21 January 2014

Kenya: Treasury Contradicts Kamau On Railway Project Cost

Photo: Nation
Railway line construction (file photo).

Nairobi — Controversy over the multi-billion shilling standard gauge railway project took a new twist after National Treasury Secretary Henry Rotich contradicted his Transport and Infrastructure counterpart Michael Kamau on the total cost of the four-year project.

Rotich told Parliament's Public Investment Committee that the project would cost Sh447.5 billion which differs from the Sh327 billion that Kamau disclosed to the committee on Monday.

National Treasury Principal Secretary Kamau Thugge went on to explain the variation exists because the Treasury's figure contains all the interest premiums and commitment fees over the next 20 years.

It also emerged during Tuesday's proceedings that the Treasury signed the deal based on a legal opinion of a junior officer at the State Law Office which contradicted that of the Attorney General who opposed the manner in which the procurement was done.

Rotich said Kenyans will pay about Sh13 billion as insurance premiums for the loan from the Chinese government to construct the Sh327 billion railway line from Mombasa to Nairobi, at a rate of 6.9 percent.

He said the Export-Import Bank of China would fund 85 percent of the project.

The National Treasury Secretary also revealed that the loan was divided into two parts, where Sh137.6 billion would be a concessional line that will attract an interest of two percent per annum.

The remaining Sh140.4 billion will be provided through a commercial loan that will attract 4.1 percent interest and has a repayment period of 15 years, including a five-year grace period.

The commercial loan will also attract a 0.75 percent management fee payable upfront, and a similar percentage as commitment fee on the disbursed amount. In total, this brings the total cost of credit to about Sh362 billion.

Attorney General Githu Muigai who appeared before the committee on Tuesday afternoon said he has never issued a legal opinion on the controversial railway tender.

Muigai told the PIC the letter addressed to the Public Procurement Oversight Authority and whose contents have been extensively reported by the media has been taken out of context since he was issuing a general opinion.

The government's legal adviser said that he was replying to queries raised by the PPOA Managing Director where he advised him on the Authority's mandate of enforcing public procurement laws amid claims that certain entities are using procures modes to avoid competitive process.

Muigai had advised that the process used to award the China Roads and Bridges Corporation (CRBC) the contract to build the railway is not backed by Kenyan law.

But despite Muigai's misgivings, the Public Procurement Oversight Authority (PPOA) approved the project even after seeking the AG's legal opinion.

In a letter to the procurement watchdog, Muigai noted that there is no method for selecting suppliers known as a "government-to-government" contract.

"In cases where the Government contributes from her own resources, and in any form, to any procurement process under such agreement or treaty, the Act applies," the AG's letter dated April 30, 2013, reads in part.

"It is not good practice to read one portion of the law in isolation and with disregard to other parts of the same law," the letter adds. "More worrying, however, is the increasing phenomenon of government ministries, departments and agencies employing the G-to-G tool to circumvent the requirements of the Public Procurement and Disposal Act 2005," the AG notes in the letter.

Meanwhile, the Public Investment Committee has issued summonses requiring officials of China Roads and Bridge Corporation which was awarded the tender the carry out the standard gauge railway project to appear before it next Tuesday.

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