Kenya Railways supplier in Brazil price fixing scam

A Spanish firm contracted by Kenya Railways to supply spare parts, maintenance and training services for new locomotives is embroiled in a price-fixing scandal in Brazil.

Construccion y Auxiliar de Ferrocarriles SA (CAF), which manufactures railway vehicles and equipment, is at the centre of a Brazilian investigation in which some of Europe’s leading engineering firms are alleged to have defrauded the country’s taxpayers of billions of shillings by forming cartels in the Brazilian public transport sector.

CAF, together with two other firms Alstom (French) and Siemens (German), are accused of paying bribes to Brazilian public officials involved in setting up the cartels in which companies colluded to win contracts for building and maintenance of trains and metro lines.

CAF did not respond to our requests for comments on the Brazilian scandal.

Kenya Railways Corporation, however, said it will undertake “further due diligence” on the Spanish railway equipment manufacturer expected to be part of wider Sh10 billion plans to decongest the city.

Kenya Railways had said in a detailed notice published in the dailies two weeks ago that CAF would be tasked with maintaining, training of its staff locally and to provide spare parts for railway coaches that the State wants to buy from another Spanish State-owned rail transportation company, Serveia Ferroviaria de Mallorca (SFM).

The refurbished trains or DMUs (diesel multiple units) are part of a State plan to upgrade Nairobi’s mass transport system and decongest Nairobi’s traffic jams.

The second-hand trains are expected to cost taxpayers Sh1.5 billion. Kenya Railways had earlier said each train has a lifespan of 23 to 25 years. The decongestion project was approved by the Cabinet last year.

“They are the manufacturers of the equipment that we had gone to inspect. We had gone to see them to look for their capacity and their willingness to continue providing spare parts,” said Mucemi Gakuru, a consultant for Kenya Railways.

“If we are to engage them we would actually request them to give us technical support in terms of training, in terms of overhauling the equipment or in providing spare parts.

Due diligence

This will be subject to further due diligence,” added Mr Gakuru, who responded to the Business Daily’s queries in his capacity as a technical assistant or consultant to the Kenya Railways upgrade project.

The Kenya Railways management in the published statement said the new trains were compatible with its meter-gauge system and can be brought into service "very quickly.

"The equipment is 6100 series DMUs from SFM Majorca, whose Original Equipment Manufacturer (OEM) is CAF. The equipment is being acquired together with a comprehensive spare parts package. It is well maintained and has gone through the necessary overhaul as per manufacturers specifications. It should provide service for another 20 - 25 years,’’ said Kenya Railways.

"Given that world over (Original Equipment Manufacturers) OEMs have shifted focus to standard gauge rolling stock, it’s important for us to ensure that the rolling stock will be supported in terms of spares.

KRC has therefore contacted CAF who is the manufacturer to ensure that they’ll continue to support these rolling stock with spare parts," added Kenya Railways.

They spoke as another senior Transport ministry official defended the deal to acquire the 11 trains against claims they are dilapidated and do not provide value for taxpayers’ money.

“At the cost of 15 million dollars (Sh1.5 billion) which is the reserve price for the total trains, compared to a new DMU (diesel multiple units) which would go for six million dollars each you almost have a five to six times’ savings,” argued Housing and Urban Development principal secretary Charles Hinga in an interview.

“When you look at the value for money, it is also about time. Kenyans are forced to live in traffic; there is pollution and lack of productivity. If you can have a train that is well serviced that still has 25 years to go and to acquire it at the fraction of its value, that is value for money,” added Mr Hinga.

The trains will be deployed on Nairobi Central Station, Syokimau, Embakasi Village, Thika, Kikuyu and Kitengela. “This is a sweetheart deal that will improve the nature of traffic in the city,” said Mr Hinga.
Form a cartel
On December 12 last year, Brazil’s anti-trust authority, the administrative council for economic defence (Cade), recommended that a Brazilian court convicts 16 companies including CAF and 52 individuals over allegations they were involved in forming a cartel to fix bids for public train contracts across the central and southern parts of the country.

When it launched the probe in 2014, the Brazilian watchdog had said the cartel allegedly began in 1998 and its members had divided up tenders between themselves and "pretended there was competition, but had agreed previously on the prices of their bids."

Last week, Kenya Railways defended its decision to import the 11 old trains from the Spanish firm, saying they are much cheaper and France, a First World country, has bought similar ones.