News

Story by DAVID OKWEMBAH

The International Monetary Fund (IMF) has advised Kenya to enter into talks with Anglo Leasing-type companies if it wishes to avoid paying more than Sh50 billion for dodgy contracts.

The advice was given by the fund’s assistant director for the African Department, Mr David Andrews, who has been in the country to check progress in various fields. The position taken by IMF contradicts the one adopted by the Minister for Finance, Mr Amos Kimunya, who maintains that the Government would not honour promissory notes issued in payment for funny contracts.

Mr Kimunya told Parliament early this month that the promissory notes had been cancelled and would not be honoured. His remarks came after a non-governmental organisation, MarsKenya, claimed that Kenya might still be honouring promissory notes issued in relation to the construction of the Criminal Investigations Department (CID) forensic laboratories.

One of the promissory notes valued at Sh190 million was due on February 17, 2007 for the CID project which was procured from Anglo Leasing and Finance company for Sh4.3 billion.

Although the company had been paid a commitment, fee no work had started by the time the Government cancelled the 18 contracts. Mr Andrews, who has been reviewing the country’s budgeting process, said the IMF was waiting for the outcome of the PricewaterhouseCoopers investigation on the 18 contracts. He is expected back in November. The IMF official met members of the civil society on Thursday and said the organisation was well aware of the promissory notes issued by the Government in relation to the contracts.

Mr Andrews said of the promissory notes issued by Kenya to the phantom suppliers and financiers: “There may very well be obligations on the 18 security related contracts. Establishing how much is the function of negotiations with suppliers and the court cases against the government.” Despite this caution to the Government, the ping pong game between Treasury and the Kenya Anti-Corruption Commission (KACC) over the promissory notes continues. While the Permanent Secretary for Finance, Mr Joseph Kinyua, told members of the civil society that the promissory notes were with KACC, the anti-graft body denied the claims.

“Promissory notes involving the 18 contracts are being handled by Treasury,” Mr Nicholas Simani of KACC told the Sunday Nation. He referred any queries on the matter to either Mr Kimunya or the PS, Treasury. The Treasury, which has been shaken by the interest donors and the international media have shown in the issue, has been trying to mend fences with the civil society. It also follows a ruling in Britain which ruled that promissory notes are transferable to third parties and the issuing government must meet its obligations.

Mr Kinyua met a civil society delegation led by Mwalimu Mati 10 days ago and disclosed that the Government was negotiating with the suppliers involved in the 18 contracts. He said this was along the lines that the Government had adopted in the 1990s when it renegotiated with the French government regarding the Turkwell Gorge project after IMF informed Kenya that it could not cancel the contract. He said there were no financiers to negotiate with “because there was no credit to Kenya.”

The PS revealed that the use of promissory notes had been introduced by former President Moi’s government to circumvent IMF and World Bank conditionalities in the 1980s. He described their introduction as a “big mistake”. Mr Kinyua, who was accompanied by top officials from Treasury, including the Economic Secretary Dr Kamau Thugge and head of debt management Mr John Murungu, said the ministry has been receiving demands for payment from all kinds of people.

“Some of them you hear through a friend and you say, ‘Do it in writing.’ Some I asked, ‘Who are you in the first place?’” the PS said. He added that the use of promissory notes had been abolished by the Government through a circular issued by Treasury. He promised to make it available to the media. However, Mr Murungu, in a subsequent meeting with Mr Andrews, said the circular had never been issued.

Nairobi lawyer Mr Evans Monari said an attempt by Kenya to default on the issued promissory notes may result in a suit. “The result would be that, although merely defending itself, Kenya would have to incur a huge expenditure,” he added. Mr Monari warned that even where successful action may be taken, the court would most likely order that the issuer of the promissory note pays the amount to the bearer and then bring a separate action to recover the money due to fraud.

The Government is already facing two suits from the phantom companies in The Hague and Nairobi. In the Hague suit, Nedemar BVI (British Virgin Islands) attached the Kenyan embassy and its assets in Netherlands over a Sh3.6 billion contract for the construction of the NEXUS (Defense Command Centre) in Karen. The Government was forced to hire a British lawyers to defend it in the case being heard by the international court.

In the Nairobi case, Universal Satspace pulled a quick one on the Postal Corporation of Kenya (PCK) by switching off its satellite links. The corporation was forced to approach mobile phone provider, Safaricom, to come to its rescue. Universal Satspace has also filed an arbitration case regarding the same contract in a London court.

In both cases, the government has entered into litigation and negotiations with the phony companies. In the Nedemar BVI case, the company provided documents to the court showing that it had handed over the project to the Kenya Government.