The Associates, Kenya: Stella’s web

By Purity Mukami

Connecting to government, raking in millions

Elgeyo Marakwet, a county in Kenya’s Rift Valley, is a drought-stricken region. Over sixty percent of its citizens -mostly poor farmers- depend on unsafe water from rivers and wells, or are forced to buy water from vendors when these run dry.  Generally, only sixteen percent of people have tap water here; in some areas this percentage is less than two. After years of calls to improve water supply in the area, the government, in 2017, finally seemed to listen and provided two dam projects that were to produce hydroelectric power and water for irrigation.

Then three things happened.

First, the contract was given to an Italian company that had been declared bankrupt in its own country and that is now being investigated by the Kenyan Department of Criminal Investigation (DCI) on suspicion of having bribed government officials to obtain the over US$ 630 million contract. Secondly, the company absconded with an advance of US$ 70 million, leaving behind only traces of activities for the dam. Thirdly, several dozen of Kenyan individuals made a whole lot of money indeed.

Welcome to Stella’s web.

They are just there to administer and connect

When a big foreign company pockets a project in Kenya, dozens of local companies always compete to get in on the deal. The result is invariably a web of subcontractors supplying services to the main project. The subcontractors in such webs are companies whose directors and shareholders are well-connected individuals who reside in the capital city, Nairobi. These companies, which also -when a big foreign project is absent- supply government locally, are administered by a handful of corporate secretaries, who can be likened to spiders in the web. Officially -and they will tell you this every time you ask- they are just there to administer: they have no impact on, or responsibility for, what the companies actually do. They are just there. They connect. And in that way manage hundreds of millions in public contracts.

System capture

In an interview, Kenya’s auditor general Edward Ouko likens the country’s broken procurement system to the South African state capture. “System capture” he calls it, by “people who are very knowledgeable; (who)  knock on the doors and create budget.” He adds that “procurement is a difficult world: when well organized no one actually detects the red flags” and concludes that “the only way (to find these red flags) would be to audit the value for money on the ground.”

Very little is as yet known publicly about the actual services delivered by Ravenna’s subcontractors.  However, it is a matter of record that criminal investigators of the DCI have now unearthed over a hundred companies -one hundred and seven to be precise- that are suspected to have benefited from tenders that had little to do with the actual construction of the dams. Among the few material supply examples that are known it has transpired that, among other items, the companies supplied food and wine worth US$ 150,000, bedsheets and airline tickets worth US$ 13,000 and duvets, towels and pillows worth US$ 40,000.

People knock on doors and create a budget

For the rest, the DCI is keeping mum on the subject. Questions and requests for documents, made for months, have gone unanswered. But if a list outed by Kenyan Citizen TV on 28 February 2019 is anything to go by, the total value of tenders given to Ravenna subcontractors could run into the tens of millions of US dollars. Citizen TV recently exposed fifteen companies out of the hundred and seven who together received almost US$ four million in total.

One of the companies listed as having been paid was called Longrock Engineering Limited. From the available information, it is only known that it received some small contracts for supply of furniture and transport services. But Longrock is not just one company. Among the hundred-and-seven, there is a set of five, all with ‘Longrock’ in their names, whose directors or shareholders are directly linked to the government authority charged with the construction of the dams and the contracting of local suppliers: the Kerio Valley Development Authority, KVDA. They are more specifically linked to one person: KVDA board member Dinah Chelanga.

Dinah Chelanga herself is a director of two of the five Longrock companies listed as subcontractors to Italian firm Ravenna. And interestingly, like there are more than one Longrock, there is also more than one Chelanga in the Longrock companies.

Data Source: The DCI dossier

The Chelanga’s

Dinah Chelanga’s social media interactions on Facebook reveal that she is married to Eliud Kipkoech Chelanga*, who is the managing director in the same two Longrock companies that she owns; Longrock Freight and Logistics Limited and Longrock Tours and Travel Ltd. There is also a fellow Longrock director called George Chelanga, who is likely their son.  Based on Kenya’s procurement data, the two Longrock companies have collectively received close to four hundred transactions worth (US$ 1,5 million) in total for services such as buying airplane tickets and mailing.

The story of the Chelanga’s and Longrock is, in turn, the one that brings us close to the web of intricate connections that is the subject of this investigation. Because the Longrock companies count on a very useful service provider in company secretary Stella W. Nyamu, who also administers three other companies named alongside the Longrock group.

A million dollar network

According to data from the government’s own procurement portal tenders.go.ke, as well as data we received from Kenya’s public procurement management system IFMIS (an abbreviation of Integrated Financial Management System), Stella Nyamu sits at the centre of the web of Chelanga-linked Longrock companies.

A company secretary, as well as a partner at Samantha Associates, the firm she uses to do her secretarial work, Stella Nyamu, works out of a small, nondescript office on the third floor of an old office block in Nairobi’s central business district. There are hundreds of similar spaces occupied by consultants and small businesses across the city. One afternoon, as we visit her office, we find her: a middle-aged lady dressed in a business suit that blends right in with the daily wear of the rest of the city’s administrative working class, her hair in a modest pony-tail.

She knows, she says, smiling, that her name is linked to hundreds of companies. She is also well aware that many of her businesses have successfully bid for tenders from the government: these are worth well over US$ 6 million in 2018 alone. But that is not her money, she says and neither are those her businesses. “I have nothing to do with the (inner-workings or dealings) of the companies,” she says. “I just register them. I don’t receive any money beyond what I am paid for setting them up.”

Similarly, she rejects any responsibility for scandals that any of her companies have been connected to, even if her name has been mentioned in connection with two -or even three as it turns out, see below- of these. In 2016, Kilifi County governor Amason Kingi named her as the secretary of Makegra Suppliers Ltd, a company which, together with others, defrauded the county for over US$ 500,000 for goods and services that they didn’t supply. She denies any knowledge of this case or of her being mentioned along with the co-accused and also denies any wrongdoing on her part in the Ravenna case, asserting that once she explained her role as a company secretary to the DCI’s criminal investigators she was cleared.

Makegra Suppliers was named in a US$ 500,000 fraud

Explaining why she is servicing so many companies at once, Nyamu says that, “these are small companies that sometimes can’t afford to hire a company secretary. As a person who works independently, I can register as many companies as possible.” Fortunately for the business people who work with her, a significant number of these seem to be doing very well. Procurement records show that out of the 263 companies in total that have Nyamu listed either as a director or as a secretary, at least a hundred have been listed as government suppliers and out of these, twenty-nine have been given actual contracts.

It must be noted that this is only from data supplied voluntarily by the companies; the actual number may be much higher. The same goes for the data on the government’s procurement portal, which is only a few months old and contains just a handful of government transactions. Also, for many of the companies, some details are missing: either what they delivered to the government, or what they charged for it, or who the directors are.

Infrastructure contracts

Yet, the data are enlightening. Out of the close to eight thousand companies currently listed on the government’s procurement portal, Stella directs or administers, compared to any of the other involved individuals, the highest number.  She is linked to a hundred companies, almost twice the number of connections to companies held by the person with the second most links on the portal: Ferdinand Muchomba only has 58 connections.

Data Source: Kenya’s Government Procurement Portal

Stella Nyamu’s twenty-nine government suppliers have obtained government contracts to a total value of US$ 6,6 million, for the most part in 2018. The contracts these companies obtained have ranged from provision of security services, routine maintenance of roads and environmental consultancy to delivery of laboratory equipment among many others. Among these, two valuable infrastructure contracts for routine road maintenance stand out: one for the Baragoi-South Horr– Sarima road for US$ 190 000 and one for the A1 Lodwar-Lorengelup (B73) for US$ 85,000, both in Kenya’s impoverished eastern rural areas.

The contracts become all the more valuable when we discover, through contacts in the area and Google Maps, that these are sand roads, one of which (the Baragoi-Sarima road) is in such a state of disrepair that locals have long started using another, better road, and that according to Google Maps Lodwar and Lorengelup are only connected by a feeder road.

The road is in a state of disrepair

Digging further into the datasets results in the discovery that another nine of the over 100 companies associated with Ms Nyamu have transacted amounts to the tune of over US$ 5 million between November 2014 and February 2018. This amount includes a contract for US$ 376,000 connected to yet another scandal in 2018: the MES (medical supplies) procurement contract.  In the MES affair, currently the topic of heated debates and corruption investigations, unusable medical equipment was delivered to hospitals that didn’t ask for it and many of which would have preferred funds for different urgent needs. Kenya’s procurement portal shows that Stella Nyamu’s company Angelica Medical Supplies received the amount listed above as part of the MES supplies, even though the database shows the transaction as ‘rejected.’

When asked for comment, Angelica director Mary Wanja vehemently denied having received any money from the Ministry of Health for this purpose. She also denied knowledge of Stella W Nyamu as their company secretary, even though Nyamu is listed as the fourth director. Sadly, neither the Health Ministry nor IFMIS responded to requests for an interview meant to clarify the above contradiction.

The duties of a secretary

In total, Stella’s web has handled contracts worth at least US$ 12 million over the past four years. That is a lot of money in Kenya.  But does she as a company secretary actually have a duty to monitor what is done by the companies to warrant being paid such amounts? According to Nairobi-based lawyer and management strategist Ian Segita, , a company secretary’s approval is required for all procurement contracts of goods and services. Part of the reason for this requirement, he says, is precisely that there is a large risk of corruption and fraud during the procurement process.

Stella Nyamu may be the biggest spider in the web, but she is not the only one. From the available data, we identified the top ten enablers on Kenya’s current, still incomplete, procurement portal. Ms Nyamu leads the current list, with 91 government suppliers connected to her full name, Stella W Nyamu, and ten others only to ‘Stella Nyamu,’ making it 101 companies in total. The next such listed Company Secretary or director is Ferdinand G Muchomba; he is only involved in 58.

Just following procedure is not good governance

In this report, Kenya’s auditor general Edward Ouko says that the country’s procurement system is ‘broken.’ He even calls the system ‘captured’ by “people who are very knowledgeable. They knock on the doors and create budget.” To “create budget”, the so-called ‘tenderpreneurs,’ as he calls them -and as is also shown in this report-, identify opportunities to get money from the state in exchange for unnecessary, shoddy or even absent services. Ouko adds that the only way to “detect the red flags” is to “audit the value for money on the ground.”

The problem is of course that a state does not have the capacity to go and check physically on every road traffic light, crate of medicines or set of school books that need to be delivered where they are needed. As investigative journalists, we also cannot be everywhere -even if we would like to be.

To fix the broken procurement system, clearly, more tools are needed.

But these tools, even though the word itself sounds technical, cannot just be technical. They need to be value-based, as in when Ouko says it is the value of state services that needs checking. Kenya can provide water and agricultural assistance for hungry farmers instead of buying towels and mailing services for huge projects that fail anyway. But it can only do that if those who spend it -the procurement officials, the ministers, and even the business sector-, keep their eyes firmly fixed on the value that needs to be delivered and endeavour to provide such value.

Ironically, mere technical arguments are often used to cover up or excuse wrongdoing. Company secretaries like Stella Nyamu -and this is not only in Kenya- routinely say “that they have nothing to do with the (inner-workings or dealings) of the companies they register and administer.”  That argument is technically -albeit minimally- true. But by using this minimal interpretation of the rules, such company secretaries benefit from their role as connectors within a corrupt system that is actively hurting citizens. What they do may be technically lawful, but they are accomplices to corruption nevertheless.

The very same rules can also be interpreted more in line with their spirit than with their technical letter. For example, where the rules say that a company secretary’s approval is required for all procurement contracts of goods and services, legal expert Ian Segita explains, -also in this story, that “part of the reason for this requirement is precisely that there is a large risk of corruption and fraud during the procurement process.” Good business governance would therefore prescribe withholding such approval in the case of a contract where it can be foreseen that the company will get good money for little more than nothing.

The rules of the Institute for Company Secretaries (ICS) also say that a company secretary must “use personal initiative in raising matters that may warrant the Board attention.” Again, the rule can be interpreted through a minimalist prism, but also be used ethically. What matters warrant the Board’s attention? A postponement of a meeting? Or the fact that the company, after having been paid US$ 250,000 for maintaining a road, has in fact not maintained the road at all?

The chairman of the procurement committee in the Ravenna dam scandal has, similarly technically, argued that there was no wrongdoing in allocating the US$ 630 million contract to an Italian company that was facing bankruptcy in its own country. He quoted, correctly, some procedures that were followed. But he also had to admit that the company had “some financial flow problems” at the time when the contract was allocated.  In fact, Italian media were reporting that Ravenna was trying to ward off impending bankruptcy in Italy by seeking quick advance payments on contracts abroad.

In such a situation, what do you do as a Kenyan procurement official? Listen to your tenderpreneurs who want to “create budget” by subcontracting to Ravenna? Or seek a better service provider? When such choices are to be made, technical procedural arguments alone won’t cut it.  Ethics and values of good governance are indispensable, or the “broken system” will never operate as it should.

Where the money has been stashed

With regard to the numerous corruption scandals under investigation, Director of Public Prosecutions (DPP) Nordin Haji has said that “the cases against in total 432 accused persons are taking too long to conclude and recover the loot since the trail  involves other countries where the money has been stashed.”

The wealth amassed by Kenyan individuals involved in contracts for the Elgeyo Marakwet Dam is estimated to run into the equivalent of millions of US dollars. We attempted to trace the assets of those involved but failed, since individual business people are not required to list those. However, we fear that Nordin Haji is right: in the cases of many individuals, the wealth we looked for may not even be in Kenya anymore.

The DPP’s statement came just three months after a tender was published, on 6 November 2018, for consultancy services that will lead to the establishment of a Nairobi International Finance Center (IFC). The plan for the IFC has raised eyebrows since it, according to the NGO Tax Justice Network, may help facilitate (even more) illicit outflows of money to tax havens.

The secrecy around the IFC process has done little to allay these concerns. Nothing has been heard since the tenders closing date, first set at 20 November 2018, was revised to the 27th of that month. Now, five months down the line, the winners of the tender have still not been listed on the procurement portal.

*contacted for comment, Eliud Chelanga declined to comment.

This investigation was done with help from Margot Gibbs at Finance Uncovered and Hera Hussain at Open Contracting Partnership.

READ the whole report HERE