Ministers taking out loans in our name without disclosure

The other day, a high-level team of officers from the National Treasury and the Ministry of Energy returned from Tel Aviv, where they were negotiating a massive $309 million (Sh30 billion) loan that the Kenyan government wants to borrow to fund a big project in the energy sector.

The money is being borrowed from the State-controlled Bank Hapoalim of Tel Aviv.

I gather that the money is being borrowed under the arrangement of ‘tied aid’ — which means the funds will be used to pay a prominent Israeli defence contractor who, apparently, signed a commercial agreement with the ministry last year to provide security services.

DETAILS SCANT

Details of the deal are scant; I will return to the subject when I am in the full picture.

Indeed, the only reason why I mention it in this column is to make the point that an upsurge in this type of borrowing is what is responsible for the massive accumulation of external loans in our books over the past 10 years.

“Contractor-negotiated foreign loans” in modern parlance, the facility like the one we are about to sign up with the Israelis is our biggest headache.

They are the biggest factor when it comes to explaining the exponential accumulation of commercial foreign debts in our register.

Granted, the syndicated loans and the Eurobond issues we have made in recent years have been a big factor.

However, these loans that end up in the register without the participation and involvement of Parliament are the true millstone around our neck with regard to external debt.

How is the game played? It is all too familiar.

ARRANGE FINANCING

A foreign contractor, with his local allies and agents, approaches a Cabinet secretary or a parastatal head with a project and a promise to arrange financing.

Once the CS or principal secretary signs a commercial agreement with the contractor, the National Treasury is invited to sign a loan contract with a foreign bank (which will have been brought into the picture by the foreign contractor).

Away from the limelight, a new expensive commercial loan will have been introduced into our national external debt register. Just like that.

Here is another recent example of how the phenomenon of contractor-negotiated loans have become rampant and common in this country.

MANDATE OF SOURCING FUNDING

Early last month, the State-owned Kenya Electricity Company (Ketraco) put out a statement in the newspapers that it had signed a Sh25 billion commercial agreement with China Electric Power Equipment and Technology Company for electrification of the standard gauge railway.

Ketraco was compelled to make the announcement to correct newspaper reports that had reported that it had already borrowed the massive amount of money from China.

“The mandate of sourcing any funding to finance public projects is the National Treasury and the Ministry of Energy,” read the statement.

The press release is how we got to learn that powerful Chinese contractors had been busy lobbying the government to agree to a proposal to electrify the SGR.

Isn’t it not just incredible that these Chinese contractors want to commit us to borrowing such massive amounts of money from their banks when we are still struggling with how to make the SGR commercially viable?

ELECTRIFY SGR

Where and when did we debate and agree that we should be borrowing a whopping Sh29 billion to electrify the Mombasa-Nairobi section of the SGR?

When these CSs commit us to these expensive external loans, do they consider the fact that the capacity of our economy to earn dollars has been dwindling?

Yet all indications are that, with the commercial contract with the Chinese contractor in the bag, progress to the next level is almost assured.

It will not take long before the Treasury is called in to negotiate a financial agreement with either the Chinese Exim Bank or any other of the banks Beijing has established to support their contractors in foreign countries.

But who knew that the Ministry of Energy had signed a commercial contract with some Israeli contractor that has now necessitated the massive borrowing we are planning from Tel Aviv?

The projects funded through contractor-negotiated arrangements are not subjected to competitive bidding. Worse, the deals are very difficult to track.

Under the PFM Act, the National Treasury CS is supposed to provide to Parliament a report every four months on all new loans obtained from outside Kenya or denominated in foreign currency. It does not happen: The law is honoured more in breach than in practice.

We are at a point where we must demand more transparency in negotiation of these contracted-negotiated deals.

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