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Anglo Leasing: Time to pay the 'ghosts'

BUSINESS
By | November 16th 2010
By | November 16th 2010
BUSINESS

By BEN AGINA

News Editor

An explosive mood is set to engulf Cabinet when ministers are asked to take a common stand on whether or not Treasury should pay for 16 controversial security-related contracts.

The matter is so potentially divisive and controversial that the Government kept it on the backburner for sometime, but has now run out of options as the ghost of the infamous Anglo Leasing projects return with a vengeance. The projects forced former Internal Security and later Transport Minister Chris Murungaru, and his Finance counterpart David Mwiraria out of Government and active politics five years ago.

The concern in Cabinet stems from the huge Sh50 billion bill that Kenya’s taxpayers will foot. The weighty decision will have to be taken with two realities in mind; that some of the contracts, however dodgy, bear the Government’s seal of agreement; and that if nothing is done, the country could in the long run lose a lot more by way of litigation.

Sadly for Kenya, most of the security-related contracts fall under the category of overpricing, undersupply and unwarranted payments to foreign firms, some of which have unclear records. Some firms overpriced services they purportedly delivered to the Government, but which subsequent audits showed were either partially given, or nothing was done at all.

Apart from President Kibaki and Prime Minister Raila Odinga, the decision to either continue with or dump the contracts will also weigh on Finance Minister Uhuru Kenyatta, who holds the purse strings. Already, Treasury PS Joseph Kinyua has written to Cabinet seeking its approval to resolve the contract disputes.

Joining Uhuru are several other ministers who, though they were not at the helm of their ministries when the contracts were signed, they will be at the centre of the debate on what to do with them. They include Vice-President Kalonzo Musyoka; George Saitoti (Internal Security); Amos Kimunya (Transport); and Samuel Poghisio (Information).

In this line, the national radar will also be trained on the Director General of National Intelligence Security Service Michael Gichangi, whose service was also one of the clients in the contracts. The dilemma facing Government, say sources, is how to renegotiate the contracts without provoking a bitter political backlash from Kenyans. The latest step taken by the Government comes in the week when top Kenya Anti-Corruption Commission investigators head to Britain to meet officers of the Serious Fraud Office. British High Commissioner to Kenya Rob Macaire, confirmed to The Standard he had written to SFO asking it to aid Kenya.

The Standard is in possession of a Cabinet memo dated September 30, forwarded to the Cabinet Committee on Security and Foreign Relations, in which Kinyua is seeking Cabinet approval to resolve the dispute surrounding the 16 contracts. He told the team it was important to reach a decision on which projects should be abandoned or completed and the implication of each course of action determined.

He copied his letter to the PSs of the ministers listed above by virtue of them being the accounting officers.

Kinyua gave the Cabinet a brief on each contract and the recommended dispute resolution strategy for each.

Wako’s Role

But Parliament could present another challenge to Cabinet following yesterday’s declaration by Public Investments Committee chair Mithika Linturi that Attorney General Amos Wako should account for the legal advice he gave Government, leading to the signing of the contracts.

He accused Wako of "perpetuating fraud against the people of Kenya," adding: "I am not seeing any way out for the Government. It issued Promissory Notes which are Government guarantees."

In a letter to KACC Director PLO Lumumba, Law Society of Kenya chief executive Apollo Mboya said the move was disturbing, coming so soon after the Court of Appeal held KACC can proceed to request for Mutual Legal Assistance in the investigation of the contracts.

"Why are there recommendations for termination of contracts without any strategy for recovery of the paid or over-paid amounts?" asked Mboya.

PSC chair Bonny Khalwale said the project remains an audit query in the report of the Controller and Auditor General. He said during their last meeting, the PSC invited the Head of the Civil Service Francis Muthaura, Wako, Accountant General and Financial Secretary Mutula Kilaka and Kinyua, where the AG, who was under oath, said there would be no payments on the Anglo Leasing contracts.

Wako told the Committee the promissory notes issued towards the project were not binding and are revocable, and that the Government would not waste any taxpayer money.

He queried: "Who has allowed the Cabinet Sub-Committee to go ahead and negotiate the payment?"

The Government is seeking to negotiate settlement of the Sh944 million Postal Corporation of Kenya Broadband Network Project, which was entered into with Spacenet Inc for the supply of equipment for VSAT communication.

A PricewaterhouseCoopers valuation showed the value of equipment supplied was $8.6 million (Sh688 million under current exchange rates) against Government payment of $6.4 million (Sh512 million).

The report said the Government paid these funds in advance before Satspace supplied the equipment thus it was providing funding, and at the same time paying interest on it.

Negotiated settlement

In another Sh2.2 billion contract, where the Ministry of Transport and Communication contracted Universal Satspace for the provision of 10 years worth of managed bandwidth for an internal and external communications network in 980 post offices, showed how the bandwidth supplied was worth Sh104 million, against Government payments amounting to Sh1.1 billion. Here again the Government is seeking a negotiated settlement with the claimants.

However, the Cabinet memo is recommending termination of the Sh4.4 billion-weapon supply to Kenya Police by Sound Day Corporation, and the Sh5.6 billion supply of dedicated digital telecommunications network for the AP with Globotel.

The Cabinet team also wants the contract involving the provision of a dedicated telecommunications security for Kenya Prisons Department legally terminated. The contract price was Sh2.8 billion but PwC said the fair price should have been Sh1.3 billion.

The committee also feels the contract for the establishment and modernisation of weather monitoring system was grossly over priced and the supplier has since given notification that it will not proceed with the project. LBA Systems, which had been contracted, charged Sh2.8 billion when the fair value for the contract was Sh1.2 billion.

However, the Meteorological Department considers this project a priority that should, therefore, not be abandoned.

The Government had already paid Sh2.6 billion towards the project, but now wants to recover the ‘excess’ payments and get a new supplier on board. There are also contracts where Sh1 billion has been returned.

These are contracts for the supply of security vehicles, forensic laboratory, Immigration and E-Cops project.

In these contracts, no deliveries were made but government made payments that were subsequently returned. All the four suppliers — Silverson Establishment, Forensic laboratories Limited, Anglo Leasing and Finance Limited and Infotalent — are entities owned by Deepak Kamani.

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