In Summary

  • "The Government has exhausted all judicial options to forestall payment of the judgement debts..."
  • "...The President has had to make a painful decision on what is the greater evil: either the money or put the country’s economy at risk."

GOVERNMENT STATEMENT ON THE SETTLEMENT OF TWO FOREIGN JUDGEMENT DEBTS AGAINST REPUBLIC OF KENYA: FIRST MERCANTILE AND UNIVERSAL SATSPACE

I. BACKGROUND TO THE PROBLEM OF THE SECURITY CONTRACTS

1. The start of the “Anglo Leasing Scandal” was the contracting of a loan in December 2003 by the Department of Immigration which was then under the Office of the Vice President and Ministry of Home Affairs. The purpose of the loan was to enhance security by modernising the issuance of secure passports and purchase of security equipment for use at Kenya’s borders. The procurement process was however abused and a company going by the name “Anglo Leasing and Finance Company Ltd” was awarded the tender and Ksh 93.0 million paid up-front. This became public on 4th May 2004 when the matter was raised in Parliament. Subsequent review revealed that in the external public debt database, there were a total of 18 contracts similar to the one arranged by the Anglo Leasing and Finance Company Ltd and from then on these loan contracts were labelled “Anglo-Leasing”.

2. Investigations revealed that the contracting of loans similar to “Anglo Leasing” had been going on in the Government for a long time. In August 2004, the Ministry of Finance suspended payments of all the loans similar to Anglo Leasing and instructed the Controller and Auditor-General to carry out a special audit.

3. The Public Accounts Committee (PAC) also investigated the matter and on 30th March 2006, its chairman tabled the report on “Special Audit on Procurement of Passport Issuing Equipment”. The report was adopted by Parliament on 4th April 2006. It covered all the 18 contracts and recommended that all contracts that had not been commenced should be terminated while those which had commenced should be renegotiated with strict adherence to the procurement regulations and procedures. It also recommended investigation and prosecution of all implicated.

4. The Controller and Auditor-General completed his report which was tabled and adopted by Parliament in May 2006. The findings of the report by Controller & Auditor-General were that:

  • Procurement laws and regulations were violated
  • The projects were overpriced
  • In some cases no loans were extended by the creditors and the Government of Kenya (GoK) was paying interest on its own funds.

The report recommended that professional valuation of works, goods and services to determine value for money. It also recommended that Government of Kenya negotiates with the creditors.

5. In January 2007, the Ministry of Finance contracted an independent firm, PricewaterhouseCoopers (PwC) to conduct forensic audit and valuation of the contracts. In July 2007, the PwC revealed irregularities including

  • (i) breach of the law as it relates to public procurement and public financial management
  • (ii) gross over-pricing of works, goods and services (iii) evidence of pre-financing (i.e. up-front payments)
  • (iv) possible financial risk exposure to Government on issued Promissory Notes and
  • (v) evidence of corruption and abuse of office.

6. From the PwC and other previous reports, it emerged that there were

  • (i) Cancelled Contracts
  • (ii) Fully Paid contracts and
  • (iii) Partly completed contracts. It was further noted that thirteen (13) contracts were signed during the Kanu regime while five (5) were signed during the NARC administration.

II. STATUS AND PROPOSALS FOR RESOLUTION OF THE SECURITY CONTRACTS

7. The estimated value of the projects are based on the valuation work done by PwC in 2007. As indicated earlier, the contracts are grouped into three broad categories of

  • (i) Cancelled Contracts
  • (ii) Fully paid contracts and
  • (iii) Partly completed contracts. Details of each are presented in paragraphs 9-11.

8. Cancelled Contracts: Four (4) contracts with a value of Ksh 18.9 billion were cancelled when the Anglo-Leasing Scandal broke out and the money that had been paid amounting to Ksh 1.0 billion was refunded. The four contracts are shown in the table below:

Contract Name Purpose Contractor/Financier Refund Ksh million

1 Forensic Sciences Laboratory for CID Construction of Forensic Laboratories and supply of Forensic equipment Forensic Laboratories Ltd/ Anglo -Leasing and Finance Ltd 375

2 Security Vehicles for Kenya Police/ Silverson Establishment Lease purchase of 994 Security vehicles and assorted spares Leyland Exports/ Silverson Establishment 73

3 Kenya Police Law & Order (E-Cops) /Infotalent Supply, installation and commissioning of the Police Computer Project Infotalent Ltd 509

4 Immigration Security & Document Control System (ISDC) Secure Passport, Visa issuing and border control systems. Anglo Leasing and Finance Ltd 93

Total Refund 1,051

9. Fully Paid Contracts: Three (3) contracts with a value of Ksh.6.8 billion had been completed and the money paid out.

10. The three contracts are shown in the table below:

Contract Name Purpose Contractor/ Financier Project value Ksh million

1 Kenya Prisons Security & telecommunication Project Phase 1 Supply, installation and commissioning of a dedicated security communication network LBA Systems Ltd
1,845

2 Kenya Police Airwing Support Project 1 Supply of four helicopters to Police Airwing Sound Day Corp /Apex Finance Corporation 2,700

3 Kenya Police: Supply of Security Equipment Addendum 2 Supply of Police Security equipment. Sound Day Corporation 2,250

4 Total 6,795

11. Partly Completed Contracts: Eleven (11) contracts with a total value of Ksh 30.6 billion are at various stages of completion.

a) There are six (6) contracts with a value of Ksh 16.6 billion that pose greatest risk to the Government of Kenya. It is estimated that the Government of Kenya has a claim of Ksh4.0 billion on these contracts as shown in the table below:-

Name Purpose Contractor/ Financier Amount for Recovery (Ksh m)

1 Kenya Police: Supply of Security Equipment Addendum 3 Supply of Police Security equipment. Sound Day Corporation. (1,057)

2 Kenya Police Airwing Support Project 2 Technical service to the Kenya Police Airwing helicopters Apex Finance Corporation (126)

3 National Early Warning Security System (NEWSS) for Meteorological Department Supply and installation of an early warning system for meteorological department. LBA Systems Ltd. (1,050)

4 Kenya Prisons Security and Telecommunication Project Phase 2 Supply of Prison Security equipment. LBA Systems Ltd. (522)

5 Multi-channel Security Telecommunication System for Administration Police Supply, installation and support for secure communication for Administration Police and Provincial Administration Globotel Ltd/
Midland Finance Ltd (1,071)

6 Modernization of Police Equipment and Accessories Supply of police equipment and other accessories Sound Day Corp/ Apex Finance Corporation. (184) Total (4,010)

b) Five (5) contracts are in the category of partly completed contracts. Settlement has been reached in two (2) of the contracts.

• The two (2) settled contracts are shown below.

Name Purpose Amount paid

1 Project Nexus (Defence Command Centre) Construction of a command and control center for Defence Successfully negotiated
€14m (Ksh1.54 bn) paid

2 Naval Ship -Oceanographic Survey Vessel Construction and delivery of a Naval Vessel. Successfully negotiated
€34m ( Ksh3.74bn ) paid

• The two (2) contracts which have been under litigation/mediations and which are now subject of court awards are shown below.

Name Purpose Judgement amounts

1 Broadband Network – PCK VSAT Equipment / First Mercantile Securities Corporation (FMSC) Supply for telecommunication equipment for networking all the post offices. Judgment: $8.3m (Ksh 722m)

2 Bandwidth Spectrum and Network Operation/ Universal Satspace (USS) Supply of bandwidth spectrum and service for ten years Judgement: $8.1m (Ksh705m)

• One Project, under National Intelligence Services (NIS) was not valued due to national security considerations.

III. BACKGROUND TO THE TWO JUDGEMENTS

12. For the two cases which have been under litigation judgements have been entered against the Government of Kenya in Geneva, Switzerland, and in London, UK. The details of the cases are as follows:-

a) Broadband Network Project(First Mercantile Securities Corporation)

The facts of this case are as follows:

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