Grand railroad corruption: Kenya’s Daily Nation drops expose of grossly inflated pricing and alarming details from “secret” SGR contracts

A vital “must read” from the Daily Nation confirms that in spite of Kenyan president Uhuru Kenyatta’s promise to release the contracts for the truncated Standard Gauge Railroad project, the Government of Kenya has been withholding the documents concerned about meeting public records obligations. It is said that Kenya signed the undertakings with Chinese state-owned corporations rather than the Chinese State as such, and that the documents include secrecy provisions that the lawyers are interpreting to conflict with Kenyan law as to the Governments obligations to its own citizens for public contracting.

The story details item after item of hugely inflated prices for components such as generators, supplies, machinery and equipment:

This explains how Kenya ended up paying two times more for a diesel train than what Tanzania negotiated for an electric train. A comparison of the costs shows that Tanzania is building an electric rail at half the price of Kenya’s diesel SGR line.

TANZANIA’S FASTER

At $1.92 billion, which translates to about Sh192 billion at current exchange rates, for the 422 kilometres, Tanzania’s line is not just cheaper; being electric, it’s designed to support a maximum speed of 160km/hour for passenger trains and 120km/hour for freight.

This pales in comparison to Kenya’s line, whose passenger trains have a maximum speed of 120km/hour with freight hauliers doing 80km/hour at best.

Kenya opted for diesel-powered engine that can be upgraded into electric in future.

It is the results of this greed and negligence that taxpayers are now paying for.

OPERATION COSTS

Currently, the revenues generated from the passenger and cargo services on the track cannot meet the operation costs, estimated at Sh1.5 billion a month against average sales of only Sh841 million.

Meanwhile, Kenyans transporters who have allegedly been hurt by Kenyan restrictions intended to forcibly subsidize the non-competitive costs of the Chinese-operated SGR, are seeking the contracts in court. Likewise, the civil society coalition Okoa Mombasa has filed a formal records request as a precursor to a suit if the documents continue to be withheld.

Readers may remember previous reporting of a leaked Auditor General documents indicating that Chinese firms may have been given a security interest in Kenya Port Authority assets and property to secure the loans for these inflated costs. From Maritime Executive in December 2018:

Kenya runs the risk of losing control of the Port of Mombasa if it should default on loans from state financial institution China Exim Bank, according to a new report from Kenya’s auditor general. The terms of a $2.3 billion loan for Kenya Railways Corporation (KRC) specify that the port’s assets are collateral, and they are not protected by Kenya’s sovereign immunity due to a waiver in the contract. 

KRC accepted the multi-billion-dollar loan in order to build the Mombasa-Nairobi standard gauge railway (SGR), with construction services provided by China Roads and Bridges Corporation (CRBC), a division of state-owned conglomerate China Communications Construction Company (CCCC).

“The payment arrangement agreement substantively means that the Authority’s revenue would be used to pay the Government of Kenya’s debt to China Exim bank if the minimum volumes required for [rail] consignment are not met,” auditor F.T. Kimani wrote. “The China Exim bank would become a principle over KPA if KRC defaults in its obligations.”

In addition, any dispute with China Exim Bank would be handled through an arbitration process in China, not in Kenyan courts. The auditor general expressed concern that the port authority had not disclosed these arrangements in its financial statements. 

The Auditor General’s term expired before publication of a final report and has been left vacant, conveniently for freedom of action and ability to avoid disclosure by Kenya’s political officials.

The more information that comes to light the more it would appear that the uneconomical nature of the “white elephant” megaproject was baked in from early stages and does not look to be readily resolvable without exterior finance, renegotiation, write down or other intervention.

Meanwhile, The Star covers a report by the Tax Justice Network that Kenya’s financial sector is well designed to hide corruption as the second most secretive in Africa:

Kenya’s financial sector is the among most secretive globally, according to a new report  by Tax Justice Network.

The sector has been ranked the second most rigid in Africa after Algeria and among the top 30 in the world in the latest Financial Secrecy Index of 2020.

The annual index by Tax Justice Network (TJN) has scored Kenya’s secrecy rate at 76 per cent, meaning the country is a fertile market to stash ill-gotten private financial wealth and other illicit financial flows (IFFs).

Pre-election violence in Kenya: here we go again?

The pre-election killings in Kenya in 2013 were “only” 500 or so as reported at the time.  The various branches of the Kenya Police Service were more restrained than they seem to be this cycle.  In the pre-election period the IEBC was well respected and trusted, having not experienced overlapping scandals and problems that materialized later and remain outstanding.

I think it is well worth remembering that in the especially violent and destabilizing election campaign of 2007, it was the deployment of the Administrative Police (the “AP”) to the western provinces on behalf of the Kibaki re-election effort just before the vote that first openly “militarized” the campaign.  I should have been more alarmed by the “physical” rather than simply electoral implications of that move at the time.

It seems to me that the open use of armed force for political advantage by an incumbent puts the opposition in an unavoidable “fight or flight” bind to the great risk of public safety and stability, affecting the majority who are ardently supportive of neither “side” in the actual campaign.

As Americans we naturally prefer to see Africans choose the “flight” option rather than the “fight” option in most cases.  There are a variety of reasons for this, some that are morally well grounded and some that are morally questionable.  Some of it is compassion; some of it is geopolitical self interest; part of it may be unique to more individualized interests and relationships.  In European countries especially, for instance Ukraine, and in other parts of the world, we often weigh these choices differently.  

In Kenya, it would be most convenient for us, of course, if the opposition stood down, kept quiet, and trusted their government and the donors to handle election administration like in 2007 and 2013.  We know that we cannot ask that explicitly and we see that the IEBC has lost wide confidence from the public but we seem to be unwilling to directly engage in support of reform now.

I would not want to see any of my Kenyan friends or acquaintences sacrifice bodily harm for any of the Kenyan politicians I knew personally from the 2007 campaign.  In 2007 I thought that Kalonzo, Kibaki and Odinga were all three reasonably plausible and well experienced, well known choices; the election itself ought not to have been seen as particularly high risk or high reward, one way or the other, for the vast majority of Kenyans.

However, as I am deeply grateful that my ancestors made the sacrifices required for me to inherit the benefits of a democratic system here in the United States, I would be embarrased to suggest–and am always disappointed to see my government imply–that Kenyans should simply knuckle under and accept that they do not have the freedom-in-fact that their constitution says on paper, under the law, that they have achieved. 

The opposition has generated an opening for reform through the aggressive and disturbing police brutality meted out against them by the government.  There needs to be a pivot, however, to a more nuanced approach if meaningful reform is to be achieved that advances the causes of both non-violent politics and freedom.

The opposition pols seem to focus on the personalities and roles of the IEBC commissioners.  Obviously someone like Hassan who has relished an extraneous public profile as the nemesis of one potential candidate has gone beyond the point of being a trusted neutral in the future, but the delay in the election date that seems to be in the offing from yet another round of procurement “issues” can cycle tainted individuals out of office.  Reform and systemic trust is a much deeper problem than that however–and it is too important to all Kenyans and the country as a whole to be left to the competing camps of pols.

Kenyan democrats should call out the donors.  If we say we are serious about supporting dialogue why not ask us to show a bit of leadership to go with our cash underwriting?

As for me, I am waiting on the first documents from months ago from a FOIA to USAID to understand more about our spending on the IEBC procurements last time.  No sign yet that our advocacy of “open government” is penetrating our approach to democracy assistance in Kenya, but I certainly think transparency would be hugely helpful in supporting real problem solving and rebuilding trust.

Podesta Group lobbies Washington Post, New York Times, Politico, Roll Call, Foreign Policy, Guardian, Financial Times, Reuters, Washington Diplomat for Kenyatta Gov’t

Kenyan taxpayers paid The Podesta Group of Washington, DC for public relations/lobbying contacts with these media outlets on behalf of their Government in the first half of 2015.  The Podesta Group provided similar or related lobbying services at the same time for the governments of Azerbaijan, Myanmar, Iraq, India, and Vietnam, among various others, aside from their nongovernmental clients.

I’m certainly not suggesting that there is anything wrong with the Government of Kenya spending tax dollars on working media contacts when it isn’t paying teacher’s salaries or meeting basic human needs in health care, for instance.  After all, the United States and various multinational and other foreign donors can be counted on to spend their taxpayer dollars to help ameliorate the consequences of this choice by the Government of Kenya.

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