Once Kenya’s key artery, Kenya Railways Corporation sagged under deep corruption and mismanagement in the 1980s through the 1990s, but the rot didn’t stop with the concession to Rift Valley Railways. In fact, the transition merely hastened the pilferage of the debris of the train that once drove the regional economy.
In September this year, railway operator Rift Valley Railways (RVR) announced that it had secured Sh2.2 billion shillings to fund the acquisition of new locomotives. Communication from the concessionaire said that with this money, RVR would buy 20 locomotives from American conglomerate General Electric as part of its strategy to replace its near obsolete fleet of trains.
The funders of this project include South African financiers Standard Bank and CfC Stanbic Bank as well as local benefactors it never mentioned.. The acquisition of the new fleet marks the first investment made in over three decades. The first batch of three locomotives arrived last month.
But behind the glitzy announcement lies an untold truth in the manner in which Kenya Railways Corporation (KRC) disposed of old locomotive and wagons. Dodgy contracts, non- payments, canvassing of tenderers all featured in the RVR internal audit that laid bare the manner in which a once pride of the nation had been carved and shared out by individual companies.
In a special meeting held on June 11, 2013, a KRC audit committee received reports from the then sitting head of department on concerns with the sale of items belonging to the corporation categorized as scrap metal. After these concerns were raised, an in-depth audit of the disposal process was commissioned. It was to cover the disposal of assets belonging to the concessionaire between January 2009 and May 2013.
The findings exposed a cabal that drew top staff and corrupt businessmen whose major aim was to fleece the institution. Dodgy contracts, non- payments, canvassing of tenderers all featured in the internal audit that laid bare the manner in which individuals and companies had carved the rail facilities for themselves.
After the concession of the operations of rail operations by the KRC to RVR in 2006, there were assets which were unserviceable or which RVR considered as not required for their operations and which were left out in various parts of the country.
They were referred to as non-conceded assets irrespective of their status of disrepair. In 2007, a team of experts were hired to traverse the country and conduct a survey of scrap, surplus equipment and plants at RVR premises and recommend, to management, a suitable method of disposal to realise maximum revenue.
In September 2007 the committee presented their findings. As at that time, it was estimated that the total volume of scrap assets was 33,000 tones. All these compounded from scrap rolling stock, track materials (excluding rails) and miscellaneous scrap. Also, it was again estimated by the same team that the company would realise gross revenue of Ksh 450 Million from sale of scrap at Kshs 13.60 per Kg plus an additional Kshs 20 Million from the sale of assorted mobile equipment such as vehicles, boilers, marine vessels and cranes.
As an exception, it was also decided that there would be no sale of rails irrespective of their condition due to the numerous alternative uses they have.
“Selling worn out or corroded rails as scrap would encourage stealing of rails along the lineand even dismantling active track,” the consultants said in their final submission.
After this was decided upon, ground rules for this necessary disposal of scrap were set.
First, the scrap was to be moved into designated areas which were to be fenced off and secured. There was also to be meticulous recording of items allocated for collecting and cutting on a daily basis. Then a movement certificate for approval by the Regional Scrap Coordinator was to be issued which was to be followed by transportation of the scrap to approved weigh bridges.
The weigh bridges were to be approved jointly by RVR’s accountants, the auditor, the regional scrap coordinator and a representative from the buyer. Equally important and mandatory was the issuance of delivery notes and invoices.
During a special meeting on 13th January 2009, the Kenya Railways Board approved disposal of 7,427 .98 tons of locomotives and 589.71 tons of PW materials.The disposal would generate over 136 Million shillings at the rate of Kshs. 17 per Kilo.
The Kenya Railways Corporation consequently on 19th May 2009 advertised for bids from eligible firms for purchase of scrap materials available in different regions of the country.
In 2009, Kikaki investments Ltd was awarded Contract number KRC/PLM/66/09 for Sale of steel pipes at Kilimanjaro water supply pipeline at KSh60 million which was signed on January 25, 2010. Kilimanjaro was an old section of water ways laid and maintained by Kenya Railways in the early years of the cooperation to supply water to Sultan Hamud, Emali, Simba and Kiim- Kiu areas –towns whose very existence depended on the once active East African Railways and Harbours. New and heavier water demands from the population around this pipeline led to the commissioning of the laying of another bigger pipeline in, 1991, by the government of Kenya thus rendering the maintenance and use of the old pipeline untenable.
In a bid to lock out unscrupulous dealers, the contract had a clause requiring the tenderer to quote for the entire length of the pipeline and that no partial tenders were allowed. The tenderer was required to pay full value of the tendered price within seven days of signing the contract, failure to which the tender award would be cancel and the 2% bid bond forfeited.
The audit report says there was no evidence that Sh60 million was paid by Kikaki within seven days as per the contract. Kikaki paid a total of Sh6,106,000 against invoices of Sh6,487,969.32. Sh6,850,519.00 was not invoiced.
“It is therefore not clear how the difference of Sh46,661,511.68 not received from Kikaki was dealt with if the Pipeline was correctly valued at Sh60,000.000. It is not clear whether the full pipeline was collected as no report on the completion of the exercise was filed,” the report reads.
On October 12, 2010, Kikaki Investments Ltd entered into an agreement with Chuma Mania Enterprises Ltd (transferee) and Kenya Railways Corporation – as a counterparty, to transfer the entire portion of the rights and obligations of the transferor in performing contract (RC/PLM/66/09 sale of steel pipes at Kilimanjaro water supply pipeline).
The auditors, in their investigations established that Kikaki and Chuma Mania shared directors.
Another damning revelation was that this same contract- originally for collection of old piping- has been used multiple times to collect scrap with the most recent being 18 wagons and 15 tanks in from western Kenya.
“It is not clear the circumstances that led to the transfer of the contract and how it was authorized. It is also not clear what those rights were,” said the auditors.
Although KRC was indicated as counterparty in the agreement nobody in within the corporation signed the document. It is clear the corporation consented to the deal as it opened a customer’s account in the name of Chuma Mania.
Furthermore, an undated letter from Chuma Mania enterprises received by the Corporation on March 1, 2011, Chuma Mania indicated that they had given exclusive rights for sorting, cutting and collection of scrap metal, to Tropical Reclaim Co. Ltd owned by Robert Mwangi.
“We however noted that the account for Tropical Reclaim Co.( CU/00819) was opened on December 21, 2011 where the amount of Sh3,300,000 was prepaid to the account and which was later transferred to Chuma Mania Account on July 3, 2012,” concludes the report. “The transfer of rights to Tropical Reclam Co. Ltd did not stop Chuma Mania from collecting scrap from the Corporation.”
Minutes from a security meeting held on February 26, 2010 noted that another scrap metal dealer, M/s Kenmart was scrapping pipes within railway premises. No evidence exists to show that payments were made to KRC. Also, nothing exists to show the company owners or operatives were arrested for stealing.
A source familiar with the dealings of the corporation told this publication that all these happened because of the the“systemic void” during transition. “All this happened at a time when the contracts for auditors and independent accountants were coming to an end. This created a void in controls and monitoring of the scraping processes. It is also a period where firms which are not steel millers and were merely brokers were awarded tenders for the scrap,” the source said.
On June 29, 2010 the corporation advertised yet another tender (KRC/PLM/27/2010) for the sale of scrap cast iron and scrap locomotive materials at Central Workshop, Nairobi. The contract was awarded to and executed by Shivam Metals Limited on October 11, 2010 at a sum of Sh44,3 million.
Again, the tenderer was required to within seven days of execution of the contract remit Sh11,075,000 being the deposit of 25% of the value of scrap cast iron materials. The audit report shows that no evidence exists to show that Shivam paid as per contract.
“The contract was flouted from the beginning,” says the report.
Although the above tender was for the sale of scrap cast iron and scrap locomotive materials at Central Workshop, Nairobi, the same was used to collected scrap materials from across the network including at Railway Training Institute which had been awarded to another entity, Morris and company.
At the time of the concession, the Kenya Railways Corporation handed over a total of 6,016 rolling stock to RVR excluding locomotive engines, coaches, BKs, BVs, and BVBs. However, at the time the audit was completed, 1,320 wagons remain unaccounted for.
A number of assets scrapped between 2009 and 2013 were sold before they were formally returned to KRC as per the procedures. All the items collected from January 2013 were neither billed nor weighed yet their collection was supervised by scrap coordinators and KRC security.
128,740 kilos of rails valued at Sh2,832,280 salvaged from Solai line between on September 13-22, 2011 were transported to supplies yard in Nairobi for safekeeping. Physical verification revealed that all the materials were no longer in existence. There is no evidence showing how they were eventually removed from the yard, and who authorized their removal.
The report also says that in 2011 an individual known as James Mwangi was quietly allowed to collect loose scrap metals alleging it was waste, eventually making away with some of the permanent way materials. By the time he was stopped, the auditors estimate that a total of 47 truckloads of scrap had been moved out.
“Assuming each truck carried on average 14,850 kilos, the value of the scrap lost in this process was Sh15, 354,900.00,” reads the report.
The report further reveals that a meeting held by the firm’s management land use committee on December 1, 2011 approved the leasing out of Supply Yard to eight applicants.
It further resolved that only buildings would be leased out in view of the intended development of the state of the earth termini. In spite of this, plots around the said area were subdivided and railway sidings removed by one of the scrap dealers.
The audit team could not establish the volume of the permanent way material taken from the yard as there were no documents availed by the Regional Scrap Coordinator who was supervising the work.
The auditors also faulted the security department at the corporation saying it chose to ‘become aloof’ to obvious security situations during the scraping process to the extent that they were unable to provide records of what was collected in their region.
“It appears that KRP (Kenya Railways Police) have been directly or indirectly involved in trading in scrap metals either as transporters or scrap dealers,” concludes the report pointing out an incident during which a stone crusher went missing.
“The circumstances surrounding the theft of the stone crusher at Leseru and information collected from the field indicate that the police and indeed KRC staff supervised, or were involved in the cutting of the Crusher and removal of 200 metres of railway siding,” it said.
In finality, the audit team concludes that almost Sh160 million was pilfered from the corporation during the years immediately after the concessioning.
“From the analysis of available records, the total volume of scrap collected and not invoiced which we were able to access is valued at Sh143,245,149 , excluding unaccounted waste, which is valued at Sh15,0 354,900.00,” the report says.
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