Kenya Railways is on the spot after an audit revealed that it has incurred a Sh3.5 billion penalty for defaulting on loans borrowed for constructing the Standard Gauge Railway (SGR).
This penalty is a result of unpaid charges tied to a loan from China Exim Bank, which the corporation failed to settle on time.
Auditor General Nancy Gathungu presented a detailed report in Parliament, shedding light on the financial mismanagement within the state-owned corporation.
She issued an adverse opinion on Kenya Railways’ financial accounts as of June 30, 2024, highlighting inadequate controls and unsatisfactory explanations for the loan defaults.
The report revealed that Kenya Railways did not make any repayments to China Exim Bank during the year under review.
This failure led to an alarming Sh41 billion in outstanding loan repayments and penalties.
According to Gathungu, the penalties arose because the corporation neglected to settle its financial obligations as they became due.
Shockingly, no justification was provided by Kenya Railways’ management for this failure.
The auditor stated that the lack of explanation raised concerns about the effectiveness of the corporation’s controls in managing its on-lent loans.
Additionally, the audit showed that Kenya Railways’ revenue from operations was insufficient to meet its maturing loan obligations, further compounding the financial strain.
This shortfall has drawn attention to the continued mismanagement of the organisation.
A recent National Treasury report indicated that Kenya Railways recorded a staggering Sh50 billion loss, the highest among state corporations in the review period.
Despite this grim financial state, Gathungu stressed that the penalties were entirely avoidable, representing an unnecessary burden on public resources.
The audit also flagged several procurement irregularities within Kenya Railways.
The corporation used questionable tendering methods to acquire Sh9 billion worth of supplies, including direct or restricted tendering, which lacked justification.
Gathungu criticised the management for failing to provide valid reasons for bypassing open tendering, which should have been the standard approach.
In one glaring case, supplies worth kshs 2 billion were not inspected before delivery.
Inspection and acceptance committees were formed weeks after the goods had already been received, suggesting that certification was merely procedural.
Other procurement violations included executing contracts for security and cleaning services before agreements were signed, raising concerns about potential legal breaches.
The audit also uncovered revenue leakages in meter gauge railway operations, further exposing the financial mismanagement plaguing the corporation.
Beyond these issues, Kenya Railways is grappling with court-awarded liabilities.
These include Sh27 billion in potential claims, of which Sh15 billion relates to the illegal demolition of leased properties.
Gathungu warned that if these liabilities are realised, they could severely cripple the corporation’s financial future.
The revelations paint a bleak picture of Kenya Railways’ operational and financial health.
The penalties, mismanagement, and procurement irregularities not only highlight internal inefficiencies but also pose a significant risk to public funds.
