Kenya Railways has been imposed with a penalty of Sh3.5 billion due to its failure to meet loan obligations associated with the construction of the Standard Gauge Railway.
This information was revealed by Auditor General Nancy Gathungu in a critical report presented to Parliament. The penalties stem from unpaid and accrued obligations related to the loan from the China Exim Bank.
Gathungu has expressed an adverse opinion regarding the financial statements of the transport corporation as of June 30, 2024, placing the management under scrutiny.
It has come to light that Kenya Railways did not make any repayments to the Exim Bank during the fiscal year in question.
The report indicates that the corporation has accumulated Sh41 billion in repayments and accrued charges.
“Loan documentation indicates that the corporation incurred penalties and interest due to the failure to settle maturing obligations as they became due,” Gathungu stated.
She further noted, “Management failed to provide an explanation for this troubling situation. The effectiveness of controls concerning the settlement of on-lent loans could not be verified.”
On-lent loans refer to funds borrowed by the government from financial institutions and subsequently allocated to another entity.
According to the report, the management of the corporation informed auditors that the revenue generated from railway operations was insufficient to cover the maturing loan obligations.
This situation led to the imposition of penalties during the fiscal year under review, highlighting the financial difficulties faced by the state’s primary transportation service provider.
A recent report from the Treasury disclosed that Kenya Railways incurred a loss of Sh50 billion, the largest among state corporations during the reviewed period. Despite these challenges, Gathungu emphasized that the penalties resulting from the failure to settle maturing loans were avoidable.
“The penalties constitute an unnecessary burden on public funds and could result in the loss of public resources due to excessive costs,” she remarked.
In light of the current situation, Kenya Railways has failed to implement adequate measures to prevent the misuse of public resources.
“The penalties incurred expose the corporation to unnecessary financial burdens that do not accurately reflect a legitimate charge to public funds,” the report states.
Recent revelations may heighten concerns regarding the potential exposure of Kenyans to the debts of Kenya Railways. During the administration of Uhuru Kenyatta, the Treasury downplayed the risks associated with the possibility of the lender seizing Kenyan assets in the event of a default.
Compounding its difficulties, Kenya Railways is facing legal cases that could result in court awards totaling Sh27 billion, including Sh15 billion related to the unlawful demolition of leased properties.
Gathungu expressed apprehension that these liabilities could severely undermine the corporation’s stability if they materialize. Additionally, procurement irregularities, such as employing improper methods to source supplies and thereby excluding potential bidders, have been highlighted.
The audit indicates that during the reviewed year, the agency procured supplies worth Sh9 billion through direct or restricted tendering methods without justification.
“A review of the procurement documentation revealed that the circumstances did not justify the use of these methods, as open tendering would have been the most suitable approach,” Gathungu noted.
She criticized the management for failing to adequately justify their choice of direct or restricted tendering methods.
In certain instances, irregular procedures were observed, including a situation where supplies valued at Sh2 billion were not inspected prior to acceptance.
Auditors found that the committees responsible for inspection and acceptance were established several weeks after the goods had been delivered.
“This suggests that the certificates issued by the Inspection and Acceptance Committees were merely a formality,” Gathungu remarked.
Procurement activities related to security and cleaning services have been identified as potentially violating legal regulations. Auditors have determined that the tender process was conducted prior to the formal signing of contract agreements. Additionally, Kenya Railways may be experiencing revenue losses due to inefficiencies in the meter gauge railway services.
