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Wednesday, November 7, 2007

KEN REN: the scandal that dies hard

While researching the notorious Russian MI-17 helicopter overhaul contract, we came across a puzzling exchange in the Parliamentary Hansard of June 26th 2007.

The scene opens with Joe Nyagah, MP for Gachoka in a full frontal engagement with John Michuki, the Minister for Administration and National Security over the 12.8 million dollar helicopter overhaul contract that was awarded to the highest bidder. At issue is whether or not Mr. Nyagah is in a position to give the true facts over helicopters. Joe Nyagah suddenly shifts gears and thanks the government in the ultimate back-handed fashion. If he intended to silence Mr. Michuki, it worked.

“Mr. Deputy Sir, I wish to thank the Government for wishing to repay the [sic] Kenden loans. As we know, Kenden collapsed in 1970’s. I see that from this year, we will start repaying those loans dating back to 1970’s.”

Mr. Nyagah’s thanks cannot have gone down well at all. He had raised a gigantic bogey from the past. The distant past - three decades ago.

Ken Ren Chemical and Fertiliser Company; a 30 year-old scandal had re-emerged, with less than 4 months to go before the 2007 presidential election.

A thumb nail sketch of Ken Ren:
In its hey-day, Ken Ren was the Goldenberg and Anglo Leasing of Kenyan public sector corruption. It had a mix of local and foreign players and was shrouded in mystery. Shrouded in mystery, for a generation of Kenyans, Ken Ren is almost completely unknown.

In the early 1970’s, a decision was made to enter into a joint venture with an American Company to establish a fertiliser processing plant at Mombasa, on the Kenyan Coast. The company was called Ken Ren Chemical and Fertilizer Company. The government was both a shareholder and a guarantor for the factory. The deal collapsed in scandal and the factory was never built. The company ended up in liquidation and embroiled in litigation in Europe. At the heart of parliamentary and public scrutiny, was the role of treasury, then headed by Mwai Kibaki, as Minister of Finance.

What we know of the litigation:
Information on the litigation is hard to come by. Nevertheless, research reveals two cases. In the first, SA Coopee Lavalin v. Ken Ren Chemicals and Fertilisers Ltd, a U.K. House of Lords decision of 1994, the court records the plaintiff as a Belgian company who had contracted with the Kenyan defendant (Ken Ren) to build a chemical plant in Kenya. When a dispute was referred to arbitration by the ICC in London, the Belgian company sought security from Ken Ren, which had become insolvent, on the ground that Ken Ren’s backers (which included the Kenyan Government) were unlikely and could not be forced to pay costs, should Ken Ren’s claim at the ICC fail. The House of Lords agreed to order security, partly on the basis that the insolvent Ken Ren was being funded by the Kenyan Government.

The second litigation ended more recently. The ICC Arbitration proceedings, Republic of Kenya vs. Bawag of Austria, resulted in an award against Kenya in November 2000; and heralded the beginning of the re-entry of Ken Ren into the public consciousness.

Fast Forward to 2007:

Soon after Joe Nyagah’s altercation with John Michuki, on July 11th 2007, Peter Kenneth (Assistant Minister for Finance) tabled a list of all loans signed by the Government of Kenya between January 1963 and December 31st 2006.

On this list there are two Ken Ren related loans. Unpaid loans. Collectively, they are worth just over Ksh. 4.3 billion. The questions rapidly follow:

• Why would we have such loans on our books, in 2007 if the Ken Ren Fertiliser Company was never built?

• Why do the budget estimates provide for a payment of at least Ksh.268m on principal and interest payments for Ken Ren, which by all accounts ended in failure 30 years ago?

• Why should Kenyans pay for a 30 year old dud project?

• Who was responsible for getting us into this debt, in the first place?

The Ken Ren Debts:

It is possible to depict the Ken Ren debts in tabular form. The information below is derived from public domain Kenyan Ministry of Finance documents including the list of loans signed between 1963 and 2006, the statement of public debt and the budget estimates 2007/8. Ken Ren, it would appear, has been hidden in plain site.

Creditor: Austria –Bank Fr Arbeit und Wirtschaft AG (BAWAG)
Date: November 14th 2000
Purpose: Ken Ren Fertiliser Company Restructuring Agreement
Amount: Ksh 1.4 billion (Euro 16.63 million)
Outstanding June 2005: Ksh 1.48 billion
Repayment Terms: Loan of Euros 16,635,156 payable semi-annually commencing 30 September 2003 and ending 31 March 2014 as per agreement dated 14 November 2000
Budget 2007-8 Provision: Principal redemption Ksh 192,982,604Interest Ksh 75,644,019

Creditor: Belgium - Ducroire
Date: ICC Award November 6th 2002
Purpose: Ken Ren Rescheduled debt agreement (No. ii)
Amount: Ksh 2.89 billionEuro 32.5 million
Outstanding June 2005: Ksh 2.85 billion
Repayment Terms: Loan of Euros 32,520,319 repayable in 21 semi-annual instalments the first falling due on 31st December 2003 and ending on 30th June 2015

Bearing in mind that our public debt accounted for 50.5% of our GDP in 2006, is it not time Kenyans started asking pointed questions about Ken Ren and other odd debts?

Especially now in this is election year, as Minister of Finance Amos Kimunya continues to borrow at unprecedented levels – even while an 11 country study by the World Bank study rates Kenya’s debt management capacity as weak (Business Daily, July 10th 2007).

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