Treasury under the spotlight as cost of poll kits rises to Sh9.6bn

Government intervention has more than doubled the cost of electronic voter registration kits and added more than Sh7 billion to the national debt, raising fresh questions over the integrity of the process.

Also read: Broke Treasury borrows Sh7.2bn to buy poll kits

The Kenyan taxpayer is enroute to paying more than Sh9 billion for the biometric voter registration (BVR) machines, more than double the Sh3.9 billion price at which the Independent Electoral and Boundaries Commission (IEBC) was to acquire the kits through the aborted tendering process.

Last Thursday’s signing of a Sh7.2 billion loan agreement with Standard Chartered Bank was the clearest indicator of the massive price inflation that has taken place since the Treasury took charge of the poll kits buying assignment in September.

Keen followers of the procurement process were particularly alarmed by the fact that the Treasury signed up a 65 million euros (Sh7.2 billion) loan deal to buy the kits despite the fact that Sipho Morku, the French firm that is supplying the kits had received a Sh2.4 billion downpayment for the contract.

Contrary to expectations that a government-to-government deal that Kenya entered with Canada would lead to a speedy delivery of the kits and cut costs, it has how become clear that there will be no gains on both fronts.

In fact, the government’s takeover of the procurement process appears to have only added layers of bureaucracy that have delayed delivery of the kits and now threaten to derail the polls timetable, besides causing a steady rise in costs that the taxpayers will bear over the next two electoral cycles.

The Sh7.2 billion Standard Chartered loan comes with an interest rate of 5.12 per cent and is payable over 10 years. The cost escalation began immediately the Cabinet announced that Kenya would approach the Canadian government for assistance with the procurement of the kits.

Parties to the deal announced that the 15,000 kits would be supplied at a cost of Sh6.2 billion, Sh2.3 billion more than the Sh3.9 billion price at which the IEBC had awarded the aborted tender.

The signing of a Sh7.2 billion loan agreement for the purchase of the kits even after the Treasury had paid a Sh2.4 billion (40 per cent) deposit for a Sh6.2 billion supply contract raised serious questions on the integrity of the procurement process.

Justice and Constitutional Affairs minister Eugene Wamalwa said the price increase was due to changes in specifications of the gear and the inclusion of generators to power them in areas that do not have regular supply of power, a cost that he said had not been initially included in the earlier pricing.

Mr Wamalwa also revealed that the government was buying more equipment than earlier planned, taking into account the large number of voters that must be registered within the short time remaining.

Asked why the government had turned to a private bank for a loan to finance what was initially framed as a government-to-government deal, Mr Wamalwa said the Canadian government and its agencies were merely the guarantors of the financing facility.

Last Friday, the Treasury said part of the price escalation had been caused by time pressure that has necessitated that the kits be supplied by air and not by sea as earlier planned. That explanation, however, raised yet another big question over the details of the procurement deal.

It has, for instance, not been clear at what the point parties to the loan agreement decided to increase the amount given that it was the result of a protracted negotiation process that took more than three weeks to complete.

A highly placed source at the Treasury, who cannot be named because he is not authorised to speak to the media, told the Business Daily that the cost could rise beyond the Sh7.2 billion (65 million euros) loan signed between the government and the Standard Chartered Bank Plc.

On Friday, it also emerged that senior government officials involved in the loan negotiations did not carefully read the fine print of the original contract between Kenya and the supplier.

It has emerged that the Treasury mandarins and legal experts at the Attorney-General’s office failed to notice a clause in the contract stating that failure to conclude the negotiations by October 15 would force an invocation of a provision that requires the supplier to be fully paid before the kits are delivered.

The officials were caught off-guard when the supplier pointed out to them on October 16 that “there was no way to proceed without delivery of a bankers’ cheque covering the entire cost.”

A team of negotiators led by senior Treasury officials was forced to call an emergency closed-door meeting to discuss the development with most fingers pointing to the A-G’s office.

Finance minister Njeru Githae later complained publicly that the loan contract was ‘skewed’ in favour of the supplier. “The negotiation team at the Ministry of Finance viewed the supply contract as skewed since it meant the Government of Kenya was to pay in advance for all the BVR kits,” said Mr Githae in a statement issued last Thursday.

The government-to-government deal involved the state-owned Canadian Commercial Corporation (CCC) whose role was to identify the suppliers, Morpho Canada. The Export Development Canada (ECD), an associate of the CCC was to guarantee the facility.

Interviews with people close to the deal revealed that Standard Chartered was contracted by CCC to lend the polls kit procurement funds to the Kenya government.

The CCC’s backing of the loan was to facilitate faster processing of the loan to meet the tight deadlines.

Mr Githae also answered the question that many Kenyans have been asking since the onset of the loan deal with the Canadians:– why the Sh4 billion the IEBC had set aside for kits was not being used to pay the supplier.

Mr Githae said the Sh4 billion allocated in the budget was not immediately available, forcing the State to ask for the emergency funding.

The supply contract was negotiated between the IEBC and the CCC and signed on September 24.

The contract document stated that 40 per cent of the price (Sh2.4 billion) would be paid on October 5, another 45 per cent (Sh2.8 billion) on delivery of the kits and five per cent (Sh312 million) on acceptance of the system.

The final 10 per cent (Sh624 million) was to be paid upon generation of a certified register of voters.

The supplier only delivered 196 kits even after receiving Sh2.4 billion and demanded that the whole amount be paid in advance before the remaining kits are delivered.

Failure by Kenyan officials to read the fine print has meant that the Treasury must now pay the entire amount upfront – a deal that Mr Githae has protested to.
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