Cash-strapped Kenya Broadcasting Corporation (KBC) is on the spot for hiring and paying a local and London-based law firms Sh1.3 billion without tendering and contracts in an international arbitration case.
Auditor-General Edward Ouko says the public broadcaster did not procure the law firms through open tendering, lacked a contract and it failed to seek the guidance of the Attorney General when hiring the lawyers as demanded by the law.
KBC was fighting the arbitration suit filed by a Dubai-based businessman who sued KBC for Sh200 billion over a failed TV channel and a collapsed digital migration partnership.
Mr Ajay Sethi of Channel 2 Group sued over the termination of a joint venture that was killed by KBC in March 2009, ending what was supposed to be a 24-hour entertainment and sports channel.
Mr Ouko said KBC acted in breach of the procurement law, which requires that open tendering be the preferred method for buying of State goods and services.
The chief auditor said the law further requires the CEO of a State corporation to enter into a written contract with a successful bidder and any clarifications that emanate from the procurement proceedings.
“No documents to show how the law firms were identified and awarded the services and assigned contracts between the two parties was availed [sic] for audit review,” Mr Ouko said.
“In the circumstances, the property of the expenditure of Sh1,324,693,889 incurred over the years on the legal process could not be confirmed and the corporation is in breach of the law,” Mr Ouko said in a qualified audit opinion without disclosing the law firms.
The arbitration suit could bankrupt the State corporation struggling to meet basic obligations like staff pay or leave the taxpayer with a huge external bill.
KBC has posted losses for decades, forcing the State to pay nearly Sh1 billion annually for a defaulted loan owed to Japan and which has accumulated to more than Sh32.3 billion
KBC’s performance worsened when Kenya stopped the sale of television permits — then pegged at Sh1,000 for every TV set —following the liberalisation of broadcasting in 1997.
The State broadcaster is also accused of using information from a feasibility study carried on the digital television market by Channel 2 to launch a distribution platform together with China’s StarTimes.
Channel 2 Group is claiming $2.4 billion (Sh206 billion) against KBC as losses and damages following the termination of the contract. KBC reckons it terminated the joint venture because of weak programming and “poor financial performance”, but Mr Sethi said that this was caused by a weak and unreliable signal.