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How duty free tender has exposed country to Sh17 billion liability

BUSINESS NEWS
By Paul Wafula | December 8th 2015

Failure by Government officials to ensure a deed of settlement is entered into between the Kenya Airports Authority (KAA) and controversial duty free company, World Duty Free (WDF), has exposed the country to a contingent liability of not less than Sh17.15 billion, a parliamentary report has said.

The Public Investments Committee (PIC) report adds that if the financial proposals for the tender were evaluated independently from the technical proposals, then KAA would have earned Sh68.5 million ($626,000) more in concession fees annually.

The Sh68.5 million is the price difference between the highest guaranteed concession bid price of $4.1 million (approximately Sh420.85 million a year) by AtuTurizmIsletmeciligi AS, and the $3.5 million (approximately Sh357 million) offered by Dufry International AG, the Swiss firm that was awarded the contract.

The Standard has also established that Dufry was awarded the lucrative 10-year retail space tender at the Jomo Kenyatta International Airport (JKIA) days after it bought out its main rival, which had initially won the tender in what adds a new dimension to the contract.

Dufry bought 100 per cent of Nuance Group, another Swiss company that had initially bagged the deal before it was cancelled by the procurement watchdog and retendered, in a Sh155 billion deal. Dufry is publicly listed in Switzerland and in Brazil.

The vicious battle for the tender started long before Kamlesh Pattni, the architect of the Goldenberg scandal, was ejected from JKIA. Mr Pattni was evicted in July 2013 in a ruthless early morning raid despite putting up a major court battle with KAA.

Indefinite lease

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The controversial businessman, who is now a church pastor, was counting on an indefinite lease entered into by the Government in 1991 with his duty free company, Diplomatic Duty Free Limited, to secure the business. But Pattni eventually lost the battle for control of the lucrative contract after holding onto it for over two decades when KAA forcefully pushed out his company.

Three months after the eviction and the storm over the airport fire had fizzled out, KAA in an international tender called for new companies to bid for the retail space in October 2013.

Dufry says in the report that it completed the acquisition of Nuance Group, Switzerland on September 9, 2014 for CHF 1,312.2 million, which translates to about Sh120 billion at conservative exchange rates.

The report also wants former KAA chief executive Stephen Gichuki prosecuted for bringing down Pattni’s shops in a recommendation that is set to open a fresh can of worms for the disputed duty free shops tender.

Eldas MP Adan Keynan chairs the 27-member committee, which is tasked with oversight of public investments. The committee wants all contracts between KAA and service providers at JKIA and Mombasa International Airport (MIA) between 1989 and 2015 audited.

“KAA has never bothered to make provisions for the contingent liabilities of Sh10.15 billion arising from the arbitral and High Court awards, and professional legal fees, raising doubts as to the accuracy of its audited financial statements and putting KAA assets at risk of auction should the claims be effected,” the report says.

The report also finds that KAA and WDF have not filed consent in court to set aside the Arbitral Award by Arbitrator Justice E Torgbor, who awarded the amount against KAA, saying the authority breached the contract entered into with World Duty Free Company causing it huge losses.

“This exposes KAA and taxpayers’ funds to a contingent liability of USD 49,096,557 [approximately Sh5 billion inclusive of interest],” the report says.

The report argues that the sole intention of WDF was to perpetually retain all the spaces at the duty free area at JKIA and MIA either in its name or through other associated companies with different names.

Currently Terminal 1A space is not occupied or in use by WDF, Suzan Duty Free, Dufry or any other local duty free operator.

However, despite the ongoing court case, the spaces at Terminal 1A have been allocated to Maya Duty Free Ltd on a temporary licence, which expired on September 2014 and was renewed under unclear circumstances.

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