Joho empire threatened as audit queries hit family port business

Former Mombasa governor Hassan Joho. [Beverlyne Musili, Standard]

The business empire of the family of former Mombasa governor Hassan Joho has come under threat following the cancellation of leases and contracts worth billions of shillings linked to the port of Mombasa.

The Sunday Standard yesterday obtained a report by the Auditor General questioning the contract between the Joho family’s flagship company, Autoports Terminal Limited (APTL), and Kenya Railways Corporation (KR) for the transportation of cargo by the Standard Gauge Railway (SGR).

In the special audit report dated August 10, the OAG said the contractual agreement was not transparent and could expose the government and taxpayers to litigation risks.

The report said KR could be losing revenue due to the government as a result of irregular leasing of the Nairobi Freight Terminal (NFT) to M/s Autoports Freight Terminal Limited.

Land lease review

Joho’s family has also lost the battle to develop the second grain bulk handling terminal at the port of Mombasa after Kenya Ports Authority decided to review all land leases at the port.

Currently, Portside and KPA are locked in a legal battle after the latter suspended the 20-year lease granted to the firm on June 30, 2022. KPA leased shed five, which is 100,000 square feet, and shed six which is 70,000 square feet, in a deal that was to start from July 1, 2022.

According to court documents, the warehouses that the family wanted to construct at the port were to handle tea cargo. 

Meanwhile, Autoports has lost a deal to transport South Sudan cargo by SGR from the port and handle it at the NFT that was leased from KR.

SGR cargo train exits the Port of Mombasa. [Maarufu Mohamed, Standard]

The audit highlighted irregularities in KR as a procuring entity entering into a contract with M/s Autoports on terms that were not approved by the board. 

It concluded that the procedure followed to have a contractual agreement between KR and M/s Autoports Freight Terminal Limited was not transparent and lacked the requisite documents with a clear audit trail as opposed to the similar agreement between KR and M/s Grain Bulk Handlers Limited (GBHL).

“There were red flags considering the contradicting communication evidenced in the board minutes, the appeal by M/s Autoports, and the communication by KR on the board resolutions,” said the report.

The audit concluded that KR did not adhere to the provisions of section 11A of the Kenya Railways Act, Cap 397, the Public Procurement and Asset Disposal Act, 2015, and the Public-Private Partnerships Act, 2013 in entering into the lease agreement with M/s Autoports Freight Terminal Limited.

It noted that Autoports was operating KRAs assets to perform a function statutorily reserved for the KR as opposed to another private firm which was building up infrastructure on vacant land to undertake its core business. “As a result of the irregular leasing of the Nairobi Freight Terminal (NFT) to M/s Autoports Freight Terminal Limited, the Kenya Railways Corporation could be losing revenue due to government,” said the audit.

The auditor general recommended that the Ministry of Transport and KR should be held responsible for failing to ensure a comprehensive framework was developed for the identification and implementation of such engagements to be open to interested stakeholders to ensure fairness, transparency, equity, and cost-effectiveness.

The report also recommended that the ministry and KR should be held accountable for failing to conduct an independent valuation before the execution of leases for an investment in a capital project of this magnitude.

“These infractions could have exposed the government, taxpayers, and other partners for value for money and litigation risks,” said the report.

Mitigating risks

It recommended that KR should ensure independent risk assessments are conducted before the execution of leases and contracts.

“This will ensure the government is mitigated against risks of paying damages/penalties for nonperformance or non-delivery,” said the audit. 

Containers at the Port of Mombasa. [Gideon Maundu, Standard]

It was also recommended that the parent ministry should ensure the involvement of all key stakeholders within the transport sector in negotiating and signing such leases and providing for special rates in the agreements.

According to the report, this will mitigate the risks of committing the government and private investors to performance indicators that cannot be achieved.

“The government should build the technical and financial capacity of Public Finance Management Officers in implementing projects through Public Private Partnerships (PPP). This will ensure efficiency and effectiveness in executing such projects,” the report added.

The auditor general recommended an investigation to be carried out on the irregularities or anomalies noted in the contracting process highlighted in the special audit report and action taken on them.

Monopoly

Last month, the government ended Autoports’ monopoly to handle the South Sudan cargo after nominating Compact Consolbase, Mombasa Container Terminal, and Mitchell Cotts to handle the cargo at the port. The firm had enjoyed the monopoly to handle the South Sudan cargo for about two years at the port. 

In a letter dated July 25, Transport PS Mohamed Daghar said South Sudan cargo could be handled by any KRA. He also said the South Sudan government has allowed several agencies to clear and forward cargo.

Another family company, Portside Freight Terminal, is in court after the government, on March 3, stopped it from developing a plot inside the port.

The government says it is reviewing all leases for prime land in the port allocated to private firms.

It said the lease did not comply with the Constitution and the provision of the Public Procurement and Assets Disposal Act 2015.