Public officials were on Monday at pains to explain why the government paid Sh13 billion in insurance premiums to secure part of the money for constructing the standard gauge railway.
The Public Investments Committee asked Kenya Railways acting managing director Alfred Matheka to explain why the underwriting was necessary for a government-to- government deal.
“If this was a government- to- government agreement, what risk is the Kenyan government insuring at 6.9 per cent? This confirms to us that the whole thing is a private and not a government affair,” committee chairman Adan Keynan said.
Mr Matheka said the underwriting secured $1.63 billion (Sh140.4 billion) from the China Exim Bank in line with the lender’s policies. He denied that a local insurance broker was involved in the transaction.
“China Exim Bank is a commercial bank like any other. They have their own conditions and one of it was that the loan be insured in China before any lending,” Mr Matheka said.
Besides the China Exim Bank loan Mr Matheka said the Chinese government provided a concessional loan of $1.6 billion (Sh136 billion) with the Kenya government providing $571 million (Sh50 billion) in counterpart funds. The project would hence cost Sh327 billion.
Mr Matheka said Kenya Railways entered into two commercial contracts with China Roads and Bridges Corporation (CRBC)—one for civil works (Sh227 billion) from Mombasa to Nairobi and another for rolling stock (Sh100 billion).
The cost per kilometre for the 609 kilometre section is $3.98 million (Sh338 million) for class one standard gauge compared to the 327 kilometre class two standard gauge rail being constructed in Ethiopia at $3.84 million (Sh326 million) per kilometre. The cost in Uganda will be $9.5 million (Sh808 million) per kilometre.
The loans carry an interest rate of two per cent per annum and have a 15 year tenure, including a grace period of five years. A management fee of 7.5 per cent payable upfront and a commitment fee of 15 per cent on undisbursed amounts were also attached.
The MPs accused the corporation of ignoring advice from Attorney- General Githu Muigai, former solicitor- general Wanjuki Muchemi and former permanent secretary Cyrus Njiru that the contract be awarded competitively.
Public Procurement Oversight Authority director- general Maurice Juma could not explain why Article 227 of the Constitution and section 6(1) of the Public Procurement and Disposal Act which require procuring entities to conduct competitive bidding in contracts involving public funds were involved.
He said the corporation, through then managing director Nduva Muli (now transport principal secretary) cancelled the single sourced tender and replaced it with a government to government procurement.
“After the corporation wrote to cancel the tender, we could not proceed with our review,” he said.
The committee directed both Mr Juma and Mr Matheka to separately prepare a detailed brief on the entire project within seven days.
The committee is investigating the procurement of the Sh1.2 trillion Mombasa-Malaba railways after Nandi Hills MP Alfred Keter claimed that it was single sourced and over-priced.