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Wednesday, June 22, 2011

This KenRen thing is just plain, blatant theft of taxpayers' money

Folks, bear with me. I am a journalist and ought to have picked the payments to KenRen moments after the Budget was read. I did not.

It is a story I have covered in the hearings of the Public Accounts Committee report on the government accounts in the fiscal year 2007/2008. So this is going to take long to read, but if you want to understand the real issue, be my guest (in a good way).

Since then, I have followed it keenly, trying to see exactly if the shameless theft of money under President Kibaki's government will go on. Thank God for people like Mwalimu Mati for pointing that out to me.

We met at Parliament's County Hall where he'd come before the Budget Committee, to really tell them about the theft of public funds. It is an item under Public Debt in the Consolidated Fund Services. Just check page 16 on this Treasury link and confirm that this guy knows, a lot of times, what he's talking about.

So, when I asked him, how come I couldn't pick it up, he said, well, you just have to be patient, because "these things are always hidden in there."

The truth of the matter is that the KenRen deal was hatched in 1975. The fertiliser factory was meant to be built in Changamwe in Mombasa. But up to now, it does not exist. KenRen itself went under and because the government had guaranteed loans, well, it was put in problems.

The PAC chaired by the bullfighter MP Boni Khalwale raised these issues. But this is what I will tell you, President Moi, for a whole 24 years refused to pay these people. But then, when he was about to leave power, things happened, and as it turned out, well, we'll be paying the money until 2015.

My beef is that the Treasury, against a House resolution to have the payments stopped, has gone ahead to include the payments in this year’s Budget, even as it emerges that the government has already been ripped of Sh1 billion. Just check the PAC report.

“It is not a breach of contract. This is a case similar to the Angloleasing case. If we don’t punish the people who brought us into this mess, then we won’t have a new beginning,” said Mr Mati, urging the government to stop the theft.

In 1975, the Kenya Government entered into a joint venture with an American firm known as N-Ren to establish KenRen Chemical and Fertilizers Limited which was to manufacture fertiliser for domestic and export markets. KenRen entered into several financing and equipment procurement contracts with Austrian and Belgian banks and suppliers with Government of Kenya as the guarantor.

The banks involved were Banque Bruxelles Lambert (BBL) and Office of National Du Ducroire of Belgium and Bank Fur Arbeit Und Wirtschaft (BAWAG) of Austria.


The suppliers were Coppee Lavalin of Belgium and Voest Alpine of Austria. No equipment was delivered to KenRen except for some crates whose contents were not verified. The project collapsed and KenRen went into liquidation in 1978.

Though no goods or services were supplied, the foreign banks involved claimed to have paid the suppliers in full and were therefore owed money by KenRen as per the signed financing agreements. As KenRen never actually commenced business, the government as the guarantor became liable for the debt.

The banks and suppliers sued the Kenya Government in the International Chamber of Commerce Court of Arbitration. A total of five cases were filed in London, Paris and Cyprus.
The London courts ruled that “Kenya was a victim of deceit” by Voest, one of the suppliers, and awarded the government USD 3 million (Sh240 million).

Voest declined to pay and rushed to a Cyprus court where it obtained a ruling in its favour that was to see the government pay Sh2.4 billion (Austrian Schilling 300 million). The government panicked and rushed to Brussels to August 2000 to work out an amicable solution to the court cases.

The question on this matter is why the government saw it fit to cut a deal on the Cyprus ruling yet it was not an appeal on the London ruling. What the Treasury could not explain –and what Parliament keeps wondering—is why Kenya was paying the money yet it had won a suit cushioning it from paying the supplier.

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In 1988, the Belgium financiers, Banque Bruxelles Lambert (BBL), and Office National Du Ducroire (OND) instituted proceedings at the International Chamber of Commerce (ICC) against the Government of Kenya for failing to honour its obligations as the guarantor of the loans. The Plaintiffs were claiming USD.42 million (Kshs.2.9 billion) from the government.

Five other court cases were instituted against the government in London, Paris and Cyprus. In one of the London court cases, the court ruled that Kenya Government was a victim of deceit by one of the suppliers, Voest, and awarded the Government USD.3 million which Voest declined to pay.

In Cyprus, Voest was awarded ATS.300 million. In an attempt to work out an amicable solution to the court cases, a Government of Kenya delegation held discussions in Vienna on 23rd to 25thAugust, 2000 at which some proposals were agreed on. Subsequently, Lazard Frere was retained by the Government to assist in the negotiations. GoK commissioned Freshfields, a UK firm of lawyers to defend it in court cases.

In the year 2000, the Government of Kenya faced economic difficulties and approached the Paris Club creditors for debt rescheduling. The Austrian Government, a member of the Paris Club intervened and insisted that an amicable solution be reached and signed before the Paris Club could consider Kenya’s request for debt rescheduling.

An agreement for Euro.16,635,156.16 rescheduling was signed between Kenya and Austria whose terms among others were that the loan be repaid over 11 years commencing in the year 2003 at an annual interest rate of 1.5%;

On 6th November 2002, the ICC Court of Arbitration gave an award in favour of BBL and OND for EURO 21,181,992.00 (close to Kshs.72 billion) against the Government of Kenya. In addition, the Government was to pay BBL USD.87,500.00 (close to Kshs.6, 825,000.00) being reimbursement of arbitration costs.

A Kenyan government delegation travelled to Belgium on 23rd October 2003 to negotiate for restructuring the terms of the debt. The outstanding amount inclusive of accrued interest was Euro.34,837,548.00 plus the USD. 87,500.00 legal fees.

The terms of the negotiation were as follows:-

• 20% reduction amounting to EURO.2,732,512.00 thus effectively reducing the amount to EURO 32,207,210;

• An up-front payment of EURO.1,500,000.00 plus US.$87,500 before 31st December 2003;

• Balance of EURO 30,707,210.00 to be rescheduled over a repayment term of 13 years including 3 years grace period;

• Applicable interest rate was Euribor 6 months plus 0.5% margin to be fixed after every six months.

Regarding the Austrian part of the debt, the Government of Austria intervened to ensure that the debt was recognized as part of the 2000 rescheduling under the IMF/World Bank administered PRGF program, which the Government of Kenya was implementing. With regard to the Belgium portion of the loan, the award was through an Arbitration Tribunal and subsequent negotiation to restructure the debt by the Government reduced the initial award.

The government was of the view that it had been defrauded in this matter and that’s why it had initially refused to pay. However, since valid agreements had been entered into and Arbitration Tribunals had ruled in favour of plaintiffs, the government had no choice but to pay.

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*FROM THE TREASURY OF KENYA

That is what the Treasury will tell you. It is what it told Parliament. Now you know. What are you doing about it?

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