How Nyayo taxi scandal came about

If you think the Elgeyo Marakwet dams advance payment was a first, let me tell you the story of Nyayo taxi cabs; those black Austin FX4 that once dotted the streets of Nairobi.

Austin FX4 are no more after production was stopped in 1987, just about the time that President Daniel Moi ordered the government to help local taxi drivers, through the Kenya Taxi Cab Association, acquire what was regarded as a “symbol of post-war change in London” when it was unveiled in 1956.

Moi had made this abrupt decision after his March 1987 state visit to UK and USA, at a time he was being criticised for turning Kenya into a police state.

How the taxi cab project turned out to be a scandal is one of those stories that soiled the Nyayo regime, and for years, because the ramshackle old contraptions continued to rumble through the streets before they finally disappeared.

EMPLOYMENT

As the popular maxim goes, the road to hell is usually paved with good intentions. And so was this project that was supposed to “create employment for young people”.

To drive the Nyayo Taxi project was Mr Hezekiah Oyugi, who was then Permanent Secretary in the Office of the President in charge of internal security and provincial administration, and who wielded great power and influence.

Oyugi was a friend of the now convicted thief Ketan Somaia, and through him they made deals and billions.

The first meeting was attended by a few government officials who included then-Finance Minister George Saitoti, executive chairman of National Bank Raphael Gitau, and Finance Permanent Secretary Charles Mbindyo.

NSSF

The idea on top of the table was that the government intended to help local taxi drivers get the best automobiles and help ease traffic congestion in Nairobi and Mombasa.

Under the table was another intention – raid the Treasury by the local equivalents of Herman Lamm, regarded as the father of modern bank robbery.

During the meeting, Mr Gitau, the National Bank supremo, told the attendants that the bank was not financially capable of carrying out the project.

Actually, he didn’t need to say it, after all, it had been looted clean.

The money, as Mr Gitau was to admit later on, came from the National Social Security Fund, the cash cow of the Nyayo regime.

But as it emerged later, NSSF contributed Sh300 million and it has never been explained where the balance of Sh800 million came from.

TENDER

NSSF had initially operated as a department of the Ministry of Labour, until 1988 when it was converted to a State corporation, allowing political elements to raid its fertile coffers.

Mr Mbindyo wrote a letter of comfort acknowledging that the government was comfortable with NBK raising money for project.

After NSSF gave out the money, NBK was instructed by Mr Mbindyo – with instructions from Prof Saitoti - to raise a Letter of Credit for Isaac Githuthu’s Kenya Overseas Trading Limited (KOTC), the company which was to the procure the London-look taxi cabs.

The Letter of Credit was for Stg $8.75 million, an equivalent of Sh1.1 billion today and the beneficiary was London’s Camp Globe Limited.

This company would later feature in Kenya’s parliamentary debate after the Office of the President was accused of awarding it a Sh430 million single-sourced tender to deliver a security printing press.

That is how, on October 28, 1988, Mr Gitau found himself in the NBK boardroom asking for concurrence with the single-sourced procurement. He got it.

SOMAIA

As Mr Mbindyo would later tell a court, Prof Saitoti had told him that President Moi had taken the initiative to form a cooperative society of about 500 drivers, in order to increase the number of vehicles available for transport in Nairobi City.

Apparently, there had been a general strike by some transporters, and it was felt that that gave rise to security concerns.

It was at the behest of the Vice President, Mr Mbindyo said, that he called for the meeting whose purpose was to raise funds for use in the purchase of the vehicles.

But there was somebody in that mix – Ketan Somaia - a wheeler-dealer who had founded a bank, City Finance, which he used as a conduit to transact legal and illegal business. That was before he was caught and jailed in the UK for fraud.

In Nairobi, NBK’s General Manager Jason Oluga asked his Moi Avenue branch manager Saul Mwongela to go and see the 28-year-old Mr Somaia at the City Finance House and discuss the letters of credit. It was a few blocks away, and he simply walked.

SIGNATORY

On Somaia’s desk was an application form for opening a Letter of Credit for the importation of taxis.

The applicant for the Letter of Credit was Mr Githuthu’s Kenya Overseas Trading Company Limited (KOTC) of P.O. Box 41708 Nairobi, while the beneficiary was CAMPGLOBE LIMITED, of Box St. John’s Square London ECIV 4 JL.

Mr Somaia was neither a director of KOTC nor signatory to any of its accounts.

Actually, the sole signatory was Mr Githuthu, then the Managing Director of Somaia’s bank, City Finance.

But in the world of logrollers and power brokers, Somaia was a political conduit – nay, a perfect deal sealer.

After Mr Somaia was asked about the details on the importation of taxis by the NBK branch manager, he said the details were being worked out.

ADVANCE

And when asked to sign the form he, instead, summoned his MD, Mr Githuthu – who was in an adjacent room – to append his signature. It was the red flag number one.

Mr Githuthu not only signed the application form for a letter of credit, but also forms to open an account with NBK for his company: meaning he was not their customer.

That account was opened on the same day as the application for the Letter of Credit.

An advance payment of 50 percent of the letter of credit (about Sh500 million) was then paid to Campglobe to assist in purchasing and shipping of the first 500 units. But only 300 units arrived in Mombasa.

The problem with this payment was that KOTC did not pay anything for the irrevocable letter of credit to NBK – and there was no security for the letter of credit.

Why a company that was penniless was getting favours from a bank to import vehicles worth hundreds of millions is still a puzzle.

BUSINESS

The official arrangement was that NBK would recover its money with the sale of the vehicles, and that any excess would be paid to Mr Githuthu’s KOTC – even if it had not put in a coin.

And if NBK would not recover its money, KOTC would pay the balance. But that money did not belong to NBK. It had been deposited by NSSF.

When the vehicles arrived in Mombasa, National Bank – not KOTC – was actually asked to repair some of them and asked members of the Kenya Taxi Association, Nairobi, to open accounts at the National Bank of Kenya by paying Sh10,000 each.

The branch manager would be used further to get business for the taxis at the Jomo Kenyatta International Airport where he wrote a letter seeking taxi bay for the vehicles.

He also assisted to get PSV licences – which was not the business of a bank manager.

KOTC was owned by Githuthu and his wife Florence – and by appending his signature on the Letter of Credit, he perhaps did not know that he had signed himself into a multimillion debt.

BALANCE

Perhaps, he knew. He then – after leaving Somaia’s bank – started receiving debits charged to KOTC, which had accumulated to Sh132 million.

And when he enquired, he was told it was in relation to the taxis which had been imported by KOTC.

By then, only 300 units had arrived and had been insured by Mr Githuthu’s Mutune Insurance Brokers.

Mr Guthuthu’s mistake was that he had allowed political buccaneers to use his account and the court would later dismiss him as an “unreliable witness”.

Although the London firm had been paid in advance, it never imported some 200 units worth 3.5 million sterling pounds (Sh455 million).

The man who wired the money out to London’s NatWest was Mr Oluga, the NBK General Manager who was left holding the short end of the stick.

Once, the money was in the hands of NatWest, it was released to Camp Globe.

INSURANCE

While Somaia and Mr Oluga were 15 years later charged with theft – and jailed for two years – they would be released by high court.

Interestingly, NBK had never complained that it lost any money – making it hard for the case to survive at the Court of Appeal.

More so, it had freely paid all the advance payments to Camp Globe and NatWest – where it was withdrawn.

In the world of advance payments, you get your money by failing to deliver and let the insurer pick the spoils.

In this case, the letter of credit was not insured and nobody knows what happened to the extra millions – or whether NSSF got back its money.

But the taxis were a big con and just a handful, if any, are in operation.

[email protected] @johnkamau1