinese to push a project into the government’s spending programme even when it has no money for it.

Secondly, since the deal can be procured and concluded without subjecting the project to international competitive bidding, the crooks are able to pad the budgets of the project with as much backhanders and kickbacks as they choose.

The tell-tale signs usually are in the fact that, in most cases, contracts for mega infrastructure projects will invariably have huge provisions for massive advance payments that are usually paid even before a spade has been lifted.

Allowing a contractor the dual role of building an asset and arranging for its financing reeks of utter opacity and corruption.

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