Canada State firm earns Sh1bn from BVR kits loan deal

The Canadian government is set to earn Sh1 billion (euro 8.9 million) for guaranteeing the Treasury a loan borrowed from Standard Charted Bank for acquisition of the Biometric Voter Registration (BVR) kits.

The figure is revealed in a memo on the Sh7.2 billion loan drafted by Treasury.

It states that the Export Development Corporation (EDC), a Canadian State firm, will be paid the amount in annual premium instalments equivalent to 1.59 per cent of the loan.

“The loan is commercial but it is cheaper than the syndicated loan contracted in May 2012 since EDC is providing a guarantee,” states the memo seen by the Business Daily, adding: “However, there is a charge of 1.59 per cent per annum for the guarantee.”

The loan cash is expected to be released today by Standard Chartered Plc, according to officials at the Treasury familiar with the matter.

The officials said delays by the Interim Electoral and Boundaries Commission (IEBC) in procuring BVR kits was the main cause for the steep guarantee cost, which was incurred because the electoral body was running out of time to get the gadgets seen as crucial for a credible election.

The Treasury officials said IEBC wanted the loan processed quickly because it had failed to get a supplier in advance, as required by procurement regulations.

For such a loan to be processed, the normal time frame would have been six months and not the one month it took to arrange the deal.

“The hurried acquisition of the loan required that a guarantee be given which was financed with the extra Sh1 billion, driving up the cost.

The Canadian government gave the guarantee to the bank for the loan. If the IEBC had begun procurement process much earlier all this extra payments would not have been necessary,” said the source.

The insurance premium was priced at 1.59 per cent per annum, which in cash terms amounts to Sh975 million for the entire period of 10 years during which the loan is supposed to be repaid.

According to a Treasury brief seen by the Business Daily, conditions for the loan had been fulfilled by last week and only the money was expected to arrive in the government account at the Central Bank of Kenya.

“All conditions have now been fulfilled and utilisation requests sent to the Standard Chartered Bank London,” the Treasury brief said. The StanChart loan was issued at 2.15 per cent per year above the London Interbank Offered Rate (LIBOR), which many countries use in negotiating foreign loans.

The $600 million syndicated loan, obtained early this year from a group of banks that included StanChart, was priced at 4.75 per cent above LIBOR.
The arrangement fee in the IEBC loan was 0.25 per cent per year compared to 1.4 per cent per year for the syndicated loan.

The Treasury said IEBC had signed a lopsided contract with the supplier because it forced the government to pay in advance and yet could not guarantee that the kits would arrive at all.

The government was left to depend on trust that the kits would arrive.

Finance minister Njeru Githae had earlier described the contract as “skewed.” “We got locked into this contract with the killer October 15 clause because some people did not do their job.

They sat pretty until it was too late.

We are not talking about vested interests here; we are simply talking about failure to do the procurement job that was supposed to be done,” said the source.
“Clause 9.1 of the commercial contract stipulates that the government should secure the 60 per cent of the price by October 15.

If the facility was not in place by the said date then the government of Kenya would provide an irrevocable letter of credit by a first class Canadian or European bank failing which the contract would be considered cancelled,” said the Treasury brief.

The Treasury was forced to divert cash from other government operations to advance payment for the BVR kits and then obtain cash from the loan to replenish the IEBC account ahead of the General Election.

Failure to each pact

“The Treasury has fully done its part and it is now up to IEBC to do their work,” the brief said.

The search for cash came after failure to reach an agreement by October 15 as stipulated in the contract with the supplier of the BVR kits, Morpho Canada. According to the Treasury, the government does not have a contract with French firm Safran Morpho as such but with the Canadian government that sought and obtained the BVR supplier, Morpho Canada.

Safran Morpho of France happens to be the subsidiary of Morpho Canada, which was contracted by the Canadian government.

Safran Morpho only made and supplied the equipment from France as a subsidiary of Morpho Canada, which is the actual contracting party in the deal with the governments of Kenya and Canada.

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