CS says tough conditions for external project financing meant to prevent the birth of white elephants that cost taxpayers billions
Circular comes at a time when the number of stalled government projects that are accumulating billions of shillings in additional costs is piling up
The Treasury is also working on public investment management guidelines to stop shoddy projects finding their way into the budget.
Treasury secretary Henry Rotich has moved to tame government spending with the release of a new checklist that ministries, agencies and State corporations must satisfy to get the approval for external funding of projects.
Mr Rotich says in a memo to Cabinet secretaries, principal secretaries, governors, and chief executives of State corporations that any agency looking for external loans and grants to fund projects will only do so within the Treasury’s new guidelines.
“Kindly note that the checklist of mandatory requirements are critical in mitigating the government against any potential financial risks of paying commitment fees and other charges on loan amounts due to delays in commencement of project implantation,” Mr Rotich says in the memo.
Top on the seven-point list of prerequisites for seeking external financial support is a feasibility study report inspected and approved by relevant government entities to confirm the project’s economic viability, costing and design.
The entities are also required to conduct due diligence and submit a report ascertaining the financial, technical and legal competency of the firm that has been picked to implement the project.
The aim is to cut ongoing wastage of billions of shillings on unrealistic and doubtful projects and avoid compensation related to contractual disputes.
The circular comes at a time when the number of stalled government projects that are accumulating billions of shillings in additional costs is piling up, denying taxpayers value for money.
For instance, a Chinese firm, Geological Exploration Technology Institute (Geti), wants the government to pay it Sh2 billion or an equivalent of 30 per cent of the Sh6.7 billion mineral mapping contract that was stopped mid-course over the controversial involvement of the National Intelligence Service (NIS).
Binding contract
Petroleum and Mining Cabinet Secretary John Munyes recently told Parliament that at the time Geti’s contract was halted, the government was already obligated to pay.
“A contract is binding and therefore we have to pay at the end of the day,” Mr Munyes said.
The Kenya Airports Authority (KAA) is also on the spot for paying a Chinese contractor Sh4.3 billion after it terminated the Greenfield Terminal at Jomo Kenyatta International Airport.
Auditor-General Edward Ouko said in a recently released report that the contractor had been paid the Sh4.3 billion by end of June 2017 besides the Sh413.5 million paid to consultants and law firms without evidence of work done.
Another Chinese contractor, China Jiangxi International, is seeking a Sh6.9 billion compensation from the National Social Security Fund (NSSF) for the stalled construction of Nairobi’s Hazina Trade Centre.
The claim is above the original contract price of Sh6.7 billion.
In July, a standoff in Turkana stopped an oil evacuation exercise, costing taxpayers Sh1 billion in compensation to companies involved.
Locals stopped the early oil export programme demanding security and their share of jobs and tenders.
Last year, the Lake Turkana Wind Power also hit the Treasury with a Sh14.6 billion bill for failure to finish the transmission line from its Marsabit wind farm to Suswa.
Some Sh5.7 billion was paid immediately while Sh9.36 billion is to be paid over a six-year period — a deal that has been partly blamed for the prevailing high cost of electricity in the country.
Under Rotich’s new directive, ministries, departments and agencies (MDAs) now have to confirm the exact area to be covered by a project and conduct due diligence to ascertain whether it is in public or private hands.
“We wish to advise that all MDAs/county governments undertake advance surveys, mapping and ring-fencing of government assets e.g. land, way-leaves among others to avoid unnecessary compensations,” Mr Rotich says in the circular that is also copied to the acting National Lands Commission (NLC) chairperson, Abigael Mbagaya.
Public property
Suspended NLC chairperson Muhammad Swazuri is under probe over his possible involvement in the payment of Sh1.5 billion compensation to acquire Ruaraka land that is said to be public property and therefore did not require compensation.
Any State agency seeking external funding will have to confirm land and way-leave acquisition for the project besides submitting a resettlement action plan for those affected.
They will also have to prove that they have adequate human resources to carry out the project. In case of a shortfall, the implementing MDAs and county governments will be required to first develop a strategy to fill the gap.
The directive comes barely seven months after the Treasury issued another circular in March stating that all memorandum of understanding and commercial contracts with local and foreign parties must get Cabinet approval and clearance from the relevant Cabinet Secretary before execution.
The Treasury is also working on public investment management guidelines to stop shoddy projects finding their way into the budget.
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