Kenya Railways was slapped with
a Sh3.5 billion penalty for defaulting on loans borrowed for the construction of the Standard Gauge
Railway.
Auditor General Nancy Gathungu has disclosed this in a scathing report tabled in Parliament. The penalties were from unpaid and accrued SGR loan penalty obligations relating to the China Exim Bank loan.
Gathungu has issued an adverse opinion on the transport corporation’s books of account as of June 30, 2024, putting the management on the spot.
It is emerging that Kenya Railways did not make any repayments to the Exim Bank during the year under review.
The report reveals that the corporation had accumulated Sh41 billion in repayments and accrued charges.
“Loan records revealed that the corporation incurred the penalties and interest due to non-settlement of the maturing obligations as and when they became due,” Gathungu said.
She added, “Management did not provide an explanation for this unsatisfactory matter. The effectiveness of controls in relation to the settlement of the on-lent loans could not be confirmed.”
On-lent loans refers to facilities borrowed from financiers, usually by government, and given to another entity.
According to the report, the corporation’s management told auditors that the cash generated for the railway’s operations was not sufficient to meet the maturing loan obligations.
This was the reason the penalties were charged in the year under review, pointing to the financial mess at the state’s major transportation service provider.
A recent Treasury report revealed that Kenya Railways made a Sh50 billion loss, the highest among state corporations in the period under review. Despite the prevailing situation, Gathungu said the penalties arising from non-settlement of maturing loans were preventable.
“The penalties represent an avoidable charge to public funds and may lead to loss of public funds due to unnecessary costs to the public,” she stated.
In the ensuing circumstances, Kenya Railways has not put in place proper measures to avert misuse of public resources.
“These penalties expose the corporation to unnecessary expenditure which does not represent a proper charge to public funds,” the report reads.
The latest disclosures may escalate concerns about the extent to which Kenyans could be exposed to Kenya Railways debts. Treasury, during the Uhuru Kenyatta regime, played down the risks of a takeover of Kenyan assets by the lender in the event of default.
Adding to its woes, Kenya Railways faces cases with a potential of Sh27 billion in court awards, including Sh15 billion for illegal demolition of leased properties.
Gathungu raised concerns that the liabilities could leave the corporation on its knees – should they crystallise. Procurement irregularities, including using irregular methods to source supplies, hence locking out potential bidders, have also been flagged.
The audit reveals that during the year under review, the agency acquired supplies of Sh9 billion using direct or restricted tendering methods unjustifiably.
"A review of the procurement files indicated that the prevailing circumstances did not warrant the use of the methods since open tendering was the most appropriate method,” Gathungu said.
She castigated management saying they did not properly explain why they used direct or restricted tendering methods.
In some cases, irregular processes played out, the audit pointing out a case where supplies of Sh2 billion were not inspected before receipt.
Auditors established that the inspection and acceptance committees were formed several weeks after the goods had been delivered.
“This was an indication that the certificates issued by the Inspection and Acceptance Committees were just a formality,” Gathungu said.
Procurements of security and
cleaning services have been flagged
for legal breaches.
Auditors established that the
tender was executed before the
contract agreements were signed.
Kenya Railways could also be losing revenue in leakages at the meter gauge railway services.
