Declare Ken-Ren An Economic Sabotage
By 2015, when Kenya is due to make the last payments due on account of the phantom Ken-Ren Fertiliser Factory project, Kenyan taxpayers will have been gouged over Sh5.1 billion in respect of an original guarantee of only Sh50 million.
The Kenyan taxpayer will have paid 14 times the value of the project and received nothing. Without the factory Kenya continues to import almost 500,000 metric tones of fertilizer annually and the bill amounts to Tens-of-Billions-of-Shillings. The factory could have employed scores of Kenyans and lowered the cost of agriculture production and food for tens of millions of Kenyans – for decades. The factory’s contribution to food security would have been immense. As things stand today, Kenyans have no option for balanced crop nutrition apart from imported fertilizer blends. And now, there is even a shortage of imported fertiliser. While the farmers protest, and politicians cry crocodile tears, it is time to declare that the Ken-Ren fertilizer factory fiasco was economic sabotage not just corruption.
The Ken-Ren Fertiliser Factory was a joint venture entered into in the mid 1970s between the Government and a now bankrupt American firm known as N-REN Corporation, to form a company registered as Ken-Ren Chemical and Fertilizers Company Limited. The plan was to save Kenya huge amounts of money then being spent on importing fertilizer. Ken-Ren was to build a factory at Changamwe, Mombasa to manufacture fertilizer for domestic consumption and export markets. The location, near Kenya’s coastal oil refinery was ideal and the use of refinery by-products to manufacture fertiliser made economic sense.
Ken-Ren on advice of N-Ren Corporation entered into several financing and equipment procurement contracts with various Austrian and Belgian banks and suppliers, with the Government of Kenya being the guarantor. The total guarantee provided to Ken-Ren, by the Kenyan Government, was US$42,796 million (at that time about Sh350 million) at an interest rate of 8.5% p.a and other charges. The suppliers of equipment and machinery were Coppee-Lavalin of Belgium and Voest Alpine of Austria.
The American partners turned out to be fraudulent. The fertilizer factory project failed to take off and Ken-Ren was subsequently placed under receivership in September 1978, with the Registrar-General being appointed the official receiver and provisional liquidator. Although no work was done on the proposed factory, various pieces of equipment worth Sh237 million were delivered at the port of Mombasa by the Austrian firm Voest Alpine. The rusting equipment can still be seen in Mombasa. Other equipment valued at Sh100 million was ordered and paid for but never shipped. Ultimately, the financiers for the Ken-Ren project instituted two sets of court cases and arbitral proceedings against the Kenyan Government – calling on the guarantee.
In the first case filed in May 1988 by the Ducroire Bank of Belgium against the Kenyan Government, the tribunal sitting in November 2002 awarded the bank an amount of Sh1,720,000,000 (Euro21,181,992), and a further sum of Sh6,790,875 ($87,500) in respect of legal costs. After further negotiations between the Kenyan Government and the financiers, the debt due was agreed at Sh3,274,934,000 (Euro32,520,319) payable between July 2004 and June 2015. The Government had as at 30 June 2010 paid a sum of Sh2,016,894,395, made up of principal and interest leaving a balance of Sh1,258,039,604 (Euro12,608,034) outstanding.
In the second case filed by BAWAG Bank of Austria on 29 June 1992 before a tribunal, an award of Sh1,330,812,400 (Euro16,635,156) was made in favour of the Austrian bank. However, the government delayed honouring the award, and following several negotiations between it and the bank, a restructuring agreement was reached and signed on 14 November 2004. According to the agreement, the Government was required to pay a sum of Euro16,635,156 twice a year, on every March 31 and September 30. As at September 30, 2010, the government had paid a sum of Sh1,044,173,755 in respect of principal and interest, leaving a balance of Sh837,312,353.50 (Euro 8,483,929.64) outstanding.
As no fertiliser factory was ever constructed by Ken-Ren, the entire expenditure of Sh3,061,068,151 so far incurred on the project is nugatory. Incredibly, no-one has been prosecuted in Kenya and no recovery proceedings were brought by the Kenya Government, not even against N-REN Corporation.