GOVERNMENT STATEMENT ON THE SETTLEMENT OF TWO FOREIGN

JUDGEMENT DEBTS AGAINST REPUBLIC OF KENYA: FIRST MERCANTILE

AND UNIVERSAL SATSPACE
I. BACKGROUND TO THE PROBLEM OF THE SECURITY CONTRACTS
1. The start of the Anglo Leasing Scandal was the contracting of a loan in
December 2003 by the Deartment of !mmigration which was then "nder
the #ffice of the $ice %resident and &inistry of 'ome Affairs. The "rose
of the loan was to enhance sec"rity by moderni(ing the iss"ance of sec"re
assorts and "rchase of sec"rity e)"iment for "se at *enya+s borders.
The roc"rement rocess was howe,er ab"sed and a comany going by
the name Anglo Leasing and -inance .omany Ltd was awarded the
tender and *sh /3.0 million aid "0front. This became "blic on 1th &ay
2001 when the matter was raised in %arliament. S"bse)"ent re,iew
re,ealed that in the e2ternal "blic debt database3 there were a total of 14
contracts similar to the one arranged by the Anglo Leasing and -inance
.omany Ltd and from then on these loan contracts were labeled Anglo0
Leasing.
2. !n,estigations re,ealed that the contracting of loans similar to Anglo
Leasing had been going on in the 5o,ernment for a long time. !n A"g"st
20013 the &inistry of -inance s"sended ayments of all the loans similar to
Anglo Leasing and instr"cted the .ontroller and A"ditor05eneral to carry o"t
a secial a"dit.
3. The %"blic Acco"nts .ommittee 6%A.7 also in,estigated the matter and on
30th &arch 20083 its chairman tabled the reort on Speci! A"#i$ %&
P'%c"'e(e&$ %) P**p%'$ I**"i&+ E,"ip(e&$-. The reort was adoted
by %arliament on 1th Aril 2008. !t co,ered all the 14 contracts and
recommended that all contracts that had not been commenced sho"ld be
terminated while those which had commenced sho"ld be renegotiated with
strict adherence to the roc"rement reg"lations and roced"res. !t also
recommended in,estigation and rosec"tion of all imlicated.
1. The .ontroller and A"ditor05eneral comleted his reort which was tabled
and adoted by %arliament in &ay 2008. The findings of the reort by
.ontroller 9 A"ditor05eneral were that:
1
%roc"rement laws and reg"lations were ,iolated
The ro;ects were o,erriced
!n some cases no loans were e2tended by the creditors and the
5o,ernment of *enya 65o*7 was aying interest on its own f"nds.
The reort recommended that rofessional ,al"ation of wor<s3 goods and
ser,ices to determine ,al"e for money. !t also recommended that
5o,ernment of *enya negotiates with the creditors.
=. !n >an"ary 200?3 the &inistry of -inance contracted an indeendent firm3
%ricewaterho"se.ooers 6%w.7 to cond"ct forensic a"dit and ,al"ation of
the contracts. !n >"ly 200?3 the %w. re,ealed irreg"larities incl"ding
6i7 breach of the law as it relates to "blic roc"rement and "blic
financial management
6ii7 gross o,er0ricing of wor<s3 goods and ser,ices 6iii7 e,idence of
re0financing 6i.e. "0front ayments7
6i,7 ossible financial ris< e2os"re to 5o,ernment on iss"ed
%romissory @otes and
6,7 e,idence of corr"tion and ab"se of office.
8. -rom the %w. and other re,io"s reorts3 it emerged that there were
6i7 .ancelled .ontracts
6ii7 -"lly %aid contracts and
6iii7 %artly comleted contracts. !t was f"rther noted that thirteen 6137
contracts were signed d"ring the *an" regime while fi,e 6=7 were
signed d"ring the @AA. administration.
II. STATUS AND PROPOSALS FOR RESOLUTION OF THE SECURITY
CONTRACTS
?. The estimated ,al"e of the ro;ects are based on the ,al"ation wor< done
by %w. in 200?. As indicated earlier3 the contracts are gro"ed into three
broad categories of
6i7 .ancelled .ontracts
6ii7 -"lly aid contracts and
6iii7 %artly comleted contracts. Details of each are resented in
aragrahs /011.
2
4. C&ce!!e# C%&$'c$*: -o"r 617 contracts with a ,al"e of K*. /0.1 2i!!i%&
were cancelled when the Anglo0Leasing Scandal bro<e o"t and the money
that had been aid amo"nting to K*. /.3 2i!!i%& 4* 'e)"&#e#. The fo"r
contracts are shown in the table below:
C%&$'c$ N(e P"'p%*e C%&$'c$%'5Fi&&ci
e'
Re)"&#
K*.
(i!!i%&
1
-orensic Sciences
Laboratory for .!D
.onstr"ction of
-orensic Laboratories
and s"ly of -orensic
e)"iment
-orensic
Laboratories LtdB
Anglo 0Leasing and
-inance Ltd
3?=
2
Sec"rity $ehicles for
*enya %oliceB
Sil,erson
Cstablishment
Lease "rchase of
//1 Sec"rity ,ehicles
and assorted sares
Leyland C2ortsB
Sil,erson
Cstablishment
?3
3
*enya %olice Law 9
#rder 6C0.os7
B!nfotalent
S"ly3 installation and
commissioning of the
%olice .om"ter
%ro;ect
!nfotalent Ltd
=0/
1
!mmigration Sec"rity
9 Doc"ment .ontrol
System 6!SD.7
Sec"re %assort3 $isa
iss"ing and border
control systems.
Anglo Leasing and
-inance Ltd /3
T%$! Re)"&#
/637/
/. F"!!8 Pi# C%&$'c$*: Three 637 contracts with a ,al"e of K*..9.0 2i!!i%&
had been comleted and the money aid o"t.
10. The three contracts are shown in the table below:
C%&$'c$ N(e P"'p%*e C%&$'c$%'5
Fi&&cie'
P'%:ec$
;!"e*sh
million
1
*enya %risons Sec"rity
9 telecomm"nication
%ro;ect %hase 1
S"ly3 installation and
commissioning of a
dedicated sec"rity
comm"nication networ<
LDA Systems
Ltd
1341=
2 *enya %olice Airwing
S"ort %ro;ect 1
S"ly of fo"r
helicoters to %olice
So"nd Day
.or BAe2
23?00
3
Airwing -inance
.ororation
3 *enya %olice: S"ly
of Sec"rity C)"iment
Addend"m 2
S"ly of %olice Sec"rity
e)"iment.
So"nd Day
.ororation 232=0
< T%$! 96=17
11. P'$!8 C%(p!e$e# C%&$'c$*: Cle,en 6117 contracts with a total ,al"e of
K*. >3.9 2i!!i%& are at ,ario"s stages of comletion.
a7 There are si2 687 contracts with a ,al"e of K*. /9.9 2i!!i%& that ose
greatest ris< to the 5o,ernment of *enya. !t is estimated that the
5o,ernment of *enya has c!i( %) K*.<.3 2i!!i%& on these
contracts as shown in the table below:0
N(e P"'p%*e C%&$'c$%'5
Fi&&cie'
A(%"&$
)%'
Rec%;e'8
?K*. (@
1 *enya %olice: S"ly of
Sec"rity C)"iment
Addend"m 3
S"ly of %olice Sec"rity
e)"iment.
So"nd Day
.ororation. 6130=?7
2 *enya %olice Airwing
S"ort %ro;ect 2
Technical ser,ice to the
*enya %olice Airwing
helicoters
Ae2 -inance
.ororation 61287
3 @ational Carly Earning
Sec"rity System
6@CESS7 for
&eteorological
Deartment
S"ly and installation of
an early warning system
for meteorological
deartment.
LDA Systems
Ltd.
6130=07
1 *enya %risons Sec"rity
and Telecomm"nication
%ro;ect %hase 2
S"ly of %rison Sec"rity
e)"iment.
LDA Systems
Ltd. 6=227
= &"lti0channel Sec"rity
Telecomm"nication
System for
Administration %olice
S"ly3 installation and
s"ort for sec"re
comm"nication for
Administration %olice and
%ro,incial Administration
5lobotel LtdB
&idland
-inance Ltd 6130?17
8 &oderni(ation of %olice
C)"iment and
Accessories
S"ly of olice
e)"iment and other
accessories
So"nd Day
.orB
Ae2 -inance
.ororation.
61417
T%$! ?<63/3@
4
b7 -i,e 6=7 contracts are in the category of artly comleted contracts.
Settlement has been reached in two 627 of the contracts.
The two 627 settled contracts are shown below.
N(e P"'p%*e A(%"&$ pi#
1 %ro;ect @e2"s
6Defence .ommand
.entre7
.onstr"ction of a
command and control
center for Defence
S"ccessf"lly negotiated
A/<( ?K*./.7< 2&@ pi#
2 @a,al Shi
0#ceanograhic
S"r,ey $essel
.onstr"ction and deli,ery
of a @a,al $essel.
S"ccessf"lly negotiated
A><( ? K*. >.=<2& @ pi#
The two 627 contracts which ha,e been "nder litigationBmediations
and which are now s"b;ect of co"rt awards are shown below.
@ame %"rose >"dgement amo"nts
1 Droadband @etwor< F
%.* $SAT
C)"iment B -irst
&ercantile Sec"rities
.ororation 6-&S.7
S"ly for
telecomm"nication
e)"iment for networ<ing
all the ost offices.
>"dgment :B0.>( ?K*.
=CC(@
2 Dandwidth Sectr"m
and @etwor<
#erationB Gni,ersal
Satsace 6GSS7
S"ly of bandwidth
sectr"m and ser,ice for
ten years
>"dgement:
B0./( ?K*.=37(7
#ne %ro;ect3 "nder @ational !ntelligence Ser,ices 6@!S7 was not
,al"ed d"e to national sec"rity considerations.
III. BACKGROUND TO THE TWO JUDGEMENTS
12. -or the two cases which ha,e been "nder litigation ;"dgements ha,e been
entered against the 5o,ernment of *enya in 5ene,a3 Swit(erland3 and in
London3 G*. The details of the cases are as follows:0
@ B'%#2&# Ne$4%'D P'%:ec$6-irst &ercantile Sec"rities
.ororation7
5
The facts of this case are as follows:
The ro;ect in,ol,ed s"ly of $SAT e)"iment by Sacenet to
connect all the ost offices in *enya. -irst &ercantile Sec"rities
.ororation 6-&S.7 g"aranteed ayments for the s"lied e)"iment.
#n 12
th
A"g"st 20013 the 5o,ernment of *enya s"sended ayments
for this ro;ect when it was listed among the so0called Anglo0Leasing
ro;ects.
Arising from the s"sension of ayments3 in >an"ary 20083 -irst
&ercantile Sec"rities Ltd filed a claim of GSH12.? million l"s enalty
interest at 4.?= I .a. against the 5o,ernment of *enya in 5ene,a
.o"rt of -irst instance.
#n 11th &ay 200/3 the s"it was determined against 5o,ernment of
*enya for H8.0 million 6*sh=18 million7.
The Attorney 5eneral lodged an aeal b"t this was defeated in
@o,ember 2012 and a ;"dgement of H10.1 million 6*sh 484 million7
was made against the 5o,ernment of *enya.
This amo"nt contin"es to attract interest of H13113 er day beginning
8
th
December 2012.
The amo"nt d"e for ayment3 incl"ding accr"ed interest and cost as at
21
th
&arch 2011 is B/3.= (i!!i%& ?K*. 1C3 (i!!i%&@ and the claimant
has so"ght Aegistration of >"dgement in the 'igh .o"rt in London to
comel *enya to ay or else roceed with attachment roceedings.
The 5o,ernment also recei,ed a notice of attachment of 5o,ernment
&ission assets in 5ene,a d"e to non0ayment.
The 5o,ernment also recei,ed a demand letter for ayment of the
;"dgement debt gi,ing 21
th
&arch3 2011 as the final deadline after
which the claimant will start enforcement roceedings.
6
2@ B&#4i#$. Ne$4%'D P'%:ec$ ? U&i;e'*! S$*pce@
The litigation on this ro;ect is related to 6a7 abo,e and the facts of the case
are as follows:
Gni,ersal Satsace signed an agreement with the 5o,ernment for
ro,ision of bandwidth and networ< management for 10 years for all
the ost offices "nder ro;ect 6a7 abo,e.
As with the case of -irst &ercantile ayments were similarly
s"sended. After s"sension of ayments on 12
th
A"g"st 20013 a s"it
against the 5o,ernment was filed in London in >"ly 20083 see<ing
GSH12.3 million.
%rotracted s"it terminated in the case being referred to mediation
"rs"ant to the Cnglish ci,il r"les of roced"re to resol,e the iss"e.
&ediation in @airobi in -ebr"ary 2013 agreed on ayment of H?.8
million 6*sh8=3 million7 by the 5o,ernment. After waiting for 10 months
to be aid as agreed the claimant went to co"rt in London on 20
th
December 2013 and ;"dgement was "held and *enya was e2ected
to ay H?34?13131. 6*sh 8?? million7 being rincial of H ?38003000 and
interest of H 2?131317 by 1?
th
>an"ary 2011 incl"si,e of costs of
J803000.
This amo"nt contin"es to attract interest at 4.?=I er ann"m which
translates to H1388= er day beginning 21
st
December 2013.
IV. NEGOTIATIONS TO RESOLVE THE ISSUE
13. -ollowing these ;"dgements and threats to *enyan assets3 the fiscal ris<
in,ol,ed3 the contin"ed loss to the Ae"blic on acco"nt of accr"ed interest
on the ;"dgements as well as the Attorney 5eneral+s ad,ice to reach a
negotiated osition3 the 5o,ernment has held negotiations with the
claimant+s co"nsel and has settled on 5o,ernment to ay GSH18.1 million
negotiated down from GSH14.4 million.
7
V. RATIONALE FOR PAYMENT OF THE JUDGEMENTS
11. The 5o,ernment+s decision to settle the ;"dgement debts is remised on
6i7 rotecting *enya+s economy on acco"nt of rising interest rates
occasioned by domestic borrowing d"e to constrained access to
international borrowing
6ii7 rotecting *enya+s re"tation as a co"ntry that meets its
contract"al obligations and adheres to the r"le of law
6iii7 rotecting *enya+s assets abroad3 and
6i,7 maintaining and imro,ing *enya+s credit rating c"rrently at DK.
1=. Secifically3 the following are the ris<s osed by non0ayment of the
;"dgement debts.
@ E&)%'ce(e&$ %) :"#+e(e&$*5$$c.(e&$ %) GOK **e$*
!t is imortant that the 5o,ernment hono"rs the co"rt awards to
forestall attachment of 5o,ernment assets abroad.The claimant has
alied to international co"rts see<ing to enforce the ;"dgement in
both cases and attach 5o,ernment assets abroad.
The settlement will also rotect *enya+s re"tation as a co"ntry that
meets its contract"al obligations and adheres to the r"le of law.
2@ T.e'e i* &% )"'$.e' 'ec%"'*e $% ppe! $.e '"!i&+*
The Attorney 5eneral as well as an indeendent international legal
firm Dentons of G*3 has ad,ised that there is no legal a,en"e left for
the 5o,ernment aart from settling the ayments.
c@ S$%pp+e %) $.e *%;e'ei+& 2%&# p'%ce**
This eriod coincides with the roosed iss"ance of the first
international so,ereign bond to finance the -iscal Lear 2013B2011
b"dget. The iss"ance cannot ta<e lace "nless all obligations related
to the co"rt awards are aid. The claimants ha,e threatened to ha,e
international co"rts attach the bond roceeds "ntil the ;"dgement
debts are settled.
#@ Fi*c! 'i*D
The stalled bond rocess means the 2013B2011 b"dget cannot be
imlemented and e2endit"res and ser,ices will ha,e to be
drastically scaled down.
8
e@ Hi+.e' C%*$* $% $.e ec%&%(8
!t is estimated that the ann"al costs of non0settlement wo"ld be
K*.C/ 2i!!i%&3 being the cost of higher interest rates on domestic
borrowing both for the "blic and ri,ate sectors. Therefore3 gi,en
that the cost of aying the ;"dgement debts is *sh1.1 billion3 this
means that the benefits of settling them %"$4ei+. $.e c%*$* %) &%&E
p8(e&$ 28 /7 $i(e*. !n addition3 by aying the *Sh. 1.1 billion3 the
5o,ernment "nloc<s the *Sh. 130 billion from the so,ereign bond.
!n addition3 a rise in domestic interest rates wo"ld lead to credit
cr"nch to the ri,ate sector res"lting to stymied in,estment3 lower
economic growth3 increase "nemloyment and o,erty. This wo"ld
not hel "s achie,e o"r $ision 2030 which is redicated on a stable
macroeconomic en,ironment.
)@ Ne+$i;e i(pc$ %& *%;e'ei+& '$i&+
The negati,e imact on the *enyan economy wo"ld also ad,ersely
affect o"r rating by s"ch international rating instit"tions as Standard
and %oor+s3 &oody+s and -itch Aating. !t wo"ld also negati,ely imact
on 5o,ernment+s access to financing by other creditors incl"ding the
traditional concessional lenders.
+@ Rep"$$i%&! Ri*D
Stoage of the bond rocess will ca"se a ma;or setbac< and
embarrassment to the 5o,ernment and transaction ad,isers. The
stoage wo"ld irrearably in;"re *enya+s re"tation as it reares to
la"nch its deb"t bond. This bad re"tation will be diffic"lt to c"re in
the medi"m to long term and will affect e,ery *enyan0based b"siness
trying to engage in international commerce. A high remi"m will
always be factored in the rices for s"ch transactions.
9
.@ I&$e'e*$ c.'+e* %& $.e :"#+e(e&$*
!t is also noted that whether 5o,ernment ays the two ;"dgements or
not3 interest charges on the ;"dgement debts will contin"e to accr"e
as follows.
-or the -irst &ercantile case M GSH 13113 6*sh1223 /317 er
day since 8
th
December 2012.
-or the Satsace case M GSH 1388= 6*sh 11134==7 er day
since 20
th
December 2013.
This translates to enalty interest of *sh /8 million er year.
VI. CONCLUSION
Aesol"tion of the o"tstanding ;"dgement debts is cr"cial in order to alle,iate the
ris<s to the *enyan economy. The 5o,ernment has e2ha"sted all ;"dicial otions
to forestall ayment of the ;"dgement debts and the way forward is for the
5o,ernment to settle to minimi(e f"rther loss as the o"tstanding awards contin"e
to accr"e interest. !t is therefore imerati,e that these debts are settled.
5o,ernment has today3 therefore3 a"thori(ed the .abinet Secretary3 @ational
Treas"ry3 to ay the ;"dgement debts with immediate effect.
Anglo Leasing has been a thorn in the side of 5o,ernment for a long time. As
.hair of the %"blic Acco"nts .ommittee when he was oosition leader3 the
%resident in,estigated the matter3 and he agrees with the ,iews of a ma;ority of the
*enyan eole on this. That+s why it has ta<en long to ma<e a decision on the
c"rrent sit"ation.
D"t the %resident has had to ma<e a ainf"l decision on what is the greater e,il:
either the money or "t the co"ntry+s economy at ris<. Dy ma<ing this ayment3 the
%resident is not legitimi(ing what her and many *enyans belie,e to ha,e been a
series of fra"d"lent transactions.
Therefore3 the %resident has ordered fresh in,estigations into the cases. *enya
now has a f"lly constit"ted Cthics and Anti0.orr"tion .ommission which can and
sho"ld ta<e this rocess forward. There are also other agencies3 incl"ding
arliament3 that co"ld lay a role.
10
!t is now " to these resonsible agencies to ens"re that *enyans get restit"tion.
#"r instit"tions failed *enya in these cases re,io"sly. *enyans wo"ld not
welcome f"rther fail"re in the conte2t of these cases.
M&%. E*ipi*"6
State 'o"se So<eserson 6so<esersonMresident.go.<e3
manoahMmanoahesiis".com3 and K2=1 ?32 41/ 1807
&ay 1=
th
2011
11