How taxpayers lost more than Sh4 billion in SGR land deals

SGR train
An all-or-nothing order by State House on one of the Jubilee government’s pet projects led to the loss of billions of shillings as unscrupulous dealers descended on it to loot.

An audit of the Standard Gauge Railway (SGR) that Sunday Standard has seen reveals how Kenyans lost more than Sh4 billion in intricate land compensation deals that oiled the 472-kilometre gravy train as it snaked its way from Mombasa to Nairobi.

At the heart of the scandal that led to the escalation of the project’s costs to punitive levels were employees of the Kenya Railways Corporation (KRC) and the National Lands Commission (NLC), both public owned institutions entrusted with the country’s interests.

Officers from the two agencies took advantage of the urgency of the project to bypass proper accounting and verification procedures to siphon billions from money allocated for the project through fraudulent land compensation claims.

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When the 2014 audit was first brought to the attention of the Kenya Railways, the rail agency said it was just an internal matter between it and the NLC and that action would be taken after full investigations.

At the beginning of the project, auditors say Kenya Railways did not have enough manpower to deal with requirements of the mega project.
Surveyors were being employed and directly deployed to the project. Casuals were used to process payments. There was no training or briefing done before the payment started. Temporary clerks were allowed to pay out part of the compensation billions.  

Kenya Railways land audit
Double payments

“Because of pressure to handover the site, accountability procedures became secondary,” auditors say in their report.

The report signed by Kenya Railways risk and audit manager Remmy Koech gives a peak into the lack of internal controls that gave NLC a free hand to spend public money without putting in place documents needed for accountability.

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The report shows how fake compensation claims, double payments, over payments, inflation of land values and payment of people whose land was never on the corridor was used to loot taxpayer’s money.

Absence of oversight also helped create a fertile ground for theft. It was so pervasive that at one point, Kenya Railways bought land from itself.

There were instances where the names captured by the NLC schedules were different from those who eventually appeared in the Kenya Railways payment schedules.

Auditors also noted that there were at least eight cases where beneficiaries who were paid Sh1.7 billion appearing in the schedule could not be traced.
They also listed 22 payments amounting to Sh1.1 billion made to individuals with neither names nor national ID numbers. They found a ridiculous claim of Sh636 million on their own marshaling yard, which had been illegally subdivided into nine parcels, five of them appearing in the NLC compensation schedule.

In another instance, individuals illegally squatting on railways and publicly owned land were compensated.

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“We noted that permanent structures, earlier earmarked for demolition for being illegally built on Kenya Railway Reserves were compensated during the acquisition process and no evidence was provided to account for how earlier decision was rescinded,” auditors say of a botched compensation in Manyani area, Mbololo, where a total of Sh30 million was paid out. In Makueni, people who had irregularly sub-divided land earmarked for a stadium, primary schools, a slaughterhouse and a cemetery were compensated.

There was also material variance in valuation of two sisal plantations of Sh337.2 million. DWA sisal plantation in Kibwezi area, which was fairly well kept, was compensated an average of Sh1.5 million per hectare while “poorly kept” Voi plantation was compensated an average Sh24 million per hectare, 16 times more. “The resultant variance per hectare of Sh22,541,271 which in our view is very material, led to total variance of Sh337,264,741,” auditors said.

They noted that though variances in values was expected between the two sisal plantations due to their distance from each other, remaining lease period if applicable and how they were kept, the noted variance was material. “The major cause of the fraudulent payment was substitution of names by a temporary clerk during the payment process,” the audit notes, mentioning a case in which Sh1.4 billion was paid out to individuals whose names were not on the gazette list of people to be compensated, but made it to the NLC schedule of payments.

There’s a problem

Some suspects were arrested and arraigned in court, but the entry clerk was still at large by the time the audit was completed.

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There were instances where people whose land was outside the SGR corridor were paid. For example, a landowner of plot number 51, located at Bata Voi, was paid Sh2.7 million but his land was outside the corridor.  

Transport Cabinet Secretary James Macharia had also raised his reservations at the time, saying something was not adding up. Macharia said the demand for compensation in between kilometre zero to eight was about Sh8 billion. This, he said, was almost the same as what was being asked from kilometre eight to kilometre 472. “Obviously there’s a problem there,” he said.  

But despite these reservations, the matter was pushed under the carpet and let to pass.

Contacted for comment on action taken, Kenya Railways Managing Director Atanas Maina said the “matter was closed” and did not offer any information on the action taken.

Mr Maina said land compensation was the domain of the NLC and it was only acting as an agent making the payments. “Management is not responsible for valuation of land. That is the work of the NLC. Investigations were done and we paid out the money. The matter is now closed and we have moved on to phase 2,” Maina said.

The auditors said prudent expectation of the compensation process was that controls had been put in place to ensure that only genuine people affected by the project (PAP) were properly identified.

“In spite of the above expectation, during the exercise of identification of PAPs, no estate officers in the field were involved to confirm the authenticity of PAPs yet in areas outside Kenya Railways land, village elders were involved,” the report notes.

In its defence, the NLC said based on the differences in localities and other factors, there is a big difference in land values in the two localities. NLC said the value of land adopted in Voi was an average of Sh5.2 million per acre with zoning, whereas in DWA, the average was Sh200,000 with zoning.

“The value of the sisal plants and other developments varied depending on the economic life ad state of the sisal plants,” NLC said.

But auditors said this explanation was not supported by analysis and documentations that would provide assurance that the materiality in valuation was justified. “Without comparative analysis and independent review of the compensation of the two farms, we are unable to provide assurance that the compensation reasonably represents a fair value,” the report concluded.

Auditors found that pressure to provide the Chinese contractors access to the land saw the Kenya Railways start the compensation exercise without a risk assessment, in what led to costs that could have been avoided. The audit also found that in some instances, more than one person was paid for one structure for people who had temporary occupation licences (TOLs) as there was no mapping done by Kenya Railways before compensation.

There were also cases where people with different sizes of land in the same location were paid same amounts.

In Voi, for instance, auditors found that 20 parcels of land in a row with differing sizes and within the same locality, were awarded similar compensation. The explanation given by NLC valuers was that compulsory land acquisition must be fair and just.

“The method used to identify owners of structures provided an opportunity for the following to happen; possibility that the transferor of the property was paid and at the same time the transferee was paid for the same property,” the audit says.

“(There was also the) possibility that persons who did not own structures and unknown persons were compensated. there is possibility that some people were over compensated,” it adds.

There are still some businesses which are still operating despite having been compensated. Auditors said they found two hotel businesses at Sultan Hamud whose properties were compensated Sh59.5 million but were still operational.

Manipulation

One of the beneficiaries went ahead and build a five storeyed building in Sultan Hamud along Mombasa Road on the same parcel that had been acquired after the contractors changed the design of the SGR, given that their land was no longer required, essentially giving them free money.

Another Sh3.5 million was lost due to manipulation of records.

In the management’s response, the firm said when they discovered the losses due to manipulation of records, they alerted the Directorate of Criminal Investigations (DCI).

“This matter was officially handed over to DCI for investigation immediately it was noted,” the report says.

Two years after the completion of the audit, no one has been held accountable for the loss.  

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Standard Gauge RailwaySGRNLCKenya RailwaysKenya Railways Corporation