Kenya about to pay Sh5b fine in Anglo Leasing suit

By James Anyanzwa

Taxpayers are likely to lose in excess of Sh5 billion in penalties alone this year in an Anglo Leasing Finance scandal related suit.

Worse still, the amount demanded by a Cyprus-based business tycoon could go higher if the principal and interest charges are factored. It is the continuing wave of the untouched scandals that eat into Kenya’s savings even as Treasury pretends no money was lost.

It matters not that Energy Minister Kiraitu Murungi, who was in Justice Minister when the scandals broke out, said Anglo Leasing, "was a scandal that never was".

Former Finance minister Amos Kimunya (now Trade minister) and Investment Secretary Esther Koimet show cancelled Anglo-Leasing documents at Treasury in 2007. [PHOTO: JENIPHER WACHIE]

Mr Anura Perera who owned five of the 18 controversial contracts worth Sh15 billion took the Kenyan Government to the Arbitration Tribunal in the UK for breaching the terms and conditions of the agreement after it stopped payments for the contracts over four years ago.

According to a special audit report of the Controller and Auditor General, the overall Government financial commitments and actual expenditure on the 18 contracts, as at June 30, 2005, stood at Sh56 billion in terms of the total value of credit arrangements. But the Government had actually paid out Sh17.5 billion.

The report also highlights serious weaknesses in the procurement, financing, and implementation of the projects and recommends further forensic audit to get the status of the controversial project.

It also reckons Office of the President and the respective accounting officers be held personally responsible for implementation of the projects and in consultations with Treasury for authorisation of payments to the suppliers of the projects.

The worrying penalty charges have been precipitated by punitive clauses in the contract, which recommends over 30 per cent penalty interest per annum in case of a default.

The total claims have accrued to alarming levels since the Government suspended payments for all the 18 Anglo Leasing projects.

The landmark decision, however, on whether the Treasury will foot the huge bill, hinges on the outcome of crucial negotiations in London before May, between the Kenyan Government and Mr Perera’s legal team.

Halt arbitration

The Government petitioned Perera’s lawyers to temporarily halt the arbitration for two projects (Nexus and Naval Vessel projects) to try to resolve the dispute outside the Tribunal.

But the hearing dates are now fast approaching and fears are mounting in Government the collapse of the talks could see the matter ending up again at the Arbitration Tribunal. The Tribunal could rule in favour of Perera because of the binding terms of the contracts.

The Kenyan courts have so far ruled in favour of Perera companies and have prohibited the Kenya Anti-Corruption Commission from investigating these companies.

The Kenyan delegation to the negotiations will comprise, among others, Treasury bureaucrats, the Attorney General and the Minister of State for Defence, Mr Yusuf Haji whose ministry is implementing the contentious Naval vessel and Nexus projects.

"The interest and penalties have accumulated substantially. However, we are optimistic we are going to make headway in negotiating for the waiver of the penalty claims", people familiar with the matter said.

"The Government is planning to negotiate with various creditors to pay only the fair values of the contracts. But the fair values of the contracts determined by the PricewaterHouseCoopers (PwC) remain under wraps."

The PwC appointed by the Government in 2005, however, ascertained that although the Perera contracts were over-priced, the margins were not as big as those of another businessman Deepak Kamani. "The contracts for Anura Perera were a bit better although they were over-priced. The Government owes him some money for the Naval Vessel and Project Nexus," the sources said

Perera’s projects were partly completed by the time the Government cancelled and stopped payments for Anglo Leasing projects in 2004.

Stopped payments

Information available at the Treasury’s Debt Management Department shows the Treasury stopped payments in respect of all the credits related to Anglo Leasing contracts by June 30, 2004. But the exception was Bandwidth Spectrum and Network (PCK) projects whose payments, including interest charges totalling Sh380.8 million, were implemented in four instalments between November 22, 2004 and May 24, 2005.

The reason for the continued servicing of the credit under the projects was that the service provider, Universal Satspace (North America) had threatened to sue the Government and to disconnect the Postal Corporation of Kenya from the Satellite channel through which the corporation was providing the public with the Internet services.

The PwC were appointed by the Government to carry out a forensic audit of the controversial contracts and advise) on the way forward. During the 2004/2005 and part of 2005/2006, the Kenya National Audit Office conducted audits of the 18 security related projects funded through Foreign Supplier/Credit arrangements.

The 18 projects included the Immigration Security and Document Control System Project, which had been the subject of an earlier Special Audit Report, submitted to Parliament in May 2004.

The audit was carried out with a view to, among others, ascertaining the method used in identifying the supplier, establishing how the contract/tender prices/sums were agreed upon with the suppliers and whether such prices/sums were competitive.