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Auditor General Nancy Gathungu has blamed the National Treasury for signing unfavourable loans worth billions of shillings due to its failure to adhere to various requirements needed before such loans are disbursed.

In a new report, Gathungu accused the National Treasury of not heeding to advice from the Attorney General, disbursing loans late due to delays in fulfilling conditions, approving new projects before completing old projects as well as failing to involve project beneficiaries.

The performance audit report on external loans contracted by the government conducted in October this year, raises concerns that financiers of the projects approach ministries directly before projects are conceptualised by the users or project implementing ministries.

Intended beneficiaries

The report reveals that the loans were identified through a top to bottom approach which is highly centralised and has a disconnect from grassroots beneficiaries unlike demand driven where a project is identified through a bottom to top approach which is highly decentralised and people centric.

It further regrets that intended beneficiaries were not involved during project identification in all the six counties namely Mombasa, Kwale, Murang’a Nakuru, Kisumu and Nairobi that were sampled.

This is despite the implementing agencies saying that public participation was carried out yet they did not provide evidence of, forums held, minutes and signed lists of attendees, and how views of any participants were considered in the project’s identifications and designs.

Reads the report: “The interviews with project beneficiaries further revealed that, depending on framework agreements or development cooperation agreements signed with GOK, the financiers indicate their intentions to finance selected projects from the ministries’ strategic plans.”

The audit which involved loans that financed six projects also show that although all the projects were approved and loan agreements signed based on commitment letters from implementing agencies, the projects had not commenced as planned due to non-fulfilment of the requirements by implementing agencies as committed in the letters.

The six sampled projects include Second Informal Settlement Improvement Project (KISIP 2), Kenol-Sagana- Marua Highway improvement project, Bagamoyo- Horohoro-Lunga Lunga-Malindi road project, the establishment of Bus Rapid Transit (BRT) line five project, the Nairobi Water and Sanitation Project (NWSP) and the financing of Mwache dam.

The report reveals that non-disbursement of three of the loans for Nairobi water and sanitation project, Bagamoyo-Horohoro- Lunga Lunga-Malindi road project and Kenol-Sagana-Marua highway improvement had accrued commitment fees of Sh158. 8 million.

Raises concerns

It further raises concerns that for the three financial years under review (2019/20 to 2021/22), a total of 70 loans had been contracted out of which 17 were non-disbursing thus accumulating commitment fees of Sh110.5 million.

It also raises concerns that Mwache dam project and Nairobi water sanitation project have co-financing clauses which have negative impact on the contracted loans.

Reads the report: “In collaboration with implementing agencies, have adequate measures to ensure all the conditions precedent are met within timeline to avoid non-disbursing of loans, which results in payment of commitment fees on undrawn amounts.”