Erad used ‘illegal’ bank papers

The company involved in a Sh500 million dispute with the national cereals board used an invalid bank guarantee to seal a deal to import maize, the Public Investments Committee was told on Wednesday.

At the same time, former Agriculture Minister Kipruto arap Kirwa denied allegations that he was paid Sh30 million by Erad Supplies and General Contractors to influence the award of the contract.

Executive director at I&M Bank Sarit Raja-Shah said the bank issued the guarantee (bid bond) to Erad for $1 million when Kapu Kenya, another company the bank had worked with before, indicated that they were in a joint venture. The bid bond was conditional and the companies were supposed to provide I&M with a standby Letter of Credit from a first-class European or South African bank, which would pay if the local companies did not.

That condition was never met, said Mr Raja-Shah and the bond then became invalid and he communicated this to Erad director Grace Wakhungu. By then, Erad had already used the bond to secure the contract that is the origin of the trouble NCPB has found itself in.

PIC chairman Adan Keynan argued that since the bank did not inform NCPB that the guarantee they had were worthless, they are culpable for the current problems.

“Since you didn’t do it, it also means you are an accomplice,” Mr Keynan said. Wundanyi MP Thomas Mwadeghu said that “technically, what I&M Bank did was useless.” He was joined by ODM Nominated MP Dr Oburu Oginga, who said, “If you had not issued the document, this country would not have lost the money it is losing.”

Mr Raja-Shah insisted that it was the responsibility of NCPB to find out from the bank whether the guarantee it had issued was valid or not.

Mr Kirwa, the former minister, told the committee that the government is to blame for the mess NCPB is in.

Blind justice

He said the origin of this was the fact that the NCPB did not give Erad the letter of credit as it did the four other firms that also won the contract.

“The blame lies on justice. The scales of justice have to be blindfolded — if you give the four (the letters of credit), you give the fifth…there was a breach of contract,” Mr Kirwa said.