Auditor queries missing Sh21bn China loan contract for fibre


Workers lay fibre-optic cable in Nyeri town on August 18, 2020. FILE PHOTO | NMG

The Auditor-General has unearthed irregularities in the financing and hiring of contractors for a State-owned fibre optic network, including missing loan agreements for a Sh21 billion debt from a Chinese lender.

The public auditor says it’s difficult to ascertain the cost of the multibillion-shilling National Optic Fibre Backbone Infrastructure (Nofbi) due to absent loan agreements, lack of assets registry and missing records of the billions paid to the contractors.

A forensic audit failed to establish how the Chinese government and Exim Bank of China were identified and appointed to finance the fibre optic project -- which provides telecommunications connectivity in all the 47 counties.

“Total funding from Exim Bank of China could not be ascertained as the framework and concession loan agreements for Nofbi phase 1 were not provided for audit,” Nancy Gathungu, the Auditor-General, says in a report.

“However, the cost was Sh6.08 billion and Sh10.28 billion for Nofbi 2 and Nofbi 3 respectively.”

The auditor says the selection of the China government and Exim Bank of China as financiers were shrouded in secrecy.

Ms Gathungu also says that she failed to get an explanation how three contractors — Huawei, ZTE and Sagem — were tapped to build the multibillion-shilling infrastructure.

“In addition, the commercial contract for ZTE Corporation was not provided for audit and therefore not possible to establish the total cost of Nofbi phase 1.”

The first phase of the project was completed in 2009 by three contractors, Huawei, ZTE and Sagem, which jointly rolled out 4,300 kilometres of fibre optic cable for universal high-speed Internet access.

Phase Two was implemented between 2012 and 2017 and saw an additional 1,600 kilometres of fibre optic cable installed within 46 counties, plus another 500 kilometres dedicated for military use. The third phase of 2,500 kilometres involved linking county headquarters to the sub counties. The Treasury signed the concessional loan agreements with the Exim Bank of China amounting to Sh6 billion and Sh10 billion on October 8, 2012, and May 9, 2016, for Nofbi Phase II and Nofbi Phase IIE respectively.

The special audit also accuses the ICT Principal Secretary of signing the commercial agreement before the signing of framework and concessional loan agreements for Nofbi Phase II and Nofbi Phase IIE. The total sum payable to Huawei Technologies Co. Ltd for Nofbi Phase I, Phase II and Phase IIE was reported to be Sh20.5 billion ($213,150,000).

“However, documents amounting to $106,828,026 (Sh10.95 billion) were provided for audit, leaving a balance of $106,321.974 (Sh9.5 billion) not accounted for,” Ms Gathungu says.

“In addition, there were no registers for the projects assets, and therefore not possible to ascertain the total costs of ICT assets acquired and installed.”

A review of equipment in 22 counties revealed a significant share were faulty, idle, disconnected from electricity and termination of the fibre optics outside government facilities.

The forensic audit of the Nofbi project was sanctioned by the parliamentary Public Accounts Committee (PAC). The audit showed that subsequent extensions in scope and geographical coverage of the Nofbi project were automatically granted to the contractor without open tendering.

Phase II of the Nofbi contract cost the government Sh7.2 billion, with its extension costing a further Sh9.8 billion, both in loans from the Exim Bank of China. Later, loans in excess of Sh10 billion were procured towards Nofbi, whose details the ICT State Department has not made public despite numerous requests.

Phase II Expansion (IIE) was undertaken between 2016 and 2020.

Phase One of the project was initially to cover 5,000 kilometres at an estimated cost of Sh5.8 billion ($80 million) which was to be funded through supplier credits, grants, concessions and loans.

“However, all the approved budgets for Nofbi Phase I and Nofbi Phase II for the financial years 2012/13 to 2014/15 were not provided for audit review,” Ms Gathungu says in the forensic audit report tabled in Parliament last week.

“It was therefore not possible to ascertain the total approved budget for the project.”

PAYE Tax Calculator

Note: The results are not exact but very close to the actual.