News

Written by Albert Muriuki

The planned sale of Safaricom shares through an initial public offering has suffered a major set back following revelations that one of the financial bids for the advisory services had been opened.

Sources told the Business Daily that the documents belonging to the Mohammed & Muigai-led consortium that is bidding for legal advisory services had been opened last Wednesday, more than a week before the official opening scheduled for Thursday.

The debacle, which people familiar with bidding processes say is unprecedented, sent Treasury officials into a frenzy that included an urgently convened meeting with all the bidders to forestall a crisis.

A breach of this magnitude should force the transaction managers to cancel the process altogether and call for fresh bids, but Treasury is said to have struck a deal with the bidders to avoid such a fallout.

Unauthorised opening of bids is a punishable offence whose remedies are left to the discretion of the courts, according to the Public Procurement and Disposal Act.

“Anyone who opens any sealed bid, including such bids as may be submitted through the electronic system and any document required to be sealed, or divulge their contents prior to the appointed time for the public opening of the bid or documents is guilty of an offence,” the law says.

It was not immediately clear how the crisis meeting chaired by Investment Secretary Esther Koimett proposed to deal with the matter or what explanation was given to the bidders.

This up front opening of bid documents raises the incredible spectre that one of the bidders, working in cahoots with a Treasury official, had tried to get prior knowledge of the rival’s financial offer.

Under the evaluation criteria, the lowest financial bidder gets 30 outright points, which in a competitive field would be hard to recoup from the other benchmarks.

Knowing what one party has quoted can influence the evaluating panels ranking of other areas. During the Kenya Re IPO, the difference between the winning bid and two others was less than two percentage points.

To its credit, Treasury rolled out a damage control mechanism after the anomaly was discovered, calling the competing consortia to the table to agree on the way forward. The other bidders are Hamilton Harrison and Mathews, Kaplan and Stratton and Muriu Mungai consortia.

At a final meeting held yesterday and chaired by Ms Koimett, Treasury sought undertake that the tampering would not affect the outcome of the evaluations.

However, this might not block future legal challenges from an aggrieved party which would require the legal brief to be retendered, possibly pushing the Sh34 billion flotation beyond the scheduled October date.

When contacted by the Business Daily, Ms Koimett stated that she could not discuss the issue, citing public procurement procedures. “I am barred by law to discuss issues pertaining to an ongoing evaluation,” she said.

Investigations by the Business Daily have established that the opened financial bid was for a legal consortium that had raised legal queries in previous IPOs.

In response, the Investment Financial Committee called an emergency meeting on Friday last week calling all the legal bidders to Treasury offices to discuss the issue.

It is understood that in the meeting, chaired by Ms Koimet and attended by Richard Omwela of Hammilton Harrison and Mathews lead consortia, Prof Githu Muigai of the Mohammed & Muigai consortia, John Syekei of Muriu Mungai Consortium and Oliver Fowler of the Kaplan and Stratton lead consortium, discussed the effect of the incident and what actions to take.

No concrete decision was taken on Friday and a meeting was rescheduled for Monday where the affected consortium decided not to bring any charges or complaints.

The Financial bids were to be opened on Thursday this week after all the other evaluations had been carried out. The incident brings into sharp focus the integrity, security and transparency of the bidding process for the largest IPO in East Africa and the tendering process of IPOs generally.

A source told the Business Daily that Treasury had called all the bidders for the legal professional services to the meeting on Friday to dispel notions of underhand dealings.

The incident will however nonetheless raise suspicions among the bidders of illegal dealings at the Treasury to favour specific consortia. Some of the bidsIt is not known how someone was able to go through the whole processes of opening the box where the bids are placed and then go on and open the file containing the financial bids for the legal consortium.

Being by far the most lucrative bid for professional legal services, the incident is even more suspicious since the evaluation committee for the privatization has been reassembled and is not the same as it used to be in previous IPOs.

In past IPOs the committee that evaluated the bids tendered by the various firms consisted of five members from Treasury, and one each from the Attorney General’s office and the body being privatized.

But a source from Treasury said that for the Safaricom IPO, the committee had been reassembled and is now made up of two members each from Safaricom, Telkom and the Attorney General Office and only one from Treasury.

“The thing is that one might tend to assume that the bid was “inadvertently” opened so that it could be assessed how much had been bid and thus give marks to a favoured bidder accordingly,” said a lawyer versed with the matter but who declined to be named. If the consortium had decided to throw a spanner into the works, the whole processes would have been delayed as the bids would have had to be re-tendered.

It has also emerged that the bidding for provision of the legal services had been fraught with irregularities even before the tenders were floated. Apparently, one of the bidders had sent a letter of clarification to Ms Koimett earlier seeking clarification with regard to a legal query.

Under the Public Procurement and Disposal Act, a procuring entity may request a clarification of a tender to assist in the evaluation and comparison. A clarification may however not change the tender’s substance. Surprisingly, the Investment Secretary did not get back to all the bidders although prudent legal practice requires her to do so.

“That is highly irregular and unheard of in good practice, and in an IPO with such a level of high public interest and scrutiny, the Investment Secretary should have known better than to give clarification to all the other bidders and exclude only one bidder,” said the lawyer.

The Safaricom IPO is of great importance to the Government since it will be a major source of money to bridge the huge budget deficit. It is also the most valuable IPO in regards to payments of professional fees for advisory fees rendered.

Currently, the Government has a budget deficit of Sh140 billion. The Finance Minister is targeting to get Sh37 billion from the privatisation process. At Sh34 billion therefore, the Safaricom privatisation programme is of crucial importance to the Finance ministry more than any other. The recently concluded Kenya Re IPO’s target was Sh2 billion

The latest controversy at Treasury is one of many that has been dogging the Safaricom IPO. Earlier, a report by the Public Investment Committee had recommended that the IPO be postponed until the real identity of a shadow company, Mobitelea, that has shareholding in Safaricom is established.

Similarly, Langata MP Raila Odinga, has said he would bring a suit in court this week to stop the IPO on the grounds that the Finance Minister is going on with the IPO in disregard to the Privatisation Act passed in October 2005. Both Mr Amos Kimunya, the Finance Minister and Ms Koimett have maintained that the IPO will go on despite the challenges being raised by its opponents.