As the controversy over the fuel purchase deal Kenya signed with Gulf petroleum conglomerates rages, it shines a spotlight on multibillion-shilling scandals that stalked past government-to-government agreements.
The current saga already appears to have traits of secrecy, contradictions and denials by state officials just like the previous ones that turned into major rip-offs.
Similar scripts played out when previous graft allegations—surrounding the Sh327 billion Standard Gauge Railways (SGR) project, the Sh1.5 billion faulty air force jets bought from Jordan, the inflated $770 million state security contracts (Anglo Leasing), Arror and Kimwarer dams, the sale of Grand Regency Hotel by the Central Bank of Kenya (CBK), and the Galana Kulalu irrigation project, among others—were made.
Other questionable deals executed in a similar manner are Kenya-Israel secretive multimillion-shilling contract for the supply of CCTV cameras for the new Sh48 billion Mombasa-Nairobi pipeline, and the Kenya-Indonesia edible oil deal famously known as ‘Mama Pima’ launched this year by then Trade Cabinet Secretary Moses Kuria.
Opposition leader Raila Odinga has since labelled the fuel deal as a “grand scam” amid mystery of a little-known businesswoman – Anne Njeri – claiming ownership of a 100,000 tonnes of diesel she allegedly imported from Russia.
Mr Odinga on Thursday claimed the deal was designed to protect three companies – Gulf Energy, Galana Oil Kenya Ltd and Oryx Energies Kenya Ltd in the deal – from paying 30 per cent corporate tax.
He has questioned why the deal is shrouded in secrecy, demanding the agreement be made public.
A parliamentary group meeting convened by Mr Odinga yesterday raised further questions around the deal and challenged the government to table proof that the three firms have paid corporate tax.
“We reiterate the challenge he (Raila) posed for the government to table the G-to-G agreement with UAE and Saudi governments and table proof of corporate tax payment by the contracted oil firms, supplier purchase agreements and explain how the EPRA (Energy and Petroleum Regulatory Authority) boss Bwana [Daniel] Kiptoo ended as both negotiator and referee as far as the price of purchase and sale of oil is concerned,” said ODM in a statement signed by its secretary general, Edwin Sifuna.
Energy and Petroleum Cabinet Secretary Davis Chirchir has, however, defended the March 10 agreement between the Kenyan Government, through the ministry, and Aramco Trading Fujairhah (Aramco), Abu Dhabi National Oil Company (Adnoc) Global Trading Ltd and Emirates National Oil Company (Enoc).
“This marked the beginning of the supply of petroleum products under a government-to-government arrangement on extended credit terms of 180 days…It has eliminated the artificial demand that 130 oil marketing companies were creating by moving from bank to bank in search of the same quantity of US dollars ($500 million per month),” Mr Chirchir said on Thursday.
On accusations that local firms in the oil deal are exempted from paying tax, National Assembly Majority Leader Kimani Ichung’wah told a press conference on Thursday: “Mr Odinga alleges that the characterisation of the oil deal as G-to-G was meant to shield some three Kenyan companies from paying 30 per cent corporate tax. We dare Odinga to table such evidence that these companies are not remitting their taxes.
“The three companies (Gulf Energy, Galana Oil Kenya Ltd and Oryx Energies Kenya Ltd) are not agents of the Kenyan government and are doing logistics on behalf of the two state corporations in Saudi and United Arab Emirates (Aramco and ADNOC). It is not the business of the Kenyan government on whom those corporations appoint as their Kenyan partners.”
Economist and University of Nairobi lecturer XN Iraki said G-to-G agreements have been abused because of lack of competition in tendering. He told Saturday Nation that the only way to protect the deals from such abuse is through disclosure of details of such engagements. He said Parliament, being representative of the people, should be involved.
“Governments are elected by the people who should be involved in such deals, with all the pertinent information disclosed to the public or through our representatives: MPs, senators and even MCAs. Without that, G-to-G deals are open to abuse,” he said.
Prof Iraki added that the current deal has raised eyebrows because of non-disclosure and failure to achieve its intended purpose of stabilising the shilling and reducing fuel prices, which have continued to rise as the shilling loses value. “All information about it (fuel purchase deal) should have been disclosed. It has not achieved its objectives, mostly giving us a stronger shilling. Disclosing could help us explain why it’s not working, and may be helpful in making it work.”
Raila: The govt-to-govt oil deal is going to kill Kenya Pipeline Company
In the SGR deal that was financed by China Exim Bank and executed by China Roads and Bridges Corporation (CRBC), the project cost was reportedly inflated from Sh227 billion to Sh327 billion.
Some of the undisclosed contracts, which the Nation reported on recently, were signed towards the tail end of the Mwai Kibaki Administration and accelerated by the Jubilee Administration immediately after President Uhuru Kenyatta took charge in 2013. In the deals, the government exempted CRBC from tax on all imported equipment and materials, while allowing the company and financiers to bar arbitration in case of disputes relating to the project from being handled in Kenya.
The open-ended nature of the contracts also allowed variations in the bill of quantities without justification, leading to irregular variation of contract prices in several instances, making it impossible to know how much the SGR actually cost. For instance, 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. Curiously, the portion of repayment for the Sh220 billion civil works contract is in US dollars.
Vihiga Senator Godfrey Osotsi, the chairperson of County Public Investments and Special Funds Committee, said it is becoming a trend for such deals to be abused.
A train on the SGR approaches the Mombasa terminus. The SGR project was funded by Chinese loans.
Mr Osotsi said the only way to protect taxpayers’ money is by making parliamentary approval mandatory. “G-to-G deals should strictly be bilateral and should have prior approval of Parliament. Anything done outside this framework is a scam, illegal and a serious economic crime.”
But Nandi Senator Samson Cherargei said such deals have enabled the government to negotiate for better prices. He argued no one has ever been jailed because of the alleged corruption in the previous arrangements, terming the corruption allegations pure propaganda by the opposition. He, however, said such arrangements should be limited to programmes that have direct impact on the lives of Kenyans, like the current fuel prices.
“The other options are influenced by market forces,” Mr Cherargei said.
The sale of Grand Regency Hotel in the same G-to-G arrangement was also marred by alleged corruption, leading to formation of a commission of inquiry.
The Majid Cockar commission of inquiry into the sale of the hotel at the centre of the multibillion-shilling Goldenberg scandal concluded that the CBK could have realised better value for the sale based on prices that were quoted in an earlier auction advertised in 1994. The Cockar report says one bidder, identified as Hames Watts, was willing to pay $60 million.
The hotel, whose name changed to Laico Regency, was surrendered by businessman Kamlesh Pattni, the architect of Goldenberg, to the Mwai Kibaki Administration. The Central Bank of Kenya later sold the property to Libyans in 2008, in a deal that evoked public outrage.
Laico, an acronym for Libya Arab African Investment Company, turned into a hot potato after it was sold, with then Finance minister Amos Kimunya publicly accused of giving false information to a parliamentary committee about the same.
Mr Kimunya had first insisted that Grand Regency had not been sold even when there was evidence from the Libyan’s local lawyers, Wetang’ula Adan and Makokha Advocates, that they had received a down payment of $4.5 million, which had been deposited in CBK’s Federal Reserve Account in New York.
Laico Regency hotel, formerly Grand Regency, in Nairobi on February 6, 2016.
Photo credit: File | Nation Media Group
One of the questions that many asked was whether the Grand Regency was undervalued. Mr Kimunya would later be forced to step aside despite his “I would rather die” bravado.
Earlier in 2007, the Kibaki Administration splashed Sh1.5 billion for the purchase of seven military jets from Jordan.
The jets were bought from the Royal Jordanian Air Force through government-to-government negotiations in April 2007.
It later turned out that the jets were faulty. They never flew and would later be cannibalised for spare parts for other jets.
When auditors went to Laikipia Air Base in June 2016, they found that the defects had yet to be rectified, and seven jets had not been operational from the time they were brought in Kenya and assembled.
It was the same narrative when the alleged Arror and Kimwarer scam exploded. Mr Kenyatta later held that the two projects in Elgeyo Marakwet County were conduits for embezzlement of public funds. A corruption trial involving over a dozen government officials is ongoing.
Prosecutors said no work had been done at the dam sites, despite the Italian contractor having won the contract over five years earlier and some Sh19 billion having been paid out by the Treasury.
The two dams were to be financed through complex loans from privately owned lenders, but whose involvement was facilitated by the Italian government.
Kenya had paid Sh14 billion to insure the loans against default. By April 2021, Kenya was on the verge of becoming a global laughing stock on account of the collapsed projects. But when Dr Ruto assumed office, he moved to revive the projects.
He had claimed that the projects were stopped because of his political differences with Mr Kenyatta. Kenya and Italy have since entered into a deal to withdraw court cases surrounding the projects.
In the last Parliament, MPs ordered investigations into a secretive multimillion contract for supply of CCTV cameras involving an Israeli firm for surveillance of the Mombasa-Nairobi pipeline.
The National Assembly Public Investment Committee (PIC), then chaired by Abdulswamad Nassir, had in 2018 ordered the Auditor General to conduct a special probe after it emerged that it was a G-to-G deal.
“I am told that this deal was done recently and if it's government-to-government, we need to confirm where the funds are coming from,” said Mr Nassir, now Mombasa governor.
The Anglo-Leasing scandal started in 1997 when the government entered into a $33 million deal to replace the passport printing system. The corruption scam became public in 2002 when Mr Kibaki came to power. Fictitious companies were given money to supply naval ships and forensic laboratories.
In 2014, Mr Kenyatta authorised the payment of Sh1.4 billion to First Mercantile Securities and Universal Satspace for the deal where no contracts were honoured.
Mr Kenyatta, who had earlier chaired the House Public Accounts Committee that branded the Anglo-Leasing contracts a scam, now defended the payment, saying Kenya’s Eurobond bid was under threat if the payments ordered by an international court were not made.
