Proceeds from Eurobond not allocated according to plan

Saturday December 12 2015

By ALLAN OLINGO, The EastAfrican

While floating the sovereign bond at the Irish Stock Exchange in June last year, Kenya in its prospectus said the proceeds would be used for several projects that would include roads and energy.

According to the prospectus, the funds would be used for infrastructure, and to pay off a $600 million loan that was to mature in August 2014.  

“Some major infrastructure projects include railway expansion at a cost of $13 billion, Lapsset (with a new port at Lamu, railway, road, oil terminal and pipeline and resort cities at Lamu, Isiolo, and Lake Turkana), four dams at a cost of $16.8 billion, and the replacement of the Mombasa-Nairobi oil pipeline,” the prospectus reads in part.

The government also promised that the $2.75 billion sovereign bond would help to lower interest rates through reducing domestic borrowing.

However, in October, Kenya entered the international market through a syndicated loan of $750 million in a bid to lower interest rates.

Now, the Eurobond issue has turned into accusations and counter accusations with Kenyan opposition leader Raila Odinga accusing the government of misappropriating $1.4 billion of the bond’s proceeds.

According to Mr Odinga, the effects of the bond haven’t been felt in the economy, and the accounting by the National Treasury is not adding up.

“From the National Treasury report, the only project the Eurobond financed is the external debt amortisation to the tune $750 million. From their accounting, the $750 million spent in the 2015/16 financial year and $350 million spent in 2014/15 was the only amount from the Eurobond proceeds, leaving $1.4 billion unaccounted for,” Mr Odinga said.

Treasury says that the the proceeds of the bonds were allocated to various ministries to fund projects in the two financial years, and has been absorbed in the economy.

The figures presented by Treasury show that some of these funds were used outside of what Kenya had pitched in its prospectus, with state departments that do not handle infrastructure projects getting funding from the sovereign bonds proceeds.

According to Treasury, in the 2013/2014 financial year, only $178 million went to infrastructure; the Environment ministry received $38 million, and Agriculture got $31 million.

In the 2014/2015 financial year, only $1.02 billion went to state departments that handle infrastructure; the Lands ministry received $91 million, ICT got $29 million and Sports got $12 million.