Nation Prime

SGR’s Sh1bn grass: Unbridled greed and negligence in megaproject

By VINCENT ACHUKA
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By PAUL WAFULA
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Wednesday March 18 2020

The beautiful grass dotting the Standard Gauge Railway (SGR) stations and some sections of the line cost the taxpayer Sh1 billion.

And when Kenyans were fed the narrative that the Chinese contractors were living in temporary containers, the reality was that they were earning top dollar and living large behind the walls of the SGR.

The airtime allowance for the lead engineer was Sh5 million, for the three years the project was under construction. Even if the China Road and Bridge Corporation (CRBC) engineer was on phone 24 hours every day for the 36 months, the airtime would never have been exhausted.

His house was furnished at a cost of Sh3 million and office computers bought at Sh280,000 each, while his laser jet printers cost a staggering Sh513,700 each. In total, the taxpayer forked out Sh57 million to provide office furniture.

STAFF ENTERTAINMENT

Additionally, Kenyans spent Sh239 million to provide entertainment for the expatriate staff during their time in the country.

These details are just the tip of the iceberg. We can now lift the lid on why Kenya’s railway ended up being one of the most expensive on the continent.

Details of the costs are contained in the contracts signed between Kenya and the Chinese builder and financier of the SGR project that the Nation has obtained. Some of these costs were flagged down long before the project started.

But the big puzzle is, if small costs that could easily have been verified on the Internet or in shops here in Kenya were heavily inflated and still passed the scrutiny of the drafters, what about the more technical items in the contract?

WAY HIGH

However, the Kenya Railways team had, as early as 2011, said that the costs of some of the items in the contract were way too high. Something could have happened that changed their initial position.

What followed was an overpricing of several components of the contracts. The overpricing was even discussed in a June 25, 2012 meeting, but this only earned Kenya a price reduction of Sh3 billion on the total contract.

“Kenya Railways team considers the unit prices of certain items too high and discussed adjustments with CRBC,” says minute seven of the meeting between Kenyan negotiators and the Chinese contractor.

Some of the exaggerated prices for items include station loudspeakers for Sh28,800, video cabinets (Sh1.14 million), workshop benches (Sh180,000), ticketing system (Sh8.4 million each), air conditioners (Sh1.9 million), portable radios (Sh119,100) and digital voice recorders (Sh341,500).

REACH BILLIONS

Digital voice recorders cost as little as Sh2,000 in Nairobi. These small costs here and there multiplied by the number of the gadgets being bought added up to billions of shillings.

CRBC also billed Kenyans Sh38 million to install a passenger guiding system, Sh14.6 million for each security system at the railway stations, Sh26 million for each luggage inspection system and Sh14 million for passenger monitoring systems at the stations.

The company also said it bought 46 A3 laser printers at Sh513,700 each for use at the stations during construction. The Nairobi station received five of these printers. These printers currently cost between Sh40,000 and Sh75,000.

DIESEL GENERATORS

Each of the intermediary stations also got a 30KW generator for use in case of power outage; Mombasa and Nairobi got two. The diesel generators, according to the contracts, were acquired at Sh4.26 million each. When the Nation asked around, we were told we could have one for Sh1.5 million.

Additionally, Kenyans paid Sh5.4 million for each of the 31 boreholes dug by CRBC in the intermediate stations. The Sh5.4 million is for drilling alone minus equipping and commissioning. The entire SGR from Mombasa to Nairobi has seven stations, which means each one was supposed to have three boreholes, a geological impossibility.

CRBC also said it needed to import six ZX7 DC/AC arc-welding machines as each station needed six of these for construction. These, according to CRBC, were bought at Sh442,872 each. We were able to get the same for Sh25,000 from Chinese manufacturers.

The air conditioners for the computer rooms for the Nairobi and Mombasa stations were bought for Sh1.9 million. The Nairobi station, according to the contractor, needed 50 of these while Mombasa needed 30.

All the stations got a Sh4.5 million vehicle for the electrical engineer, which was shipped into the country without payment of stamp duty. The Mombasa and Nairobi stations each got a 45-seater bus bought for Sh25 million, a 12-seater minibus (Sh12 million) and a 1.5-tonne double cab pick-up for Sh3.5 million.

All these prices were exaggerated. A state-of-the-art 45-seater bus costs an average of Sh15 million today, but a majority are about Sh10 million.

This explains how Kenya ended up paying two times more for a diesel train than what Tanzania negotiated for an electric train. A comparison of the costs shows that Tanzania is building an electric rail at half the price of Kenya’s diesel SGR line.

TANZANIA'S FASTER

At $1.92 billion, which translates to about Sh192 billion at current exchange rates, for the 422 kilometres, Tanzania’s line is not just cheaper; being electric, it’s designed to support a maximum speed of 160km/hour for passenger trains and 120km/hour for freight.

This pales in comparison to Kenya’s line, whose passenger trains have a maximum speed of 120km/hour with freight hauliers doing 80km/hour at best.

Kenya opted for diesel-powered engine that can be upgraded into electric in future.

It is the results of this greed and negligence that taxpayers are now paying for.

OPERATION COSTS

Currently, the revenues generated from the passenger and cargo services on the track cannot meet the operation costs, estimated at Sh1.5 billion a month against average sales of only Sh841 million.

Whereas the official cost of the project was put at Sh327 billion, the open-ended nature of these contracts allowed some variations in the bill of quantities and, if these were allowed, then Kenya may have spent a little bit more than that.

Interestingly, while the Supply and Installations of Facilities, Locomotives and Rolling Stock contract was done in US dollars, the ''Civil Works'' contract was in Kenya shillings. Additionally, the portion of repayment for the Sh220,921,502,221.08-worth civil works contract is supposed to be paid back in US dollars.

The Supply and Installations of Facilities, Locomotives and Rolling Stock contract that was signed in US dollars amounts to $1,146,791,008.75 (Sh114.6 billion). The two contracts together cost $3,356,006,030.21 (Sh335 billion).

LOAN INTEREST

This cost does not reflect the interest on the loan, the 20 per cent depreciation of the currency and the Sh11.7 billion paid for land acquisition, which was marred by corruption and overpricing. The contracts also say the cost is exclusive of value added tax, import declaration fees, cess and withholding tax, which would push it higher. This means that the taxpayer has forgone billions of shillings in tax revenue which, if factored in the cost, would give a different picture. Not many companies have earned billions of shillings in Kenya tax-free like the SGR contractor.

The fact that the money moved directly from China Exim Bank to CRBC accounts denied the country any benefits that would have trickled in on account of local purchases.

“The buyer (Kenya) shall pay those amounts due to the seller (CRBC) which are financed by the financial institutions of China to the seller (CRBC) through the financial institutions of China,” the contract says.

In essence, this meant that there was no trickle-down effect of this huge loan of the project on the local economy as the Chinese imported almost everything for the project, including small things like toilet paper, toothpicks and sugar.

All custom duties and charges on importation of equipment of parts and materials, etc, shall be exempted by the employer.”

But even worse is the fact that CRBC was given a leeway to adjust the prices of individual components of the contract by making the bill of quantities non-binding.

“The contract price is to be adjusted for rises or falls in the cost of labour, goods and other inputs to the works by the addition or deduction of amounts,” says the contract.

And that is not all.

Even in areas where the government would have recouped part of the cost by taxing the equipment being imported by the Chinese, it did not.

“All custom duties and charges on importation of equipment of parts and materials, etc, shall be exempted by the employer.”

PUBLICISE CONTRACT

For the last 13 months, Kenyans have been waiting for President Kenyatta to make public the contents of the SGR contracts signed between the government and the Chinese financiers and contractors as promised in December 2018.

And, while the President is yet to honour his promise, which would have put to rest speculation that Kenyans got the short end of the stick on the financing and building of the SGR, the government has been trying to review the contract behind the scenes.

It is understood that after President Kenyatta made the promise to make public the contract, the office of the Attorney-General and the Transport ministry explained to State House the implication of such a ''breach of contract'' given that it explicitly said the contract would not be made public.

Just why such a big contract that would burden taxpayers for decades to come became a secret document is puzzling.

DEAD END

The Nation reported last month how the team tasked with reviewing the skewed contract had hit a dead end. This is after CRBC refused to provide key information protected by the confidentiality clauses in the contract.

The team comprised officials from the Presidential Delivery Unit, the Office of the Attorney-General, Kenya Railways, Ministry of Transport, the National Treasury and CRBC. It was led by then Transport Principal Secretary Esther Koimett.

“Publicity and disclosure of any kind hereto to any third party not involved in the present contract requires the written approval of the other party. Such an approval shall be required after the performance of the present contract,” a clause in the contract says.

Government spending is guided by, among several statutes, the Access to Information Act, which is supposed to enhance accountability, transparency, and public participation.

REASON UNKNOWN

Why the State decided to enter into a confidential contract with a foreign company and financier on how to spend taxpayers cash on a public project is still an unanswered question.

Meanwhile, taxpayers have begun paying through the nose for the mistakes they committed either out of ignorance or by design after Kenya decided to go it alone following the withdrawal of Uganda from the project.

The first Sh25 billion of the Sh324 billion borrowed from China for phase one of the railway was due last month. Another Sh25 billion will fall due in June. Treasury has set aside Sh35 billion in the supplementary budget to take care of the repayment to China’s Exim Bank.

Retired President Mwai Kibaki met Ugandan President Yoweri Museveni on October 28, 2008, regarding the SGR. It was mutually agreed that the railway line would be a white elephant if Kenya decided to go it alone.

This position changed after brokers introduced CRBC to the Kenyan government in 2009. In 2008, two Kenyans — Leonard Mwangi Ndungu and Peter Maingi Gatere — had registered a company with a similar name, China Road and Bridge Corporation Kenya, with registration number C 166624. When this became public, the Registrar of Companies was ordered to deregister the company.

And while the Kenyan government has always maintained that the SGR was a government-to-government contract, hence there was no need for competitive bidding, the contracts show the deals were entered with CRBC and China Exim Bank.

What was a grand dream that would have connected Mombasa to Kampala is a railway to nowhere that ends in a bush near a cattle market that is inaccessible when it rains.

FEASIBILITY STUDY

The death of this dream, it appears, began on June 25, 2012 when a team of nine negotiators — five from Kenya and four from CRBC — sat to discuss the components of a feasibility study on the viability of the SGR.

On the Kenyan side were Mr Solomon Ouna, and Mr David Mwadali, both engineers, Mr Alfred Matheka, Ms Maryanne Kitany and Mr Stanley Gitari.

“The Government of Kenya and CRBC signed a memorandum of understanding on August 12, 2009 for the feasibility study and preliminary design of the Mombasa-Nairobi section of the Standard Gauge Railway which has been completed to the satisfaction of the Kenya technical team,” say minutes from the meeting.

“CRBC and Kenya Railways now need to enter into a common contract,” add the minutes.

FIFTEEN DAYS

And like vultures waiting on the sidelines for pieces of meat to drop out of a plate, the first commercial contract for civil works was signed in a record 15 days after the results of the feasibility study were adopted on July 11, 2012.

Ideally, such a huge contract, despite being a government-to-government deal as the State has always maintained, requires time for naming negotiating teams, a board meeting by the concerned authority, followed by seeking and getting approvals from the ministry concerned and the Attorney-General.

This is even before you factor the time needed to draft a bill of quantities for the construction at hand plus the time needed for technical teams from both sides and lawyers to draft and look at the details in the contracts before they are presented for signing.

So were the necessary procedures followed as required by law in such a short time? What we now know is that in total, Kenya signed four contracts for the first phase of the SGR — two of them during the grand coalition government and the last two immediately after Jubilee took office.

OPERATION CONTRACT

The first one with CRBC for civil works was signed on July 11, 2012. The second one for the supply of locomotives and rolling stock was also signed with CRBC a month later on August 29, 2012. The third one for financing the project was signed with China Exim Bank on May 11, 2014.

And when they were done with building the railway, imported the locomotives and rolling stock, the next avenue of making money was the operation contract.

This contract was also handed to CRBC. It would later hand this over to its subsidiary — Africa Star Railway Operation Company Limited — to carry out the day-to-day running of the train service.