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Auditor-General raises queries over missing Sh21bn China loan

Auditor-General raises queries over missing Sh21bn loan from China for construction of a State-owned fibre optic network

A State-owned fiber optic network was financed and contractors were hired without proper authorization, according to the Auditor-General, and loan agreements for a debt of Sh21 billion owed to a Chinese lender were missing.

Due to the lack of loan agreements, an assets registry, and records of the billions paid to the contractors, according to Auditor General Nancy Gathungu, it is difficult to determine the cost of the National Optic Fibre Backbone Infrastructure (Nofbi), which is estimated to have cost several billion shillings.

The method by which the Chinese government and Exim Bank of China were chosen and appointed to finance the fiber optic project, which provides telecommunications access in all 47 counties, was not made clear by a forensic audit.

“Total funding from Exim Bank of China could not be ascertained as the framework and concession loan agreements for Nofbi phase 1 were not provided for audit,” Nancy Gathungu, the Auditor-General, says in a report.

“However, the cost was Sh6.08 billion and Sh10.28 billion for Nofbi 2 and Nofbi 3 respectively.”

The selection of the Chinese government and Exim Bank of China as financiers, according to the auditor, was done in secret.

As for how three contractors—Huawei, ZTE, and Sagem—were chosen to construct the multibillion-shilling infrastructure, Ms. Gathungu claims she was unable to obtain an explanation.

Additionally, the ZTE Corporation commercial contract did not include an audit clause, making it impossible to determine the entire cost of the Nofbi phase 1 project.

Three contractors, Huawei, ZTE, and Sagem, finished the project’s first phase in 2009 by laying 4,300 kilometers of fiber optic cable to provide all users with high-speed Internet access.

Phase Two, which was carried out between 2012 and 2017, involved the installation of an additional 1,600 kilometers of fiber optic cable throughout 47 counties, plus an additional 500 kilometers specifically designated for military usage.

The third, 2,500-kilometer phase involved connecting the sub counties to the county offices.

On October 8, 2012, and May 9, 2016, the Treasury signed concessional loan agreements with the Exim Bank of China for Nofbi Phase II and Nofbi Phase IIE, respectively, totaling Sh6 billion and Sh10 billion.

The ICT Principal Secretary is also charged with signing the commercial agreement prior to the signing of the framework and concessional loan agreements for Nofbi Phase II and Nofbi Phase IIE in the special audit. 

The total sum payable to Huawei Technologies Co. Ltd for Nofbi Phase I, Phase II, and Phase IIE was reported to be Sh20.5 billion ($213,150,000).

“However, documents amounting to $106,828,026 (Sh10.95 billion) were provided for audit, leaving a balance of $106,321.974 (Sh9.5 billion) not accounted for,” Ms. Gathungu says.

“In addition, there were no registers for the project’s assets, and therefore not possible to ascertain the total costs of ICT assets acquired and installed.”

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A review of equipment in 22 counties revealed a significant share was faulty, idle, disconnected from electricity, and termination of the fibre optics outside government facilities.

The forensic audit of the Nofbi project was sanctioned by the parliamentary Public Accounts Committee (PAC). The audit showed that subsequent extensions in scope and geographical coverage of the Nofbi project were automatically granted to the contractor without open tendering.

Phase II of the Nofbi contract cost the government Sh7.2 billion, with its extension costing a further Sh9.8 billion, both in loans from the Exim Bank of China. Later, loans in excess of Sh10 billion were procured towards Nofbi, whose details the ICT State Department has not made public despite numerous requests.

Phase II Expansion (IIE) was undertaken between 2016 and 2020.

Phase One of the project was initially to cover 5,000 kilometres at an estimated cost of Sh5.8 billion ($80 million) which was to be funded through supplier credits, grants, concessions, and loans.

“However, all the approved budgets for Nofbi Phase I and Nofbi Phase II for the financial years 2012/13 to 2014/15 were not provided for audit review,” Ms Gathungu says in the forensic audit report tabled in Parliament last week.

“It was therefore not possible to ascertain the total approved budget for the project.”

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