Rotich now says Treasury has no list of Eurobond projects

The National Treasury cannot show any infrastructure that consumed the Eurobond funds, Cabinet Secretary Henry Rotich said last Thursday, walking away from an earlier promise to lay bare details of the mega spending at the centre of political row with opposition leader Raila Odinga.

Mr Rotich told the Business Daily that the Sh196.9 billion net proceeds from the sovereign bond issue and tap sale were lumped together with other government revenue and disbursed to ministries, making it difficult to pinpoint specific projects.

“The ministries cannot differentiate whether the money they have received from the Exchequer came from VAT, income taxes, customs duties, excise taxes, domestic borrowing or the Eurobond,” Mr Rotich said in an interview, adding that the Treasury’s role is to disburse funds to the ministries according to their request and in line with the approved budgets.

Mr Rotich said line ministries were the custodians of their spending and are accountable to Parliament – effectively exonerating his department from responsibility over use of the Eurobond proceeds.

The Treasury’s about-turn came a fortnight after Mr Rotich issued a three-week ultimatum to all State departments to publish details of how they spent Eurobond proceeds wired to them in the fiscal year ended June 2015.

The minister’s failure to explain the use of the Eurobond funds is compounded by the fact that Kenya is due to make its first interest payment on the Eurobond amounting to Sh9 billion this month, and taxpayers are scheduled to fork out Sh16.4 billion to settle part of the principal amount by the end of current fiscal year in June 2016.

The information memorandum that the government issued ahead of its going to the international debt market to raise the $2.75 billion says the bond was to finance general budgetary spending and infrastructure projects such as expansion of airports, sea ports, roads, pipelines, and geothermal plants.

But all public communication on the borrowing referred to infrastructure financing as the sole reason for seeking debt financing from the international markets.

The Treasury did not show the Kenyan public the Information Memorandum before it sought debt financing from international markets. 

Kenya in June 2014 floated a $2 billion sovereign bond on the Irish bourse and later in December went back for an additional $750 million in what is technically known as a tap sale.

READ: Taxpayers lost interest on secret Eurobond account

Proceeds of the Eurobond were initially used to retire a costly $604.5 million syndicated loan Kenya had borrowed from commercial banks in 2012 to fund development projects.

A further $1.39 million went into settling the expenses relating to transaction, payment of advisory fees, bank charges and federal taxes.

This means that Kenya received $2.21 billion (Sh196.9 billion) as net proceeds of the Eurobond to finance mega public works.

The strange admission by the Treasury that it cannot identify projects financed by the sovereign note came in the middle of a heated public debate on the government’s spending of the Eurobond funds.

Kenya’s public prosecutor has ordered investigations into the handling and spending of the sovereign bond cash, in response to persistent claims by Mr Odinga that Sh140 billion Eurobond funds were ‘missing’.

Mr Odinga has also challenged the Jubilee government to table the list of grand projects it financed with the Eurobond money.

“We are not convinced that the government could have absorbed another Sh197 billion, and even if it were do so, we would question the wisdom of spending such a huge amount of money on ‘non-priority’ projects,” Mr Odinga said in a statement.

He pointed out that Kenyans can clearly see the Sh31 billion funds spent on the 50.4-kilometre eight-lane Thika Superhighway but have yet to be shown what the Sh197 billion built.

“We have asked the Treasury to provide a breakdown of the projects that this money was put into so that we can verify that they exist and that they are good value for money,” he added.

Kenya’s total public debt had ballooned by 50 per cent under President Uhuru Kenyatta to Sh2.84 trillion or 49.75 per cent of GDP by June this year compared to Sh1.89 trillion equivalent of 42 per cent of GDP in June 2013.

Mr Kenyatta’s insatiable appetite for debt has seen Kenya chalk up another $600 million (Sh60 billion) short-term syndicated loan in October to ease a government cash crunch in the face of mounting recurrent expenditure obligations, including payment of salaries, wages and allowances to public officials.

John Githongo, a former anti-graft czar, said failure by the government to account for the massive cash borrowed from the international markets would make the Eurobond Kenya’s “greatest heist” outshining other mega scams such as Goldenberg and Anglo-Leasing.

All ongoing infrastructure projects have been funded by separate debts that have only added weight to future debt servicing obligations.

The 495-kilometre Mombasa-Nairobi standard gauge rail line, under construction, is, for instance, being financed through a $2 billion commercial loan from the Chinese government while Japan has lent Kenya ¥26.7 billion to fund the building of a second terminal at the port of Mombasa expected to be completed by 2018.

READ: Quick construction of the SGR pushes up Budget deficit

KenGen’s $1.3 billion 280 MW geothermal project at Olkaria — Africa’s largest steam development — was funded by multilateral lenders, including the World Bank, Japan International Co-operation Agency, European Investment Bank, French Development Agency (AFD) and the German Reconstruction Bank (KfW).

Kenya Pipeline in July turned to commercial lenders for a $350 million syndicated loan to bankroll the construction of a new 450-kilometre Mombasa-Nairobi oil pipeline to replace the current one in use since 1978.

Israel has committed to finance a large portion of the ambitious Sh400 billion Galana-Kulalu one-million-acre irrigation scheme which has already harvested the first crop from a 10,000-hectare model farm.

Mr Kenyatta has announced that he’s seeking investors to fund the $18.1 billion Lamu Port—Southern Sudan—Ethiopia Transport (Lapsset) corridor project under a public-private partnership model.

A majority of UhuRuto’s infrastructure-focused election pledges are yet to take off, including the planned commuter light-rail in major towns, a new international airport at Isiolo, and five new national stadiums.