A logistics firm linked to the family of former Mombasa governor Ali Hassan Joho was awarded a contract on concessionary terms to operate at the taxpayer-funded inland cargo terminal in Nairobi in 2018 based on forgeries of board resolutions by the then-acting Kenya Railways Corporation (KRC) managing director, the Auditor-General says in a special audit report.
Autoports Freight Terminal Limited had sought to be given concessionary lease terms after being allowed to set up at the Nairobi Freight Terminal (NFT), similar to those awarded months earlier to Grain Bulk Handlers Limited (GBHL), which was setting up its own facility in Athi River.
The firm wanted to pay a discounted freight tariff of $450 per wagon of 60 tons for a period of 10 years, waivers of stand premium and annual rent premium for 10 years, automatic renewal of its 45-year lease and a termination clause period of 24 months.
The KRC board, however, voted to reject these waiver appeals, saying that they were only available to firms setting up their own greenfield facilities, rather than those using existing terminal facilities.
The board resolved that offering comparative rates for the Autoports’ operation at the NFT and the proposed rail logistics hub at Athi River by GBHL was not like for like because NFT had already been developed through public funds.
However, the Auditor-General says, the then acting KRC managing director wrote to the Transport Cabinet Secretary (CS) saying that the board had approved the appeal by Autoports, effectively falsifying the resolutions of the board.
“There was a letter from the acting MD (Ref: KRC/CS/MD/3/388) dated December 14, 2018, addressed to and received by the CS for Transport on December 17, 2018. The content of the letter misguided the CS that the board approved all the conditions of Autoport’s appeal and was requesting for the CS’s approval. The special audit did not obtain any official written correspondence from the CS responding to this request,” says the Auditor-General in the report.
“A letter was then sent to Autoports by the acting MD (Ref: KRC/CS/MD/3/338) on the same day communicating a resolution of the board and indicating concurrence by the CS contrary to the actual events.”
The Auditor-General said that the special audit could also not independently ascertain the origin of the contractual arrangement between KRC and Autoports, or what the firm had expressed as its interest to invest to support the movement of cargo via the standard gauge railway (SGR).
Further, the report says, the Attorney-General offered legal advice on the deal stating that KRC could not legally lease without utilising the provisions of the PPP Act, given that it was already built up using taxpayer funds and required no further investment on the part of the company leasing it.
Autoports had for months been piling pressure on KRC to give it exclusive use of the freight terminal strategically located near the SGR terminal in Syokimau, a move which would lock out other players and elicit fierce protests in the sector.
Rival logistics companies protested the allocation claiming it would cost the government revenue and cause losses to traders who had long-term transportation contracts with other logistics firms.
Autoports also secured a preferential deal to transport cargo from Mombasa to Nairobi over a 10-year period at up to 80 per cent discount.
This is against the maximum volume discount of 10 per cent allowed in the corporation’s tariff book.
To be given the special rate, Autoports promised the KRC guaranteed business volumes by moving 1.6 million tons (or 24,615 wagons) annually.
Autoports would ideally pay KRC Sh5.28 billion to transport the 24,615 wagons it promised to move at the preferential rate of Sh45,000, but under the concessionary terms, this would fall to about Sh1.1 billion.