Mithika Linturi

Agriculture CS Mithika Linturi flags off grain dryers at the Nakuru NCPB depot in Nakuru City on January 31, 2024. The CS also flagged off distribution of subsidized fertiliser at the same facility.  

| File | Nation Media Group

Questions over Sh12 billion looted in State fertiliser gravy train

What you need to know:

  • In 1970, when the government guaranteed a loan to set up a manufacturing plant, Ken-Ren Chemical and Fertiliser Company, which was never built.
  • In 2013, President Uhuru Kenyatta introduced a programme to help farmers reduce the cost of production.

  • The audit report for the 2016/17 financial year also uncovered payments for thousands of bags of fertiliser that were never supplied.

At least Sh12 billion has been lost through corrupt fertiliser deals, including government subsidies, according to analyses of audits in recent years, even as top state officials face trial after the Kenya Kwanza administration’s programme imploded into a scandal.

Since 2014, the Auditor-General has exposed apparent collusion between state officials and barons to inflate prices of imported fertiliser, make huge payments for undelivered consignments, settle claims for sub-standard commodities and divert revenue from sales by the National Cereals and Produce Board (NCPB).

Every season, the subsidy programme, conceived to supply affordable fertiliser to farmers, has become a cash cow for merchants and their accomplices in the system, who burst budgets, sometimes in excess of billions of shillings, to line their pockets at the expense of farmers and taxpayers.

A review of the audits by the Saturday Nation exposes the rot whose architects have largely gone unpunished, once again turning the spotlight on the long-running scandals, the latest of which has seen NCPB officials hauled in court and Agriculture Cabinet Secretary Mithika Linturi battling removal.

From inflation of budget in 2018 by Sh2.3 billion after paying more for a less consignment to Sh1 billion payment to a supplier yet 456, 000 bags of fertiliser never made it to national stores, the theft has been brazen.

The corruption seed seems to have been planted in 1970, when the government guaranteed a loan to set up a manufacturing plant, Ken-Ren Chemical and Fertiliser Company, which was never built. The money disappeared.

By the 2015/16 financial year, taxpayers had forked out Sh6.3 billion to the governments of Australia and Belgium for the Ken-Ren project that “did not take off and no value for money was realised”, according to the Auditor-General.

After squandering public money to build a factory for the large scale production of the input, which would have ensured prompt availability of cheap fertiliser, importing the commodity has become a lucrative business under successive governments, and an avenue to further rip-off taxpayers.

On assuming power in 2013, President Uhuru Kenyatta introduced a programme to help farmers reduce the cost of production.

But the Auditor-General’s report for the 2014/15 financial year noted the propriety of the expenditure of Sh2.1 billion by the NCPB for the purchase of subsidised fertiliser to be sold to farmers “could not be ascertained”.

Auditors observed that apart from an invoice and a schedule raised by the NCPB, no verifiable documents were produced to confirm the actual quantity bought, the quantity sold to farmers and purchase and selling prices.

The parastatal has been unable to furnish auditors with proof of the funds having been spent as required even in subsequent years.

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Review of the position during the 2015/16 and 2016/17 fiscal years reveals “the expenditure still remains unsupported,” the reports of the Auditor-General say.

The audit report for the 2016/17 financial year also uncovered payments for thousands of bags of fertiliser that were never supplied.

A review of records availed for audit revealed that a company was paid the full contract sum yet it did not deliver 17,060 bags costing $441,001 (Sh45,423,103) in the period under review.

No revision in quantity

The firm had been contracted to deliver 182,000 50-kilo bags of different types of fertiliser during the short rains at a cost of $4,434,733.50 (Sh456,777,550.50).

“No reason has been given for failure by the contracted company to deliver the consignment in full,” the report observed.

Auditors have also questioned the inflating of the total budget for the purchase of fertiliser by more than Sh530 million during the 2017/18 financial year.

The government had budgeted for 168,480 tonnes of fertiliser valued at Sh5 billion but the amount was later revised to Sh5.6 billion.

Despite the significant increment, there was no revision in the quantity of the farm input to be supplied.

The reason given for the revision of the budget was that the State Department for Agriculture had earmarked to clear NCPB debts, which amounted to Sh7.99 billion as at June 30, 2018.

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“However, no documentary evidence was provided to indicate that the revision of the budget was related to the amounts owing to NCPB,” says the report of the Auditor-General for the 2017/18 financial year.

The requested documents were never supplied even during the subsequent audit for the 2018/19 fiscal year.

The same report questioned the payment by NCPB of Sh209 million to a supplier when the order was less by 12,516.65 tonnes.

The state department had entered into a Sh5.5 billion contract with Trading Company for the supply of 115,700 tonnes of fertiliser.

However, the board only ordered 103,183.5 tonnes but paid Sh5.7 billion.

Auditors noted that no reasons were given for the revision of the contract price by Sh209,357,995, considering the order was less by 12,516.65 tonnes.

Even more puzzling was the discovery that the department and the NCPB exceeded the budget in 2018 by Sh2.3 billion after paying more for a smaller consignment.

According to the audit, the supplied consignment was short by 22,802.65 tonnes or 456,053 bags of the order valued about Sh1.2 billion.

Like before, no reasons were given for failure to deliver the order in full. No sanctions were imposed on suppliers for not delivering the full contracted amount.

In total, the government paid Sh8.1 billion for the 149,775.25 tonnes of fertiliser, with the department paying Sh2.3 billion and NCPB Sh5.7 billion. The procurement exceeded the budgeted amount of Sh5.6 billion.

“No reason was given for failure by the state department to order the full amount of 168,480 tonnes of fertiliser as in the approved budget. No explanation was provided for the revised cost of the fertiliser,” the report observed.

fertiliser subsidised

Workers arrange bags of subsidised fertiliser at the National Cereals and Produce Board depot in Elburgon, Nakuru County.

Photo credit: File I Nation Media Group

More inconsistencies were uncovered following scrutiny of payment documents.

While officials explained a payment of Sh175 million for the procurement of 3171.2 tonnes of Urea from Trading Company was voided in the Integrated Financial Management System (Ifmis) on June 30, 2018, the cancelled payment voucher was not provided for audit.

The expenditure was also not reversed in the Ifmis general ledger.

Even more curious, in an October 18, 2018 letter, another company resubmitted an invoice requesting to be paid the same amount of Sh175 million for the Urea.

The ledgers indicated that Sh3,639,979,569 was paid in respect of the fertiliser delivered while other records showed Sh1,491,656,363 having been paid.

This resulted in an unexplained difference of Sh2,148,323,206.

Consequently, the report added that the accuracy of operating expenses of Sh4,883,928,284 as disclosed in the financial statements could not be ascertained.

The audit also revealed figures of quantities distributed by NCPB during the short rains in October 2017 and long rains in February 2018 do not add up.

Auditors observed that it is not clear how additional 200,000 bags of DAP fertiliser were introduced into the system. They also questioned the distribution of 100,000 bags of NPK, 50,000 bags of Blend 4 and 24,000 bags of Blend 9 fertiliser.

The investigation established that the CAN fertiliser delivered by Trading Company “was said to be of poor quality and at one time, its loading and distribution had been suspended until quality issues had to be sorted out”.

“The fertiliser was said to be caked and attempts to make it free flowing were unsuccessful. It was not clear how the quality issue was sorted out as it was eventually distributed,” the report stated.

The audits also exposed unaccounted revenue from the sale of fertiliser. The NCPB was to bank revenue realised from the sale of local blends of fertiliser that were procured by the state department from Access to Government Procurement Opportunities firms in KCB Bank for onward transmission to the state department’s account at the Central Bank of Kenya.

But while the state department indicated that NCPB had an accumulated sales receipt of Sh1.2 billion as at June 30, 2018, the parastatal reported revenue amounting to more than Sh1.4 billion.

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It was indicated that the amount was used to offset debts owed to the board as the state department had failed to settle its obligations related to subsidy claims by NCPB.

Further, the state department indicated that as at June 30, 2018, it had 236,217 bags of different types of fertiliser outstanding in the NCPB depots.

This implies that at least 2,303,235 bags of various types of fertiliser had been sold, which would mean that the NCPB had collected more than Sh2.3 billion.

Under the circumstances, the total revenue collected could not be confirmed, the auditors concluded.

Auditors have also questioned the blatant waste of Sh147 million public funds in unnecessary bank charges on the Post Import Facility.

The controversial payments were flagged among Sh4.2 billion paid by NCPB during the period under review.

In the 2013/14 fiscal year, the State Department for Agriculture contracted a company to supply 102,550 tonnes of fertiliser for Sh3.8 billion.

The department subsequently assigned the contract to NCPB, which in turn entered into a Letter of Credit (LC) arrangement with a bank.

Upon delivery of the fertiliser and subsequent expiry of the 180 days of the LC, the NCPB failed to pay up and the bank converted the LC into a loan chargeable at 14.78 per cent interest per annum.

“No satisfactory explanation has been provided on why the department paid interest on a loan arising from a contract that it had assigned fully to NCPB,” the audit report observed.

Auditors also flagged the award by NCPB of contracts to suppliers who quoted higher figures, a trend that saw taxpayers lose an extra Sh127 million.

In the 2014/15 fiscal year, NCPB awarded seven companies contracts to supply 1,042,730 50kg bags of fertiliser.

Depending on the region or point of delivery, the price per bag was different for the eight lots.

Lot 1 and 2 were bagged by a company that quoted the lowest prices of Sh2,655 per 50kg bag, totalling Sh265.5 million, and Sh2,430 per bag for a total contract price of Sh364.5 million, respectively.

Curiously, the supplier declined to sign a contract agreement even after delivering the acceptance letter. NCPB officials have yet to explain the development.

The Ministerial Tender Committee then disqualified the bidder and awarded the contract to the second lowest bidder, for Sh320 million and Sh436.8 million for lots 1 and 2 respectively.

“Further, and despite our request to the management to produce tender documents and correspondence relating to the disqualified bidder, no documents and records have been provided for audit,” the report stated.

Auditors wanted to be given reasons for awarding the contract to the second lowest bidder and why the lowest bidder declined to sign a contract.

“A review of the position in the 2016/17 financial year revealed that the matter has not been addressed,” the report noted.

Auditors then questioned the apparent diversion of money collected by NCPB from the sale of the commodity, with missing Sh166 million flagged in the 2016/17 fiscal year report.

Difficulties experienced

Records maintained at the NCPB indicate Sh605,508,562 proceeds from the sale of fertiliser during the year under review.

However, only Sh439,300,200 was remitted to the State Department of Agriculture as disclosed in the revenue statements for the year ended June 30, 2017.

Auditors said no reconciliation or explanation has been provided for the Sh166,208,362 difference.

The other grave concern is under-collection of revenue exposed by conflicting figures between budgets and the actual amounts realised.

The state department, for instance, planned to raise Sh1.8 billion as revenue from sale of subsidised fertiliser in the 2016/17 financial year.

However, out of the estimated receipts, only Sh439.3 million (or 24 per cent) was collected.

“No explanation has been given in the notes to the financial statements for failure to collect the entire estimated amount. In addition, no evidence has been provided to show that the state department informed the Cabinet Secretary in charge of Finance as required under Regulation 64 (2) of the Public Finance Management (National Government) Regulations, 2015 that, it was experiencing difficulty in collecting revenue due to the government,” the report said.

The validity of the Sh2.8 billion expenditure on procurement of fertiliser could also not be confirmed, according to the report of the Auditor-General for the national government for the 2018/19 financial year.

The amount had been transferred to KCB Bank where the state department had opened letters of credit for every supplier the fertiliser had been ordered.

But computations from statements provided by KCB Bank for every supplier revealed as at June 30, 2019 that Sh896 million was held in the letters of credit accounts awaiting payment upon delivery of the fertiliser by suppliers.

This highlighted the delayed delivery of ordered fertiliser, which meant loss of taxpayers’ money as the farm input either got to farmers late or never got there at all.

The Sh896 million was with respect to 271,930 bags or 13,597 tonnes “which did not get to the farmers within the intended period”.

This late consignment was part of 885,000 bags of different types of blended fertiliser, equivalent to 44,250 tonnes ordered by the State Department for Crop Development for Sh2.8 billion.

But by the end of the year, the NCPB had only received 613,070 bags – equivalent to 30,654 tonnes– whose value was Sh1.9 billion.

Additionally, as at June 30, 2019, there was another Sh40.8 million held at Cooperative Bank of Kenya under the letters of credit for fertiliser suppliers.

The management said the money was released to one of the suppliers but no evidence or documents were provided to support the claim.

The certificate of balances as at June 30, 2019 for KCB and Co-operative Bank letters of credit accounts were not provided for audit, the report said.

Auditors have also sounded the alarm over an unexplained variance of Sh3.2 billion claimed by suppliers, according to the report for the national government for the 2021/22 financial year.

The previous year’s pending bills closing balances revealed that the state department had reported NCPB owed suppliers Sh8.5 billion for the fertiliser subsidy.

However, other financial statements reflect Sh5.3 billion as the debt owed to the cereals board.

The unaudited financial statements of NCPB for the year ended June 30, 2022, reflected government debtors – Ministry of Agriculture fertiliser account balance of Sh4.7 billion in respect of the amount receivable from the state department for the subsidy.

The resultant variance of Sh617 million has never been explained.

The latest report of the Auditor-General for the 2022/23 fiscal year cautions that the outstanding fertiliser subsidy debt totalling Sh8.5 billion could prove costly to taxpayers.

High interest and penalties

The amount includes more than Sh5 billion loan obtained by the NCPB in October 2019, to finance the subsidised fertiliser scheme.

The Office of the Auditor-General says the loan continues to attract high interests and penalties.

“Failure to settle bills in the year to which they relate adversely affects the subsequent year’s provisions to which they have to be charged,” the report says.

Last year, the National Assembly ordered a special audit of Sh130 billion emergency expenditure by the previous administration relating to fuel stabilisation, flour and fertiliser subsidies, provision for relief food and enhanced security operations.

The special audit team sampled 55 fertiliser depots in 17 counties in the investigation into the spending of Sh7.5 billion on the programme in the 2022/23 financial year.

“The special audit team revealed that the fertiliser had been distributed to farmers across the sampled counties. However, the team also said farmers did not benefit from the programme effectively as the distribution of the fertiliser was not in time for the planting season,” the report states.

The special audit team also found out that staff had challenges using the ERP-Mezzanine system that was used to distribute the fertiliser.

Data captured in the system did not align with the records maintained at the depots.

Farmers interviewed at the sampled depots complained of not getting the right type of fertiliser.

There was also no monitoring and evaluation mechanism in place for the programme, making it difficult to ascertain if it ever achieved its objectives.