Kenya finance minister arrest shines light on infrastructure debt

By Morris Kiruga, in Nairobi

Posted on Tuesday, 23 July 2019 10:59
Finance Minister Henry Rotich, in happier times, holds up a briefcase containing the Government Budget for the 2019/20 fiscal year in Nairobi, Kenya, June 13, 2019. REUTERS/Baz Ratner

Kenya’s Finance minister and several top officials were arrested in Nairobi on Monday as investigations into two failed dam projects culminated in the most high-profile indictments in recent history.

The arrests also offered a window into the more problematic side of Kenya’s appetite for public debt.

Henry Rotich, the Cabinet Secretary for Treasury, and his Principal Secretary Kamau Thugge were both arrested, alongside over 20 other top government officers and directors of several companies.

  • They spent Monday night in custody, and were presented in court on Tuesday to face charges of corruption and conspiracy to defraud.

Director of Public Prosecutions Noordin Hajji said that the investigations “established that the conception, procurement and payment process for the Arror and Kimwarer Dam projects in Elgeyo Marakwet County were riddled with massive illegalities.”

“The investigations established that government officials flouted all procurement rules and abused their oath of office to ensure the scheme went through.” Hajji said in a statement. “This kind of crime and irresponsibility enslaves us with unnecessary debt and mortgages our future generations.”

  • Other officials who were also arrested include Titus Muriithi, the Inspector General of State Corporations, Geoffrey Mwangi Wahungu, the CEO of the National Environment Management Authority, and officials of the Kerio Valley Development Authority (KVDA), the government body that was in charge of the projects.
  • The former KVDA Managing Director, David Kimosop, who was fired in May but has been fighting to keep his job, was also arrested.

The country’s top prosecutor said his office would be charging them with 8 crimes including conspiracy to defraud, breaking procurement laws and anti-corruption laws, wilful neglect, and other crimes.

The investigations into the two dams peaked early this year, after it became known that the company that got the deals, CMC de Ravenna, had gone into voluntary bankruptcy in Italy, and had never begun work on the project.

Most of the money already paid had also gone into what looked like goods and services, such as towels, that had nothing to do with the dams.

  • The commercial contracts, signed in 2014 and 2015, were for two dam projects costing USD 456, 208, 881 (approx. shs. 46 billion). Rotich and other ministry officials then negotiated a commercial facility inflating the total bill to Shs. 63billion.
  • Kenya has already paid Shs. 19.714 billion, Shs. 11billion of which was for insurance while Shs. 4.6billion was borrowed and is still attracting interest payments.
  • Treasury also paid Shs. 643 million for land compensation, and the investigators did not find any proof that the land was acquired.

After the investigators summoned Rotich and over 100 other people in February the Cabinet Secretary protested his innocence in a newspaper advert in early March. That same month, the company at the center of the scandal said it was ready to begin work on the dams. It had submitted draft technical designs in February.

  • “We are very ready with more than 40 engineers and 150 other staff to start work but we have no access to the site of the projects. We are waiting for KVDA to grant us access” The Star newspaper quoted the project’s chief engineer, Eva Luongo, saying.

The moves did not stop the probe, as investigators – including Noordin Hajji and the head of the criminal investigations directorate George Kinoti-triggered a transnational investigation into economic crimes.

  • Both Hajji and Kinoti flew to Rome last month, and the top prosecutor has said that his office is working with UK and Italian authorities to recover the money.

For Rotich, this might be the end of his time in Cabinet, where he’s the only one in Kenyatta’s cabinet who has served in the same ministry since May 2013.

  • In April, the president said in his State of the Nation address that all government officers will cease to hold office once they are charged in court. He is expected to name an acting cabinet secretary to the Treasury, as Rotich and Thugge battle to clear their names.

The arrests, and the extensive evidence of how the Treasury under Rotich has used Kenya’s big debt appetite to inflate costs and enrich themselves, will pile pressure on Kenyatta and his government.

In April, The Elephant reported that Treasury insiders suspected Rotich had directly benefitted from the dam projects after he allegedly bought a sawmills company that sat on land meant to be appropriated for the dams, and offloaded it to the government two months for a 600% mark up.

  • Under Rotich’s supervision, Kenya’s public debt has soared from Shs. 1.9 trillion in May 2013 to Shs. 5.425 trillion in March this year. Most of it has been used to plug budget deficits and pay for infrastructure projects.

When news of the scandal first broke out, it played into the growing schism within Kenya’s ruling Jubilee party.

In April, Deputy President William Ruto said that his pronouncements on the dam scandal were only meant to correct a false narrative. At the time, he disagreed with the total amount –Shs. 21bn – lost, saying the government would not have sat back and watch that much money be stolen.

Knowing just how politically explosive Rotich’s arrest would be, Hajj warned in his statement on Monday that: “Being cognizant that corruption always fights back and that there may be elements who may seek to exploit these indictments to instigate social unrest we have put in place mechanisms to monitor any such attempts, which will be countered with whole of government response!”

  • Elgeyo-Marakwet Senator Kipchumba Murkomen, a close Ruto ally and in whose county the dam projects were meant to be built, told reporters on Monday that “I have looked at the charge sheets and I can tell you the entire thing is a charade.”

While the high-profile arrests are a headline-grabbing move, Kenyatta and his government will have a hard job convincing an otherwise skeptical public that they are really serious this time.

  • It is likely that the cases will slide into the usual suits-and-counter-suits quagmire that has slowed down or even ended many previous corruption cases.

Bottom Line: Regardless, it will pile pressure on Kenyatta and his government to defend its heavy infrastructure spending through debt in a process that has been at best secretive even as it increases Kenya’s debt burden.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options