THE VERDICT

BY PAUL MWANGI 28TH NOV 2023 EDITION

KENYA STATE
CAPTURE:
THE SEVEN DEADLIEST
CARTELS

VERDICT 01
BY PAUL MWANGIwwww.theverdict.co.ke
THE
KENYA STATE
CAPTURE:
THE SEVEN
DEADLIEST
CARTELS
F or several decades now, there
has been talk in Kenya about
“state capture”. Every anti-
corruption activist has been
talking about it and among
politicians, it has become the
mud they throw at each other.
“State Capture” in Kenya may
be as old as the Republic but
it only begun to manifest itself
in 1991 through the infamous
“Goldenberg scandal”. This
was a scandal in which several
ministries and agencies colluded
to siphon money from the
Treasury using a fraudulent
scheme under which it was
claimed Kenya was exporting
Gold, a mineral it doesn’t mine
commercially.
Later, the Judiciary and numerous
judges and magistrates were
looped in as “accessories after
the fact” to assist in the clean-up
and cover-up.
There are many definitions of
what “state capture’ is and they
all describe the manipulation of
laws, rules and regulations and
state institutions for the benefit
BY PAUL MWANGI
of private commercial interests.
The dramatic vision most people
have of state capture is a small
permanent group of persons
meeting in a form of masonic
lodge where they discuss and
devise schemes of how to exploit
the country.
That may exist, and does most
likely happen. But state capture
is beyond such happenings.
State capture can be ad hoc,
where the players are brought
together by an opportunity that
may not present itself again or
soon.
State capture can be systemic,
where the same opportunity
will presents itself repeatedly
but does so to a totally different
set of players who then employ
the same tactics as those before
them.
And yes, state capture can be
systematic, where it is organized
by a permanent group of people
but with succession plans that
create an elite coterie that
benefits in perpetuity.
Kenya has all these forms of
state capture. And too many of
our political elite are participants
in either the ad hoc, systemic
or systematic forms of state
capture. And so irresistible are
some of these networks that
even Presidents can’t resist them,
nor can they fight them.
On 21st July 2022, President
THE
VERDICT 02
William Ruto, then a presidential
candidate, spoke to Emmanuel
Igunza on BBC Africa on
various elements of his manifesto.
Regarding corruption, he told
BBC Africa:
“We have put it in our manifesto
that we will deal firmly and
decisively with entrenched,
chronic corruption that has taken
over institutions and turned the
whole country into state capture”.
The manifesto he was talking
about captured this promise as
follows:
“Ending State Capture :
Establishing, within 30 days, a
quasi-judicial public inquiry to
establish the extent of cronyism
and state capture in the nation
and make recommendations.”
Since the Kenya Kwanza regime
assumed power, state capture has
only been murmured under the
breath. Recently though, there
is a more audible mention of it.
Political analysts are suggesting
that the intention is to divert
attention from the state capture
that is now evident in the Kenya
Kwanza regime.
Just in case Kenya Kwanza
actually establishes a state capture
inquiry, the following are the
areas that must be top of the list
in the inquiry. They are the seven
deadliest cartels operating in
Kenya.

1. THE TREASURY
The Treasury is the deadliest
cartel in Kenya. It is the nerve
centre of all state capture in the
country. It’s patron, from Jomo
Kenyatta to William Ruto, is
the President of the Republic of
Kenya.
Treasury is the perfect example
of systematic state capture. It
was organized a long time ago
by a group of young educated
African technocrats who set up
a succession plan that created
an elite group of professional
economists that supports and
benefits top leaders of every
regime in power.
Every President in Kenya comes
to power swearing how they
will reform the Treasury. They
all, without exception, become
lap dogs of the Treasury cartel.
This is because over the years,
Treasury has devised ways in
which it can secretly divert
billions of shillings from public
coffers into the pockets of
presidents and their cronies.
The following are the ways which
Treasury uses to steal taxpayers
money.
1. Sovereign guarantees
Sovereign guarantees have
been used since independence
to steal taxpayers money. Their
use was only exposed by the
Anglo-Leasing scandal in 2004.
This method involves accepting
a foreign contractor to do a
project in Kenya, allowing that
BY PAUL MWANGI
contractor to borrow money to
finance the construction and
guaranteeing the lender periodic
payments from the taxpayers’
money.
However, the costs of these
projects are highly exaggerated
and more often, the projects are
never done.
One of the earliest heists using
sovereign guarantees was a
project called KenRen. In 1975,
the Kenya Government entered
into a joint venture with an
American manufacturer to build
a fertilizer manufacturing plant
in Kenya. The American investor
then went to two European
banks and borrowed money for
the project. The government of
Kenya guaranteed.
No factory was ever built. The
American firm and its local
accessories appropriated the
money, around Kshs. 2.4 Billion.
The Kenya government was sued
by the banks and the taxpayers
had to pay. The heist was only
discovered 30 years later when
the NARC government came to
power.
In the Anglo-Leasing scandal,
the government gave sovereign
guarantees to international
lenders to finance 17 security
projects in Kenya. None of the
projects was ever built and it
also turned out that some of the
companies that were financed
were bogus. Kenya’s liability on
these guarantees went up to 56
billion shillings, some of which
have been claimed and paid by
THE
VERDICT 03
the Kenya taxpayer.
More recently, the method has
been used in the proposed Arror
and Kimwarer dam project
where Kshs. 7.7 Billion is said to
have been lost.
2. Direct foreign
commercial borrowing
No one but Treasury ever knows
how much Kenya has borrowed
from foreign commercial lenders
and which of these foreign loans
are being paid every year. Indeed,
the Kenya debt ledger is one of
the most fluid documents and
even parliament is never sure
what the actual status of any
foreign borrowing is.
Money from foreign loans given
by private commercial lenders
is easy to steal because the
money is deposited in foreign
accounts operated by Treasury.
These accounts are not accessible
to even the Auditor-General
and the audit office has to rely
on whatever disclosures the
Treasury wants to make.
This method of theft was alleged
by the opposition in respect
to the Eurobond of $2 Billion
which Kenya floated a decade
ago. According to the allegations,
after paying a pending loan and
accruing commissions and fees,
Treasury was left with slightly
over $1 Billion which is said to
have disappeared.
The Auditor –General asked
Treasury to account for the
money and Treasury said that it
had credited the Central Bank
of Kenya with a corresponding
amount in Kenya shillings. The
Auditor-General demanded
to see the $1 Billion amount
credited in the Kenya dollar
account in Federal Reserve Bank
of New York but the government
told him he was stupid. Literally.
Although the Auditor-General
was to later table a report to the
National Assembly saying the
amount had been accounted for,
it is still believed that $1 Billion
of the Eurobond money ended
up in private hands. Mention
is made of the sum being
transferred to a bank in the
Middle East.
The reason most Kenyans
thought that the claims by the
opposition were incredible is
because it was inconceivable
that such an amount can be
stolen so blatantly from an
international bank. That is why
the government was saying that
the Auditor-General was stupid.
But in 2015, the Prime Minister
of Malaysia and his cronies
stole $4.5 Billion of money
obtained from a commercial
bond floated by the country. The
money was used to buy yachts,
finance the shooting of movies
in Hollywood and buy expensive
goods and jewelry.
Here in Africa, around the same
time, 2013-2014, officials of the
government of Mozambique
working with foreign lenders
stole $3 Billion dollars loaned
to a project on which the
Mozambique government gave
a guarantee.
The Kenyan Treasury borrows
billions of shillings from
international commercial lenders
that the people never get to
know. So secretive is Kenya’s debt
dealings that it has even been
alleged that Kenya is sending
money to international accounts
for loans that have already been
fully paid and others that do not
even exist.
3. Creative budget making
In order to cater for expenses that
may arise and that had not been
provided for by the National
Assembly, the Constitution
allows the Treasury to spend
money and seek approval of the
National Assembly later. The
amount of money the Treasury
can spend this way is up to 10
percent of the budget.
This power has always provided
the avenue for Treasury and the
political leadership to spend as
they wish.
BY PAUL MWANGI
What Treasury does is to hide
huge amounts of money in places
where it will never be used. For
instance, expenses are over-
funded, projects proposed and
provided for and non-priority
agencies generously financed.
After the budget has passed,
Treasury goes back and shaves
off these over-provisions and
allocates the money as per the
wishes of the political leadership
or the Treasury operatives. This
creative budget making allows
the misallocation of money
without affecting essential
expenditure later in the financial
year.
That is why we say that in Kenya,
corruption is budgeted.
In 2009, Treasury was caught
red handed by a local advocacy
organization called Mars Group
when the lobby group exposed
that the supplementary budget
had been exaggerated by 9.6
Billion shillings. Treasury
admitted but said it was the
result of a “computer error”.
Two years later, the same lobby
group exposed that there was
a discrepancy between the
amount of money collected as
taxes and the amount Treasury
was accounting for. Over a two
year period, 2007/2008 and
2008/2009 financial years, a sum
of Sh489 billion in tax revenue
raised in 2007/2008 and another
Sh215 billion in 2008/2009
could not be accounted for.
Till today, The Treasury
remains the one institution
that is immune to audit despite
numerous calls over the years for
a thorough audit of the Treasury.
2. INDEPENDENT
POWER PRODUCERS
According to the Ministry of
Energy and Petroleum, Kenya’s
installed hydropower capacity is
above 800 MW. The potential
for small, mini and micro-
THE
VERDICT 04
hydro system is estimated at
3,000MW nationwide. Experts
say only a quarter of this has
been developed.
Initially, Kenya gave a lot of
priority to hydroelectric power
production and had started by
constructing the seven folks
dam project. The idea was to
build seven dams across the
river Tana, with the same water
flowing from one to the other
and generating electricity at
each dam. This project, and other
planned hydroelectricity power
generation projects, were looked
at as a source of cheap electricity
for Kenyans.
In the mid-1990s, attention was
turned away from hydroelectricity
to commercial independent
power producers who use diesel
generators to provide power to
the national grid. These private
investments came about when
Kenya woke up one day to be
told that the water in the seven
folks dams had all but run out
and a shortage of electricity
followed. Private investors were
quickly contracted to set up
diesel generators and cater for
the shortfall.
Critics believed then, and many
still do, that the water had been
deliberately drained to create
an energy crisis. Politically
connected investors were granted
licenses as Independent Power
Producers (IPP) and since then,
they have had a stranglehold on
the electricity sector in Kenya.
Complaints have been raised
about skewed contractual
terms in the Power Purchase
Agreements with the National
Assembly calling on the
government to renegotiate the
terms but no action has ever been
taken despite assurances that the
terms would be reviewed. The
IPP issue comes up in every
Parliament but nothing ever
happens.
In August this year, Business
Registration Service Director
General Kenneth Gathuma
failed to reveal the names of the
owners of Independent Power
Producers (IPPs) to members
of the National Assembly
Departmental Committee
on Energy. Gathuma named
companies that owned shares in
the IPPS, most of them being
foreign companies, but failed to
name the individuals involved.
3. IMPORTERS OF
REFINED PETROLEUM
PRODUCTS
The fuel sector has been a
liberalized market that is run
almost entirely by private
fuel importers save for the
National Oil Corporation which
belongs to the government.
Beginning the entry of the Ruto
administration, a deadly cartel
is developing in the sector and
controlling the importation of
fuel in the country.
In what has come to be termed as
BY PAUL MWANGI
a G-G oil deal, three companies
are exclusively importing
the entire fuel requirements
for Kenya at prices that are
determined exclusively between
the government and the oil
suppliers.
Previously, the importers of fuel
were determined by what was
called the Open Tender System
(OTS) where all licensed
importers competed on who
could obtain the best price
internationally for the country’s
fuel needs on behalf of all oil
marketing companies.
All licensed oil importers have
had a right to participate in the
tender. The government plays
only a facilitative role and had
no role to play in the system.
The winner of the tender would
be allowed to exclusively import
fuel for the next one month and
sell it to the other oil marketing
companies.
Under the G-G system, Kenya’s
fuel needs can only be imported
from three international oil
suppliers who are granted what
is termed as a “preferred right”
to supply fuel to Kenya. The
prices for the fuel are set by the
three suppliers together with the
government of Kenya.
Three local oil marketing
companies have been nominated
as the sole sellers of the imported
oil, taking over the role that was
played by the winner of the
OTS. The fuel is sold to the
other local companies are prices
determined by the supplier and
the government.
Finally, all imports are financed
exclusively by one bank that is
nominated by the government.
The financing terms including
the currency conversion rates are
determined by the bank, called
“the financing party”, together
with the government.
The total and complete ouster of
market forces by the government
in collaboration with a handful
THE
VERDICT 05
of international oil suppliers and
local oil marketing companies
make the G-G fuel importation
system one of the deadliest
cartels in Kenya.
4. ALLOTMENT OF
PUBLIC LAND
The system of allocation of
public land is the oldest cartel in
Kenya. It started in 1884 when a
cartel of European governments
came together at Berlin and
shared Africa among them. The
territory known as Kenya today
was allocated to the United
Kingdom.
Queen Victoria of England then
started granting titles to land
in Kenya. Commercial ventures
like the Imperial British East
African Company were given
Royal Charters that allocated
to them all the land they could
exploit in the territory. Later,
other members of the British
aristocracy were allocated
land to come and settle on
and exploit. This Royal cartel
continued operating through the
reigns of King Edward VII who
succeeded her and King George
V who succeeded him.
In 1920, King George V decided
to set up a colonial administration
in Kenya. He delegated his
sovereign right to grant titles in
Kenya to a Governor who then
allocated land in the country lawyers and estate agents. It the trespasser acquires title to the
as per his wishes. Anyone who works by identifying vulnerable land. Adverse possession is used
wanted a title to land in Kenya parcels of land and using either to grab unutilized private land
had to be in good terms with fraud or sheer force to acquire usually with the cooperation
the Governor who had total the title to the land. of local administration and
discretion on how to allocate the Vulnerable titles are usually manufactured evidence.
land. unsurveyed public land, land Duplicate titles- Ministry of
In her book Out of Africa, later with expired government leases Lands officials produce duplicate
turned into a seven Academy and unutilized private land. The titles for unutilized private land,
award winning Hollywood
movie, Karen Blixen told of her
tribulations trying to convince
the Governor to allocate land to
local African natives who had
been settlers on her plantation.
When Kenya became
independent, the cartel was
inherited by the new African
government with the President
taking over the powers of the
colonial Governor. Throughout
the Kenyatta and Moi
administrations, the President
decided exclusively who
was allocated public land in
Kenya. The powers were in fact
expanded so that the permission
of the President was required for
an allotee to even transfer these
lands to commercial buyers.
Today many of these powers
were curtailed by the new
Constitution but the influence
of the President over public land
is still being exercised but very
secretly. Early this month, a local
newspaper reported that Energy methods used to grab the lands surveyors subdivide the land,
and Petroleum Cabinet Secretary are several. estate agents sell the new parcels
Davis Chirchir had directed Brute force- The cartels sell through lawyers who share the
Kenya Pipeline Company to the unsurveyed public land money around the conspirators.
lease part of its 300-acre land or unutilized private land to Fraudulent titles are also
in Mombasa to a Nigerian firm members of the public and urges produced by the forgery of
that seeks to construct a 30,000 them to construct buildings government letters of allocation
metric ton capacity Liquefied on the land and settle. In other of unsurveyed public land.
Petroleum Gas import terminal. instances, goons are sent to Retired officers of the Ministry
invade private property and sign the titles which are dated
destroy everything on the to correspond with the period of
5. LAND GRABBING land. The latter is the common service of these officers.
practice when grabbing land While the Treasury is the
An offshoot that developed from whose government lease has deadliest cartel in terms of
the cartel of allocation of public expired. amounts of money involved, land
land was a land grabbing cartel. Adverse possession- The law grabbing is the deadliest cartel
It is made up of officers from requires everyone who wishes to in terms of violence, property
the Ministry of Lands, middle evict a trespasser to sue within 12 destruction and loss of human
level politicians and political years or they would lose the right life.
operatives, private surveyors, to do so. In such an eventuality,

BY PAUL MWANGI THE

VERDICT 06
6. IMPORTATION
OF AGRICULTURAL
GOODS
Although Kenya’s agricultural
policies from independence talk
of achieving food security, every
action taken in the agricultural
sector is aimed at ensuring
that Kenya will always be a net
importer of food.
According to Kenya’s 2nd
National Development Plan
(1970-1974), agriculture was
the most important sector of
the economy contributing then
to 34% of the country’s G.D.P
and one third (1/3) of wage
employment. Three quarters
(3/4) of the population was
recorded as dependent on
agriculture for their livelihood.
The significance of agriculture as
the essence of socio-economic
development in Kenya was
re-stated in the 3rd National
BY PAUL MWANGI
Development Plan (1974-1978),
the 4th (1979-1983) the 5th
(1984-1988), the 6th (1989-
1993), the 7th (1994-1996), the
8th (1997-2001) and the 9th
(2002-2008).
The Poverty Reduction Strategy
Paper for the period of 2001-
2004 identified low agricultural
productivity as the number
one (No.1) cause of poverty
in Kenya. Among the main
reasons why agriculture had
declined, the strategy paper
said, was because of many
years of inappropriate legal and
regulating framework and poor
governance in key institutions
supporting agriculture.
Kenya’s agriculture is deliberately
mismanaged in order to protect
the interests of the agriculture
cartels. There is a wide disconnect
between the policies laid out in
the various agricultural strategy
papers and what the government
THE
VERDICT 07
actually does.
The most recent strategy
paper, Agricultural Sector
Transformation and Growth
Strategy (ASTGS) 2019-
2029, is a masterpiece. But
there is little similarity between
what it suggests and what the
government is doing.
Indeed, there is not a single
government action over the last
few decades that has moved
Kenya any closer to food
sufficiency. Whether it is maize,
sugar, wheat or rice, there are
established and impenetrable
networks that import them into
Kenya year after year.

7. PROCUREMENT
OF PUBLIC GOODS
AND SERVICES
Cartels in public procurement
have come as a response to the
promulgation of procurement
laws. Before the NARC
government came to power,
there were no laws governing
competition for public
procurement. Government used
its own circulars to direct the
process of procurement. The
procuring agency could give a
tender to whoever they wanted.
The first law was the Public
Procurement and Disposal
Act of 2005. Later, the issue
of procurement became a
constitutional issue and the
THE VERDICT
wwww.theverdict.co.ke
Constitution 2010 laid down the
principles necessary to ensure
fairness in these processes.
The result has been the formation
of procurement cartels all over
the public procurement agencies
in an attempt to circumvent the
strict constitutional and legal
parameters. This cartel control
of procurement has become
so entrenched that suppliers
have unwritten rules governing
how to participate in public
procurement.
For instance, if you haven’t
spoken to anyone, don’t bother
tendering. Tenders being
expensive both in time and
money, suppliers who participate
in unsuccessful tenders end
up out of pocket and out of
spirit. Finally coming to the
acceptance that tender processes
are controlled by cartels, the rule
BY PAUL MWANGI 28TH NOV 2023
of thumb among suppliers is not
to bother tendering if there is
no communication line to the
cartels.
Secondly, suppliers know
they need to understand the
food chain. It’s not enough to
talk with the cartel; one must
understand who is at the top of
the food chain. There are tenders
in Kenya that a supplier will not
get if the Cabinet Secretary has
not approved the award. Both all
the way up and all the way down,
there are categories of tenders
based on the amounts involved
that are determined by different
heads.
For instance, tenders of a
value of around Kshs. 500
Million are the dominion of
the Cabinet Secretary. Below
that, from around Kshs. 100
Million to Kshs. 300 Million, is
the dominion of the Principal
Secretary. Above Kshs. 1 Billion,
the cronies of the president take
dominion.
Don’t hold your breath
Clearly, state capture is deep
rooted in Kenya and very
expansive. It is very doubtful
that Kenya Kwanza, which dared
to promise a public inquiry of
state capture, can deliver on this
promise. I would not hold my
breath.
08