The Central Bank of Kenya has written off from its books and categorised as “irrecoverable” Sh1.5 billion that was advanced to one of the key companies linked to the Goldenberg scandal, closing yet another window for recovering billions of public money lost through the fraudulent gold export scheme.
The move to cancel the outstanding amount owed by Exchange Bank Ltd follows last year’s controversial sale of the Grand Regency Hotel, which was the only asset charged as collateral for the loan — at Sh3.1 billion, an amount that fell short of the unpaid loan balance.
The sale of the five-star hotel (now Laico Regency) evoked public outrage and ended in the appointment of a commission of inquiry, which concluded in November last year that Central Bank (CBK) “did not realise the best value for the hotel.”
CBK says, in its recently released annual report, that Exchange Bank, which received an advance payment of Sh13.5 billion in 1992 in a contract for supply of foreign currency worth $210 million, had repaid part of the loan while other amounts were offset against deposits that were held by the bank at the time of its collapse. “The balance of Sh1.5 billion has now, with the sale of the hotel, been extinguished from the books of the bank,” says CBK governor Prof Njuguna Ndung’u in the annual report that is set to be presented to the Minister for Finance Uhuru Kenyatta.
Although just a tip of the Goldenberg iceberg, Sh1.5 billion is big money by Kenyan standards that can, for example, finance the entire recurrent budget of the Office of the Prime Minister and others for a full financial year. It can also finance the construction of about 2,500 primary school classrooms at an estimated cost of Sh600,000 each. The report states that the loss “was already fully provided for” in CBK’s books in which it was classified as an impaired loan, adding that the sale of Grand Regency, which was the only asset charged as security for the loan, makes the balance “irrecoverable.” The Central Bank did not respond to our queries on the matter.
Significantly, the Justice Majid Cockar commission of inquiry into the sale of the hotel which has been at the centre of the multi-billion shilling scandal for the past two decades observed that CBK could have realised better value for the facility based on prices that were quoted in an earlier auction bid advertised in 1994.
The Cockar report — which was handed over to President Kibaki but is yet to be made public — says one bidder, identified as Hames Watts, was willing to pay $60 million (about Sh4.5 billion at current rates) for the hotel in the sale that was advertised in both local and international newspapers.
The amount coincidentally equals the Sh4.5 billion loan balance for which Grand Regency Hotel had been pledged as security. The Cockar commission termed sale of the hotel through a private treaty to a Libyan firm, Laico, as having been a “flawed process” that may have led to gross undervaluation of the hotel since the same price could have been earned even if the sale had been made 13 years earlier. “When inflation and the general trend of property values over that time is considered, it should be clear that CBK did not realise the best value for the hotel,” the inquest concluded.
Dubious transactions
The Exchange Bank deal is one of many dubious transactions that CBK entered into in the early 1990s in a desperate bid to secure foreign currency at a time when export earnings had dwindled to a trickle and the World Bank and IMF had frozen aid to the country.
Another commission, headed by Justice Samuel Bosire, concluded in a 2006 report that Kenya’s economy could have lost a total of Sh158 billion in the Goldenberg Scandal through a web of transactions that involved 487 companies and individuals. The scam was based on a government policy of promoting international trade by granting tax-free status, and sometimes subsidies, to commercial enterprises involved in the export of goods. But as Justice Bosire observed, prominent politicians and businessmen in President Daniel arap Moi’s Kanu regime took advantage of the scheme by faking gold and diamond exports against which they received bonus, fraudulent payments from CBK.
Attempts to recover the funds from companies and individuals who were key players in the scam have proved futile as most have mounted legal hurdles in the form of court injunctions and constitutional reviews that have either delayed the cases or seen judgements made in their favour.
The Sh1.5 billion write off however puts CBK firmly in the spot, given that Justice Cockar commission’s conclusion that the “secret and hasty” sale of Grand Regency could have yielded a below market price for the hotel.Analysts also questioned why Central Bank appeared to be in a rush to declare the debt irrecoverable even before the Cockar report is made public.
“It is premature for CBK to give up on this debt considering the main architects of the scam are still in Kenya and within reach of the law,” said Mr Mwalimu Mati, the chief executive of the Mars Group which advocates for good governance and transparency.
Mr Kamlesh Pattni, who was named as a key player in the scam is understood to have surrendered Grand Regency to CBK in a ploy for amnesty from prosecution in the Goldenberg cases.
The government has, however, denied entering into such an arrangement. Senior counsel and former MP Paul Muite said it was against legal process for CBK to write off the amount while a case involving a third party is still pending in court.
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