You are on page 1of 6

Saturday, 24 October 2015

Dr Kamau THugge
Principal Secretary National Treasury
Please look at the attached spreadsheet which is crafted from both the AUDITOR GENERAL'S REPORT
2013/14 and BUDGET IMPLEMENTATION REVIEW REPORT 2014/2015 in respect of accounting for
the proceeds of the Euro Bond. The following emerges.
1. Total amount of sovereign bond is stated as $2,000,000,000.00

The net proceeds are stated as $1,999,052,872.97.


This implies Fees and Costs deducted of $947, 127.03.


On 3 July 2014 USO


was transferred to the Exchequer to fund


This amount is accounted for in the WRONG FISCAL PERIOD namely in FY2013/14 instead of the
year when it was received and due to be accounted for as an exchequer receipt.


On 3 July 2014 USO

$604,560, 737 .50

was withdrawn from the offshore account to fund

the repayment of the syndicate loan,
7. This amount was recorded in the CORRECT FISCAL PERIOD of 2014/2015.
8. However the Authority of the Controller of Budget to incur the expenditure was however not


Curiously if you add what was spent on repaying the syndicated loan and the amount that was
transferred to the exchequer to fund infrastructure, you arrive at a neat figure of


uso 1,ooo,ooo,000.00.
10. The above two reported uses of the proceeds of the euro bond receipts leave a balance of



which is not explained or dealt with in the Audited Accounts and

Financial statements for the Fiscal Year 2013/14..
11. This is an anomaly in ACCOUNTING TERMS because it breaks the fundamental accounting and
financial management Principle of matching revenues and expenses that requires that monies
received and spent must be accounted for in the Financial Year to which they belong
12. This GIGANTIC GAP, which is equivalent to

, is what is feeding

the perception that the Eurobond money was stolen.
13. You must be prepared to give clear, credible answers backed by documentary evidence. So far
no answers have been provided by the National Treasury in
14. The Report by the Controller of Budget (Budget Implementation Review Report FY 2014/15 -at
page Seven Table 3.1, col. 2) on ACTUAL RECEIPTS to the exchequer for the Period 2014/2015
indicates an amount of

KES 73.81 Bn (Equivalent to USD $840, 184,681.41 ) was

received in this period.
15. If you deduct the figure stated in the Report of the Controller of Budget of KES 73.81Bn from the


Equivalent to




2. -·
you still
D 15-, _,




have a MASSIVE GAP of

. -·





The following questions arise

1. The Constitutional Question.
a. Is it not a matter of fact that repayment of t he syndicated loan from an offshore special
account without the approval of the Controller of Budget was a blatant breach of the
provisions of the Constitution at Article 206(1)(A)
2. The Foreign Exchange Loss Argument.
a. The National Treasury has defended the manner of payment of the syndicated loan
without putting the monies into the Consolidat ed Fund as required by the Constit ution
on the grounds of avoiding exchange losses.

It's clear from these figures that purported exchange Losses are so small and do not
justify blat ant breach of the Constitution as has happened in this case.


According to conservative estimates these Exchange Losses being "saved" amount to a
KES l,8bn.
In any event in ACCOUNTING TERMS w hat we are dealing with here is how to treat
UNREALISED EXCHANGE LOSSES on External Liabilities denominated in foreign currency.
In proper Accounting consistent with Generally Acceptable Government Accounting
Standards (GAGAs) these should be accrued and dealt with in the FINANCIAL YEARS to
which they relate, and not merely recognised in the Fiscal years in which loan


repayments are effected.
Or shall we assume that the Government has not embraced ACCRUAL BASED
ACCOUNTING and is in fact operat ing on the discredited CASH BASED ACCOUNTING ,
which again is NOT recommended under GAGAs


Statement attributed to the Controller of Budget (CoB)
a. The CoB is quot ed as stat ing cat egorically before a Parliamentary committee on
Thursday last week that she has not seen a complete accounting for the Euro Bond
In her Report (page 46), she observes the following: "the Syndicated Loan was paid
from the proceeds of the EURO Bond from a oedal Account. It is therefore
recommended that the National Treasury should urgently reconcile the Special
Account and the Exchequer Accoun
(Emphasis mine).

4. Some of the big questions you must be prepared to be confronted with by Parliamentary
Committee are the following
a. First you need to clearly explain the phenomena of
to address the
widely held perception that these are no different from Slush Funds maintained by the
Governing Elite to siphon off public monies through circumventing the laid down
Constitutional provisions of Article 206(1)(A).
b. Secondly, you need t o st ate clea rly t he specific PUBLIC FUND where the Eurobond
money was deposited and whether that PUBLIC FUND was created by an Act Of

Parliament as stipulated under the Constitution at Article 206(1)(A).
Mark you the relevant Constitutional Provision does not refer to bank accounts but
Public funds created by an Act of Parliament for a specific purpose. In this sense the fact
that the money was sitting in a CBK Bank Account somewhere in New York does not
mean its sitting properly in a statutory Public Fund created by Parliament as required by
the Constitution .

s from
n Bond
to the
Available information indicates that net proceeds from the Sovereign Bond of USO
1,999,052,872.97 out of the total amount of USO 2,000,000,000 .00 were received on 24
June 2014 and deposited into an offshore account, contrary to Article 206 of the
Constitution of Kenya and Section 17(2) of Public Finance and Management Act, 2012
which requires that all money raised or received by or on behalf of the National
Government be paid into the Consolidated Fund . There is the risk of proceeds being
appropriated with
Out of the balance in the offshore account of USO 1,999,052,872 .97 as at 2 July 2014 an
amount of USO 395,439,262.50 (Kshs.34,648,388,180.25) was on 3 July 2014 transferred to
the Exchequer to fund infrastructure projects and was accounted for in 2013/2014 financial
year. On the same date of 3 July 2014 another amount of USO 604,560,737.50
(Kshs.53,201,344,900.00) was withdrawn from the offshore account to fund the repayment
of the syndicate loan but was recorded in 2014/2015 financial year books. Authorit
The Statement of Receipts into and Issues from the Exchequer
Account for 2013/2014 therefore reflects only actual receipts
from commercial loan of Kshs.34,648,388,180.25 out of the net
proceeds from the Sovereign Bond as a result of failure to pay
the full amount of the net proceeds from the Sovereign Bond of
USO 1,999,052,872.97 (Kshs.173,917,599,948 .39) into the
Consolidated Fund during the year.
I have however, not qualified my audit
opinion on the Exchequer Account for
the year ended 30 June 2014 on the
basis of this matter due to the fact that
the balance of actual net proceeds
from the Sovereign Bond is correctly
reflected in the Off-Shore Account and
in the Central Bank of Kenya Special