Friday, 11 December 2015


Following the events of yesterday and summons to appear at the Ethics and anti-Corruption Commission, we have called you here to restate the issues we have with regard to the Euro Bond loan.
We wish to state that we do not have answers to give the EACC. We only have questions that we want answered by the government.

We have no information other than government documents and supporting data and reports available on the Treasury and Central Bank websites.
We have relied entirely on government information published in two financial reports for the FY2014/15, namely the Quarterly Economic and Budget Review (QEBR) for the fourth quarter of 2014/15, dated August 2015, and the Budget Review and Outlook Paper (BROP) dated September 2015. Our questions are as follows:
• The two reports cited above have three different accounts of how the Eurobond flowed into the budget. They are contradictory, inadequate and misleading. All the reports show that the Eurobond financed the budget deficit to the tune of Ksh.35 billion in FY2013/14 but the figures presented by CS Rotich to parliament, and reproduced in the Government’s press release dated 3rd December show that that the Government disbursed Ksh. 25 billion. There is a difference of Ksh. 10 billion. This money does not appear as carried forward to the following year. The figure carried forward is Ksh. 140.5 billion which is the difference between the proceeds of the first issue (Ksh. 174b) and the Ksh. 35 billion reflected as commercial borrowing in FY2013/14. Where is the Ksh. 10 billion recorded?
• The first issue of the Eurobond amounting to US$2 billion (Ksh. 174 billion) was received in June of 2014 and is so recorded in the Government’s schedule of foreign debt (QEBR Table 14, Pg. 22, which shows commercial debt increasing from US$ 684.9 billion in March 2014 to Ksh. 2,679.8 in June.
• But as noted above, the Budget Outturn for the year, in all the three different accounts cited above only reflect Ksh. 35 billion. This raises the question as to why the entire amount, Ksh. 174b, is not reflected in the budget accounts for the year, yet it is recorded as a foreign borrowing?
• We also note that the Government has issued false information. In the press release dated 3rd December, the Government dated the transfer of Ksh.35 billion as 30 June 2014, yet a letter written by the Auditor General to PS Treasury gives the date of this transaction as 3rd July. Why is the Treasury issuing false information? What is the justification for backdating transactions from FY2014/15 to FY 2013/14?
• As noted earlier, we have three accounts of the Eurobond proceeds. Two of these accounts QEBR Table and BROP Table 4 show that the Government borrowed domestically Ksh. 201 billion in FY2013/14 and Ksh. 251 billion in FY 2014/15. These accounts do not reflect all the Eurobonds. The third account (BROP Annex Table 2) gives the domestic borrowing for FY2013/14 as Ksh. 190 billion and Ksh. 110 billion for FY 2014/15. The FY2014/15 account includes Ksh.140.5b Eurobond proceeds which are the difference between Ksh. 251 billion and Ksh. 110. There is no figure in the account to explain why the domestic borrowing for FY2013/14 is adjusted downwards by Ksh. 10 billion, although we do note the coincidence of this figure with the anomaly we have noted above, namely the difference between the commercial financing of Ksh. 35 and the Ksh. 25 expenditure reported as spent in FY2013/14. The figures in first two accounts correspond to the narrative in the text of the QEBR quote:
• “By the end of June 2015, net domestic borrowing amounted to Ksh.251.1 billion against a target borrowing of Ksh.172 billion. The borrowing comprised Ksh. 108 billion from commercial banks, Ksh. 27.5 billion from non-bank financial institutions, Ks. 119 billion from the Central Bank and repayments of Ksh. 3.5 billion to non-residents. Comparatively for the same period in 2013, the net domestic borrowing was Ksh. 201.7 billion, comprising of net borrowings of Ksh. 102.5 billion from the non-banking financial institutions, Ksh. 6.4 billion from non-residents, Ksh. 73.4 billion from commercial banks and Ksh. 19.4 billion from the Central Bank.” We note from media reports that our understanding of these figures has been challenged by the PS Treasury (Sunday Nation 5 December). The PS is reported as having said the Eurobond proceeds are reflected in the domestic financing account (QEBR Table 11 Pg. 19) as draw down of Government deposits. We do not believe the PS is being truthful since movements in Government deposits are clearly shown in the account as rising in the first half of the year and declining in the latter half, with the Government ending the year with net borrowing as narrated in the text quoted above. We find no other reasonable understanding of these figures and the accompanying narrative other than that the Government’s domestic borrowings are as stated. We are therefore seeking clarification about these anomalies. Was domestic borrowing in FY 2013/14 Ksh. 190b or Ksh. 201 billion? Was domestic borrowing in FY 2014/15 Ksh.251 billion?
• The Government has published information to the effect that Ksh. 197 billion, which is the entire proceeds of the Eurobond less the amount applied to payment of settle a US$ 600 million syndicated loan, was disbursed to ministries and used to fund development projects. We are questioning this claim. The FY 2014/15 for the National Government’s priority development projects excluding the SGR was Ksh. 114 billion. The outturn shows that donors disbursed Ksh. 126 billion comprising of Ksh. 98 billion in programme and project loans, and Ksh. 28 billion in grants. This amount exceeds the Government’s budget for priority projects. In effect, donor disbursement was more than sufficient to fund the priority projects. We are not convinced that the Government could have absorbed another Ksh. 197 billion, and even if it were do so, we would question the wisdom of spending such a huge amount of money on “non-priority” projects. To satisfy ourselves and the public that the proceeds of the bond have been properly spent, we have asked the Treasury to provide a breakdown of the projects that this money was put into so that we can verify that they exist and that they are good value for money.
It should be clear from the foregoing that the questions we are raising are POLICY, BUDGET, and PUBLIC FINANCIAL ACCOUNTABILITY questions.
We have demanded that the Government to “publish and publicize” the relevant information as required by the Constitution. I have personally asked the President to take charge of this matter because the failure to account for such a colossal amount of money is as grave a national matter as can be.
We see no other reason to drag these questions into investigations of a criminal nature other than to divert attention from the demand for public disclosure in the first instance, and to bury the matter in court proceedings for as long as possible thereafter as happened with Goldenberg and Anglo-leasing frauds.
The answers to the questions we are asking are in the National Treasury and the Central Bank of Kenya and that is where the EACC should be looking.
We have sent this document and the questions to the EACC through our lawyers.
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