Kenya Airports Authority has given up more than Sh5 billion that it paid in advance to a Chinese contractor to build a second runway at the Jomo Kenyatta International Airport.
The construction of the Greenfield Passenger Terminal Complex at JKIA —which was to include the runway and passenger handling facilities— was launched in a colourful ceremony that gobbled taxpayers’ Sh75 million.
However, the work was never done after KAA fell out with the contractor, who later claimed Sh17.6 billion for designs, preparatory expenses and interest.
It has since emerged that KAA negotiated with the Chinese contractor, a joint venture of two firms ACEG and CATIC, for a final mediation settlement.
The parties, a new audit shows, agreed to a full and final payment of Sh614 million and that the advance pay of Sh4.8 billion be written off.
Treasury records that were earlier tabled before the Public Investments Committee showed Sh8.3 billion had been paid.
Auditor General Nancy Gathungu has red-flagged the write-off (amounting to Sh5.3 billion), warning that the correct procedure was not followed and citing possible irregularities.
“Although the Cabinet purportedly approved the write-off, there was no evidence of communication of the approval of the write-off by the Cabinet.”
Gathungu said there was no notice (of the approval) to the accounting officer through the Cabinet Secretary in writing with a copy to her office.
The auditor has also decried the secrecy in the write-off and final settlement on the Sh55 billion project which failed to take off.
“The Cabinet memorandum on the final settlement of the agreement was not provided for audit review despite the fact a copy of the memorandum had been dispatched to the accounting officer by the solicitor general,” Gathungu noted.
With the latest payment, taxpayers have now lost more than Sh5.4 billion in the project, including Sh75 million spent on the groundbreaking ceremony in May 2014.
Taxpayers, however, could still be exposed, owing to the infractions by the concerned authorities in executing the payments.
Gathungu says a review of the arbitration records revealed that the consent award issued was not made as advised by Attorney General Justin Muturi.
It is coming out that the AG advised KAA to obtain Cabinet approval for the write-off, and issue instructions to its legal counsel at the arbitration case to record with the Arbitral Tribunal and International Chamber of Commerce that the matter had been fully and finally settled by way of mediation.
This was needed to issue a consent arbitral award per the arbitration rules. KAA was also to obtain from the contractor a certified copy of an order from the Chinese court.
Muturi had instructed that the order sought to be duly translated into English and was to confirm that the suit relating to the advance payment guarantee had been withdrawn by consent of the contractor.
“In the circumstances, the legal status of the arbitral award, validity and completeness of the write-off could not be confirmed,” Gathungu said in her review of KAA books as of June 30, 2023.
KAA cancelled the Greenfield tender in March 2016 after a row with the contractor over terms and the construction contract.
The contractor then submitted a claim of Sh17.6 billion in November 2017 and escalated the matter to the International Court of Arbitration.
President William Ruto’s administration, on taking over, resolved to revive the project to handle traffic snarl-up on the single runway at JKIA.
Operations at the country’s main air hub have been disrupted twice in under one year after aircraft stalled on the runway.
KAA also faces questions over the payment of some Sh12.3 million legal fees to lawyers who represented the authority in various disputes.
The auditor said the accuracy, completeness and regularity of the payment of legal fees could not be confirmed.
This was after KAA failed to provide documents to show how the legal services were procured, the scope of work per firm, and the terms and conditions of engagement.
Further details show that the authority could be losing hundreds of millions in parking fees as a result of weaknesses in the revenue collection system.
Revenue collection at Kisumu, Malindi, and Eldoret airports was based on a manual system with physical receipts or no receipts issued at all.
“It was therefore not possible to ascertain the completeness and accuracy of car park revenue declared and collected for these airports,” the report reads.
Gathungu said her review revealed that KAA wholly relies on the reports of the Kenya Airports Parking Services—the concessionaire that operates the automated parking system at JKIA.
“This exposes the authority to loss of funds as it solely relies on the reports from KAPS for bill purposes. No data verification and reconciliation is undertaken to ensure accuracy of the information declared by KAPS,” the report reads.
A variance of Sh101 million for January to May 2023 collections was noted in an e-point of sale system maintained by KAA, which is connected to the KAPS system.
Records of collections between July 2022 and December 2022 could not be accessed through the system as well.
“ePos could only extract selected data as shared from the KAPS system thereby restricting the ability of the authority to validate any information from the concessionaire,” Gathungu said.
The auditor is further concerned that the system is not fully controlled by car registration numbers and that data provided by KAPS was not verifiable.
“The system sometimes captures and prints symbols on the tickets instead of a specific car registration number.”
“This exposes the authority to loss of revenue because one car ticket can be used by a different car to exit, creating a lapse in the security system,” Gathungu said.
She further reported that some users were paying in cash to the KAPS operators and the collections were not recorded in the system.
Others would present the tickets and be allowed to exit, the auditor noted, adding that specific details of cars, the time they took at the airport, and actual fee payable was not provided for audit review.
“The exit point has a manual operation that enables car exit without actual payments,” Gathungu pointed out, adding that KAPS barely declares monthly collections.
KAA, it is also turning out, has no way of verifying the quantities of cargo handled by the Kenya Revenue Authority.
“KAA recognises the amounts received from KRA without any way of authenticating the quantity of the cargo handled as it doesn’t have access rights to information pertaining to the cargo handled by agents and the amounts remitted to KRA by the cargo handling agents.”