Sh1.8b at risk in ferries deal

By Juma Kwayera

The Government is staring at another Sh1.8 billion scam following findings of an Inspectorate of State Corporations probe into financial improprieties in the procurement of two ferries for Mombasa port.

The colossal sum, more than half of which has already been paid to a German firm, raises fresh questions about the Government’s preparedness to detect and stamp out mega corruption.

The Standard on Sunday has established that three KFS senior officials implicated in the impropriety — the Director J J Ria, Financial Controller Deche Kashero and Financial Accountant K O Onkoba — were sent on compulsory leave two months ago following a directive from Prime Minister Raila Odinga’s office.

According to investigation ordered by the Inspector General of State Corporations Peter Ondieki, and whose findings were endorsed by PS in Prime Minister’s Office Dr Mohammed Isahakia, the Government may have lost already Sh1.3 billion paid in questionable circumstances to Schiffs-und Yachtwerff Gmbh (SYWD) to whom the contract was irregularly ceded by the original tenderer Schiffbau –und Entwincvklungs Gesellschaft Tangermunde (SET).

The Inspectorate of State Corporations says the plight of 54 million passengers and 1.1 million vehicles that use the Mtongwe and Likoni ferries in Mombasa every year persists nearly six years after the Government undertook to ease the congestion and improve the safety of the ferry users.

Suspension of officer

The suspension ordered by Prime Minister in June did not give reasons, but a public relations officer at the ministry, Mr Douglas Kaunda, conceded the move effected by Permanent Secretary Abdulrazak Aden Ali was precipitated by accounting discrepancies in the procurement of the two ferries.

Ali was not available to respond to inquiries as he was on Wednesday transferred to the Ministry of Trade by President Kibaki.

However, Kaunda said: "I can confirm that Deputy Secretary Isaac Kamau has replaced KFS director in acting capacity. What I cannot confirm is whether the three officials will face legal action or be surcharged as recommended by the investigating team."

It has been established that a team from the Ministry of Transport and the KFS board of directors interrogated two of the suspended directors, but Ria had not responded to summons to defend his decisions as the sittings ended on Friday. The Kenya Anti-Corruption Commission (KACC) is also said to be preparing to launch fresh investigations into the suspect ferry procurement deal starting this week.

The report says SET, the company that won the tender to procure the two ferries, had no prior experience in the industry and the documents used in the contract had legal loopholes. It questions the criteria used to award the tender and the circumstances under which the tenderer ceded the contract to SYWD without the involvement of KFS.

The German firm declared itself insolvent just two weeks after securing the ferries contract in April 2004, according to the report. The concerns are based on the findings that there was no legally binding contract between the buyer and seller, raising questions about possible financial fiddling.

These revelations also put Finance Minister Uhuru Kenyatta in a quandary. In this year’s Budget, he set aside Sh500 million in the ministry’s development budget to buy two smaller ready-made ferries.

The tender referenced KFS/FV/) 68/2004, was initially awarded to Schiffbau–und Entwincvklungs Gesellschaft Tangermunde (M/s SET) five years ago at a price of 9,458,672 euros (Sh898,573,840), but has ballooned to Sh1.3 billion and is set to expand to Sh1.8 billion if the Sh500 million in this year’s Budget is factored in.

Sub-contract arrangement

"KFS does not have any contract of whatever sort with SYWD... The investigating team also established that SET has no contract with SYWD for any purported sub-contract arrangement," the report says.

The report also notes the contract between SET and KFS had weak vessel delivery obligation on the tenderer "since the seller could easily keep the buyer (KFS) waiting for 10 years while awaiting approval for the design from Lloyd’s Register."

All shipbuilders are by maritime requirements supposed to obtain the nod from Lloyd’s Register before proceeding to build any sea-vessel.

Against the backdrop of such legal omissions, the investigating team undertook "greater national interest" to compel SYWD to commit itself in writing that it would deliver the two vessels by December.

The letter turns out to be the only evidence that SYWD is building the ferries.

Asked if the delivery of the ferries was still on schedule, Kaunda said the ministry expects the acquisition to be completed by December.

"We have been assured the deadline will be met," he said, although the smaller ferry should have been delivered last October.