Fibreoptic project cost is unknown, Auditor-General Nancy Gathungu concludes

Missing documentation has put the government on the spot over exactly how much it borrowed to finance the National Fibre Optic Backbone Infrastructure project.

In a forensic audit report tabled in the National Assembly last week, Auditor-General Nancy Gathungu notes that the State Department for ICT indicated that the contract sum for the project’s three phases was Sh20.5 billion in loans from China.

The loans were procured in Renminbi (RMB), the official currency in China.

However, only Sh10.95 billion of the amount can be ascertained through the documents provided by the state department, leaving Sh9.55 billion unaccounted for.

Previously, the Public Accounts Committee (PAC) of the National Assembly had heard during consideration of the audited accounts of the ICT state department for 2017/18 that the project had been financed in excess of Sh30 billion.

But the failure to provide documentation saw the committee recommend that the Auditor-General undertakes a forensic audit of the project in its report that was adopted by the House in 2020.

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The document shows that the project was implemented in three phases. The first phase was to be funded through supplier credits, grants, concessions and loans.

The report notes that the framework and concessional loan agreements for the first phase were not provided for audit review.

The failure of the government to ascertain the exact amount borrowed on the project has been attributed to poor record keeping.

Whether this was deliberate or not, the country may not know what the auditors were not able to establish.

Also raised by the report is the failure to ascertain the total funds disbursed, expenditure incurred, value and the total project’s assets procured.

Despite spending billions on the project, the audit team noted various non-functional, faulty and idle project equipment “which were not serving the intended purpose” and the lack of data security of the network, thus exposing critical information to possible security threats and casting doubts on the prudent use of borrowed funds.

“The ICT Authority did not provide an asset register for the project equipment acquired and installed in all three phases. It was therefore difficult to ascertain the value and location of the ICT assets of the project,” the report states.

Curiously, the 2019/20 audit report on the accounts of the ICT Authority notes that the project loans were not recorded in its financial statements or accounting records.

Also, representatives of Huawei (Kenya), while appearing before PAC in early 2021, disclosed that they were not aware of the contract and that efforts to get the contract documents from the Office of the Attorney-General had proved futile.

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Audit reoprt

However, the audit report blames the state department of ICT for failing to provide an explanation of how the Chinese government was identified as the financier of the project.

The project’s phase I was implemented between 2007 and 2009, phase II from 2012 to 2017 and phase II expansion from 2016 to 2020. However, all the budgets for phases I and II for 2012/13 to 2014/15 financial years were not provided for audit.

No policy

Although the project was implemented in various national government ministries, departments and agencies (MDAs) in the 47 counties, there was no policy or guideline on its implementation outlining the roles of the different entities.

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Phase I was undertaken by ZTE Corporation, Sagem Communications and Huawei Technologies. Phase II was undertaken by Huawei Technologies even before the National Treasury secured funding.

The report notes that documents to support how the three firms were identified were not provided for audit. The commercial contract for ZTE Corporation was also not provided for audit.

Sagem Communications was contracted to undertake phase I at Sh442.79 million, but documents supporting the payment were not provided to the auditors. 

The availability period for the project’s phase II concessional loan of Sh6.1 billion started on November 28, 2012, and lapsed seven years later before the state department could draw down Sh269.76 million for maintenance service.

The money, which should have been paid by Exim bank to Huawei Technologies, was instead paid by the state department from the development vote.

The concessional loan agreement required the Treasury to pay a commitment fee of 0.75 per cent per year (about Sh2.1 million payable semi-annually) on the undrawn and uncancelled balance of the facility.

“No evidence was provided to confirm whether the National Treasury paid the amount, which is a breach of the contract and may lead to future legal consequences against the government,” the report notes.

Physical verification of the project’s implementation in 22 counties showed anomalies in various phases. They included non-functioning, faulty and idle equipment, disconnected power supply and termination of optic fibre and some sites contracting alternative internet providers.

The audit has also queried how the project’s equipment was collocated at Telkom Kenya’s offices, a private company in which the government held a 40 per cent shareholding.

“There was no collocation agreement to safeguard the project’s assets,” states the audit report.

On September 7, 2010, the government, through the ICT ministry principal secretary, signed a two-year operations and maintenance agreement with Telkom at a monthly fee of Sh20.26 million. The audit notes that the agreement was backdated to February 11, 2010, resulting in Sh141.83 million irregularly being paid to Telkom.

The report also shows that the amount of revenue from the leased out phase I infrastructure from June 2011 to December 2021 when Telkom ceased carrying out operations and maintenance was Sh2.33 billion, while the cumulative cost incurred during the same period was Sh2.21 billion.