Kenya could pay billions for Anglo Leasing contracts

By Ben Agina

Anglo Leasing has returned to haunt the Government. The Cabinet is inching closer to approving Sh16 billion in payments for some of the 18 controversial contracts.

If ministers adopt the recommendations of a technical committee, taxpayers will have to shell out this money. The Government had earlier authorised the Attorney General to negotiate settlements after it became clear it might lose some of the legal battles in international courts. Two court rulings, one in 2006 and another this year, have led to attempts to seize Kenya’s assets abroad by ‘Anglo-Leasing’ creditors. In an attempt to minimise Government liability, the Cabinet is expected to approve payments for several related deals.

The Standard has seen a draft Cabinet memo, dated November 20, that gives a summary of the strategies for resolving the security contacts.

The document was prepared for tabling at the next Cabinet meeting. The memo follows directives given by the Cabinet on how to resolve two contracts that were the subject of international commercial arbitration and posed the greatest risk to the Government. They are Project Nexus, a communication centre for the military, and the purchase of an oceanographic survey vessel for the Navy.

The disputes on the two risky contracts were to be resolved through negotiated settlement under expert guidance. Top Government officials have kept its details close to their chests due to the sensitivity of the matter.

Dubious contracts

This latest development is likely to be met with fury from a critical civil society that believes Kenya has already lost too much money through the dubious contracts.

The existence of ‘revoked’ promissory notes has been cited as a danger to taxpayers because Government may pay up even where no services were rendered.

When the Anglo Leasing scam broke out in 2004, Mr John Githongo, who was then President Kibaki’s chief advisor in the fight against corruption, resigned and went into exile fearing for his life.

A memo to the Cabinet Committee on Security and Foreign Relations limited it to resolution of the remaining 16 contracts that continue to pose various degrees of potential liabilities to the Government.

In others, the Government is owed considerable amount of money arising from under-delivery, overpricing and overpayment. The memo notes that some projects are non-starters while others are near complete.

Minutes of the Technical Committee that drew up the memo noted that it was important to reach a decision on which projects should be abandoned and which completed, and the implication of each course of action determined.

"It may be difficult to complete some of the projects with the current suppliers/financiers due to their credibility (issues)," says the Senior Deputy Solicitor General Ms Muthoni Kimani, who chairs the technical committee that is reviewing the contracts.

The projects that the Government intends to negotiate settlement with a view to seeking favourable terms are on the Oceanographic Navy Vessel (Sh4.6 billion), Project Nexus (Sh3.2 billion), Bandwidth Spectrum and Broadband Network both under the Postal Corporation (Sh2.6 billion, Sh885 million) and Project Flag staff, for services to the intelligence service (Sh3.1 billion).

The Technical team has also recommended to the Cabinet to cancel and seek refunds on 13 other projects whose contract sum is Sh40 billion.

Universal Satspace, Nedemar Technology BV and Euromarine Industries have commenced arbitration proceedings against Kenya in the United Kingdom and the Netherlands.The three firms — allegedly to be involved in some of the 18 controversial security contracts placed under special audit after questioning by anti-corruption agencies — began proceedings after the Government refused to pay on Githongo’s advice.

Universal Satspace entered into a $28.1 million contract with the Government on July 11, 2002, for the provision of Internet services to the Postal Corporation of Kenya post offices.

Corrupt deals

The firm disconnected the service after the Government failed to pay bills amounting to more than $12.3 million (Sh897 million). The Government is holding back payment because it suspects that the company was involved in corrupt deals.

But the firm denies any wrong-doing, claiming that the government is using the claims of corruption as a way of getting out of making the necessary payments.

Nedemar Technology BV of Netherlands was awarded a contract for $36.9 million (Sh2.7 billion) on November 19, 2002. The contract is now a subject of arbitration proceedings. The dispute arose out of a top-secret contract, code-named Project Nexus, for the supply of an advanced military communications and surveillance system to the Department of Defence. But payment for the deal, one of 18 controversial security contracts placed under special audit after being questioned by anti-corruption authorities, was stopped in 2004.

Consequently, Nedemar sued Kenya at the International Arbitration Court in The Hague.

The court ruled in favour of the company after the Government failed to enter a defence. The Government has since moved to court to try and quash the orders that could see Kenya’s property in the Netherlands seized in a Sh2.7 billion dispute over the contract.

Euromarine Industries was contracted on July 17, 2003, for the Oceanographic survey vessel programme. It was to specifically provide a ship for the Kenya Navy at the contractual sum of Sh4.1 billion.

The company has since taken the Government to an international arbitration court in France for failure to pay for the vessel.