Kenya commits to pay us$12.8 million (ksh 840 m) to overhaul Anglo Leasing helicopters!

Something is brewing at the Kenya Police Airwing and it ’s not smelling too good.  Documents have come to light regarding the award of a US$12.8 million (Ksh 840 million) contract to overhaul 4 Russian built helicopters operated by the Kenya Police Airwing. 
It would appear that 9 years after they were bought in 1998, these 4 helicopters have consumed close to US$ 15 million each and Kenyans are now being asked to spend an additional US$ 12.8 million to overhaul them.  This calls for an immediate explanation from the Government of Kenya as to why we are throwing good money after bad, servicing these second hand helicopters which have done nothing to improve either our debt or security situation. 

Kenyans are also entitled to know what action is contemplated against the public officers (Ministers, Permanent Secretaries and Police Commissioners) over the years who have charged our collective account with what is clearly a bad deal worth over US$ 60 million or Ksh 4.2 billion.
Until these documents surfaced, as far as we knew, the matter of the junk helicopters was at a rest.  The position, as we knew it to be, was that as of June 30th 2006, the outstanding debt related to the helicopters remained at just under Ksh 350 million and that this debt was recorded as being owed to J.S. Schroder Bank. It was our hope that the investigations by Kenya Anti Corruption Commission and the special assignment of Price Water House Coopers would eventually reveal the truth about these expensive helicopters, and which public officers and their associates we would be demanding to see punished for the misadventure.
What we could never have imagined is that in 2007, the helicopters would still be used to appropriate even more tax money (actually Ksh 840 million) in what is a dubious contract to overhaul them. 

OVERHAUL CONTRACT 2007:  The new 3-year overhaul contract was signed on Wednesday, February 7th 2007 following a tender process initiated by the publication in the Kenyan press of Tender No. KPAW (6) 2006 – 2009 – Overhaul of Four (4 NO.) Mi-17 Helicopters, Systems, Components, Engines and Cockpit/ Avionics Upgrade using Restricted Tender.

The contract was awarded to the highest bidder which is against procurement rules.  Research shows that the winner Israel Aircraft Industries, who quoted $12,820,753, does not deal with the MI 17 helicopter, and won with a bid more than US$4 million above the lowest bid.  This award is fraud of the highest order and is very risky for Kenyan airspace.

BID ANALYSIS: The following bids were opened on October 3rd 2006 in Nairobi before an evaluation committee including representatives of the Kenya Civil Aviation Authority, Kenya Air force, Kenya Police Airwing, Kenya Wildlife Services and the Police Headquarters:

No.	Bidder	Country	Amount	Remarks
1.	UT Air	South Africa	$9,342, 628	No Bid Bond
2.	Lom Praha S.P.	Czech Republic	$9,971,184	With Bid Bond
3.	Israel Aircraft Industries	Israel	$12,820,753	With Bid Bond
4	JSC Saint Petersburg Aviation Repair Company (SPARC)	Russia	$8,813,760	With Bid Bond
5	Radom Aviation Systems	Israel	$9,945,570	With Bid Bond

It should be noted that the previous tender for the same overhaul purpose was canceled in July 2006 for irregularities which would have lost the Government over Ksh 100 million.  At that time the Commissioner of Police, General Mohammed Ali, indicated that the lowest bidder then, JSC SPARC, was not licensed to deal with Mi 17.  Apparently this is not the case.

In what must be a rank irony, JSC SPARC which lost out in the July 2006 tender and the February 2007 award, is now claiming in an April 2007 letter to the Kenya Anti Corruption Commission that Israel Aircraft Industries have approached them to sub-contact the work to JSC SPARC.  JSC SPARC has refused to accept such subcontract and have written to the Kenya Anti Corruption Commission to this effect. The Kenya Anti Corruption Commission has yet to respond to JSC SPARC.  In the meantime the purported overhaul has yet to begin almost 5 months after Israel Aircraft Industries won the contract.

Queries must also be raised about a very curious full page advert taken out by the Kenya Police under the signature of the Commissioner of Police in December 2006.  The paid statement may have served to deceive as it set out to analyse how each of the tenderers fared in the evaluation of the overhaul contract.  A reading of the statement shows that the overhaul is more akin to a reconstruction of the helicopters.  Startlingly, the statement suggests that 9 years after their purchase one of these second hand Russian helicopters had clocked the manufacturers recommended overhaul event horizon of 1,500 flying hours.  It’s obvious they spent most of their time on the ground!

The statement goes to great lengths to justify the award of the overhaul contract to the highest bidder.  An immediate explanation of why this should be so is called for, especially in view of the chequered history of these helicopters which have to date cost Kenyans US$ 60 million and counting, as can be seen below.

ABOUT THE OTHER RUSSIAN HELICOPTER CONTRACTS (1998 – 2002):
PURCHASE:  In 1998, the Police bought 4 second-hand Russian Helicopters (Mi. 17) from a company called Sound Day Corporation for US$ 36 million. Ultimately, these same helicopters have cost Kenyans over US$ 60 million – and the costs are still rising.  The money for the initial purchase was supposedly advanced to the Government by a financier called Apex Finance Corporation. The trouble is both Sound Day and Apex are listed by the Controller and Auditor General Report on Security Related Procurement as phantom entities. 
Each of the helicopters cost US$ 9 million.  The Controller and Auditor General, Evan Mwai, stated that “from the evidence and information gathered it is evident that the contract was grossly inflated.”  His research found that Kenya should have paid no more than US$ 5 million for each bird as helicopter pilots refer to these machines. Net loss therefore to the Kenyan public on this first contract was at least US$ 20 million.  No one has been held responsible – not the Ministers for Defence and Finance, their respective Permanent Secretaries nor the Police Commissioner of the time.

Scandalously, both the supply and credit agreements for the purchase of the 4 second-hand helicopters have been paid in full.  Thus Sound Day Corporation got its cash and by promissory notes Apex Finance was “repaid” the “loan” plus 6.8% interest it is claimed Kenya obtained from it.  Scrutiny of the External Public Debt Register (EPDR), where all external loans are recorded confirms this position.  However, the creditor listed in the EPDR was not Apex Finance but another private bank called J.S Schroder. What must surely have happened is that the non-existent financier (Sound Day) that allegedly lent Kenya the money to buy these helicopters discounted the debt and handed over the irrevocable promissory notes to J.S. Schroder which collected. If Kenya was actually lent money, this would be a moot point. But how can we be sure that a non-existent financier actually lent us any money? If it didn’t why did we repay at all?  This calls for an explanation from Treasury and the Office of the President.

WARRANTY MAINTENANCE:  Not content with bilking the public once, in 2002, the same two non-existent financiers and suppliers (Sound Day Corporation and Apex Finance Corporation respectively) were back in business with the Government of Kenya with a contract to provide “operational technical support and warranty services” in relation to the 4 MI 17 helicopters which were now grounded. This time around Apex Finance purportedly lent the Government US 12.8 million to pay the spectral Sound Day Corporation.  This was slightly more that one-third the price paid three years prior to buy the junk helicopters which the Controller and Auditor General had found to be over-priced by a minimum of US$ 4 million each (Ksh 280 million each). Put simply the Government of Kenya borrowed money from a fake financier to buy over-priced helicopters from a fake company and 4 years later allegedly borrowed money (equivalent to one third of what it borrowed to buy the helicopters) to pay a fictitious company to service and maintain the same Kenya Police helicopters.  This second contract is allegedly under investigation by the Kenya Anti Corruption Commission.

The helicopters have been grounded for most of the time they have been in Kenya.  Over time they have been cannibalized one at a time to maintain the illusion that the Kenya Police Airwing still flies them.  This has had almost disastrous results as for example when in February 2004, the Vice President Moody Awori crash landed in one of them on his way to Nairobi from the coast.  Press reports of that time show that Russians had been recruited to fly these dangerous helicopters.

By all accounts, the Mi 17 is a sturdy workhorse helicopter used by air forces and air fleets around the world for cargo transport.  Kenya’s 4 helicopters are overpriced without doubt.  For example, this year Venezuela and India are taking delivery of scores of brand new Mi 17 at unit costs of around US$ 8 million each.  Remember Kenya paid US$ 9 million each for the 4 second hand craft we have had the collective misfortune to “own” since 1998.  Remember also that the helicopters were to be fitted with surveillance equipment (which we are now overhauling) and would have been of great assistance to the fight against crime and insecurity had greed not overtaken patriotism and common sense.
As always the question is how much longer are Kenyans going to be taken for a ride?  Perhaps its time for our very own Junk Helicopters Commission of Inquiry.

Mwalimu Mati
Mars Group Kenya