Shilling, Eurobond fall as Rotich leaves vacuum at Treasury

The shilling hit a 20-month low against the dollar while the foreign-listed Eurobonds fell after the arrest of Treasury Secretary Henry Rotich on corruption charges, signalling investors’ unease at the vacuum left at the Ministry of Finance.

In his morning address, Director of Public Prosecutions (DPP) Noordin Haji also said he had approved economic crimes charges against Mr Rotich’s deputy, Principal Secretary Kamau Thugge.

The two presented themselves at the Directorate of Criminal Investigations (DCI) headquarters on Kiambu Road on Monday on the orders of Mr Haji and are expected to be presented before court today to face graft charges, according to DCI director George Kinoti.

They will be charged in connection with Sh46 billion contracts awarded to an Italian company, CMC di Ravena, for construction of the Kimwarer and Arror dam projects in Elgeyo Marakwet County, said Mr Haji.

The shilling lost ground against the US dollar sinking to levels last seen in November 2017, even as other financial markets resisted shockwaves triggered by news of the arrests.

The Kenyan currency traded at 103.67 units to the dollar Monday, slipping from Friday’s Sh103.1, according to Central Bank of Kenya data. Kenya’s Eurobonds at the international markets also took a hit.

Reuters reported that Kenya’s dollar bonds maturing in 2028, 2032 and 2048 slipped around 0.5 cents, according to data by Tradeweb. Investors at the Nairobi Securities Exchange (NSE), however, defied news of the arrests as reaction to the news at the bourse remained muted.

Market capitalisation stood at Sh2.283 trillion at the close of business on Monday, up 0.07 percent from Sh2.281 trillion on Friday.

The DPP said that investigations by the DCI had determined that the two top Treasury officials alongside 26 others flouted procurement procedures, aiding the loss of public funds allocated for the dams project. In March this year, Mr Rotich denied any wrongdoing in a large newspaper advertisement. The Italian company involved has also denied the accusations. News of the arrests marked the first time a sitting Kenyan minister has been apprehended on corruption charges.

Mr Haji said that whereas the alleged commercial contract signed between Kerio Valley Development Authority (KVDA), the contracting entity for the two dams, and the Italian firm CMC Di Ravenna and Itinera JV stated that the two dams would cost a total of Sh46 billion, the Treasury negotiated a commercial facility inflating the amount by Sh17 billion to Sh63 billion.

“Under the guise of carrying out legitimate commercial transactions colossal amounts were unjustifiably and illegally paid out through a well-choreographed scheme by government officers in collusion with private individuals and institutions,” said Mr Haji.

“Further, the National Treasury entered into a facility contract in Euros while the commercial contracts were in US dollars therefore occasioning further loss to the Kenyan Government through exchange rates.”

The charges to be preferred against Mr Rotich, Mr Haji said, include: “conspiracy to defraud”, “abuse of office”, “financial misconduct”, “engaging in a project without proper planning” and “wilful failure to comply with procurement laws.” The development on Monday threw the Kenyan Treasury into an unprecedented crisis.

Mr Rotich took over as Treasury Secretary at the beginning of President Kenyatta’s administration in May 2013. At the top role, he is charged with managing the country’s finances, including “spearheading an efficient and sustainable public financial management”. Dr Thugge is his principal assistant. The arrest of the duo also came at a delicate economic cycle for the country and the Treasury docket. The Treasury is expected to help Kenya raise money locally through taxes and the international debt markets in coming months and wants to woo international investors to fund President Uhuru Kenyatta’s Sh3.1 trillion Budget between July 2019 and June 2020. Mr Rotich presented the budget before Parliament last month.

“Without them (the Treasury CS and PS) I understand certain appointments cannot be made; certain large disbursements presumably also stop; and the budget would need to be moved through Parliament by a new team so may lose speed,” said Deepak Dave, a risk management expert with Nairobi based Riverside Capital. Pressure is now bound to build analysts said on President Kenyatta to ensure stability at Treasury which is critical to build policy certainty and stability in the financial markets.

“Changes in finance ministers in emerging countries are always tricky; markets want to know policy that is already crafted will not be reversed,” said Mr Dave.

Also to be charged is Italian Paolo Porcelli, the director of CMC di Ravenna, Susan Jemtai Koech, Principal Secretary, Ministry of East African Community Affairs, David Kipchumba Kimosop, Managing Director, Kerio Valley Development Authority (KVDA), and Kennedy Nyakundi Nyachiro, Chief Economist and Head of Europe II Division at the Treasury.

The DPP said he had requested help with investigations from British and Italian authorities, and more charges could be brought against the accused. “Upon investigations by the DCI, it was established that the conception, procurement, and payment process for the Arror and Kimwarer dam projects were riddled by massive illegalities,” said the DPP. “Many procurement procedures as stipulated by law for such projects were ignored and the law was circumvented to ensure that CMC di Ravenna got the contract.” Before joining the Treasury as head of macroeconomics, Mr Rotich, 50, a Harvard University-trained bureaucrat, served as an economist at the International Monetary Fund (IMF) office in Nairobi between 2001 and 2004. He earlier worked in the research department of the Central Bank of Kenya since 1994, before joining the Finance ministry. He holds a master’s degree in Public Administration from the Harvard Kennedy School in the USA.

Others to be charged include Jackson Njau Kinyanjui, Director Resource Mobilisation Department at the National Treasury, Titus Murithii, Inspector General of State Corporations, Paolo Porcelli, Director CMC di Ravenna, William Kipkemboi Maina, head of Supply Chain Management (KVDA) and Paul Kipkoech Serem, manager Engineering Services (KVDA).

Other officials also facing charges are those who sat at the tender committee for the dams project among them Francis Chepkonga Kipkech, Samuel Kimutai Koskei, David Juma Onyango, Patrick Kiptoo, Elizabeth Kebenei, Esther Jepchirchir Kiror and Moses Kipchumba. Others are Nelson Korir, Isaac Kiiru, Patrick Kipsang, Fredrick Towett, Jotham Rutto, Charity Muui, and Geoffrey Mwangi Wahungu the chief executive of the National Environment Management Authority (Nema) and both David Walunya Ongare and Boniface Mamboleo Lengisho, also a Nema official.

Detectives investigating the dam payments had earlier quizzed four Cabinet Secretaries, including Mr Rotich. Others who had been questioned are Mwangi Kiunjuri (Agriculture), Eugene Wamalwa (Devolution) and Peter Munya (Trade and Industry).