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Kenya Airways’ tumultuous period under Moi

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By JOHN KAMAU
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Somebody has decided to bequeath Kenya Airways with the multibillion assets of Kenya Airports Authority at Jomo Kenyatta International Airport (JKIA) in the hope that it would turn the airline’s losses into profits. How? We don’t know.

But if it does, Kenya Airways will be in the business of chasing land grabbers and securing assets that have been stolen over the years from KAA — besides tackling its own historical mistakes.

Once upon a time, Kenya Airways was the most abused parastatal. Its aircraft could be commandeered by State House — at times for a week — and flown to any destination the president wanted until he returned it.

For those days, and President Daniel Moi loved to fly, the plane would be parked on the tarmac.

Flights would be cancelled and passengers, who had booked in advance, would be inconvenienced. As long as President Moi was happy, nobody cared about profits.

Once, Parliament was told that some of those ferried, ostensibly as part of presidential retinue, were a bunch of joyriders, court jesters and jokers.

“People who have never seen a classroom (and) who cannot even ask for a cup of tea in the morning in hotels because they have to have interpreters,” according to then Ndia MP Kinyua Mbui.

Whether State House paid for these tickets is another story but Moi’s presidential delegation would be the entire capacity of an Airbus — or whichever aircraft was at his disposal.

If you have read Joe Khamisi’s book Dash before Dusk, he tells of the challenges that the protocol officers faced when it became apparent that President Moi was flying.

“Our biggest challenge in protocol was in the crafting of delegates’ list. Every Tom, Dick and Harry among politicians and government officials scrambled to be on that list.

“Ministers and MPs believed travelling with the President would give them political mileage and afford them private moments with the Head of State.”

As a result, Khamisi says, “There was a lot of jostling ahead of presidential visits. Names would be included then cancelled, then included, people would call in and claim presidential clearance only for us to find out the claim was false.”

Once, Khamisi forced himself between the semi-illiterate Mulu Mutisya and a British MP just in case.

“The idea was for me to intercept any question directed at Mutisya without exposing him to humiliation.” And the question indeed came, according to Mr Khamisi.

“Have you been to Britain?” the British MP asked Mutisya who was busy taking soup.

And before Khamisi could intervene, Mutisya had blurted some English words … “Tomato sup (sic) … sweet!”

That was the usual entourage aboard Kenya Airways and they all had to be accommodated in five-star hotels for the entire length of the presidential visit.

That is how KQ was operating during the Kanu regime and for many years since its birth on January 31, 1977 with two leased planes to replace the East African Airways.

Occasionally, the government would look for loans from a consortium of banks — and ask Parliament to approve the government guarantee.

That is what it did in 1985 when it took $100 million to purchase two Airbus aircraft from France — payable over 10 years.

The scandal in that deal was that 0.4 percent of the money was “commitment fee” while another 0.4 percent was listed as “management fee”.

It also became the dumping ground of workers. At one point in 1988, the airline had only 11 aircraft and a workforce of 4,000.

It was also making huge losses, was badly run and was not filing any returns. Every year, Parliament would be asked to write-off KQ debts and Treasury would pump more cash into the bottomless hole.

In 1996, the government stopped pumping money into KQ and decided to sell part of its shareholding to a strategic partner, assumed the debt and converted it to equity.

This was at the time the biggest issue at the Nairobi Stock Exchange (NSE) and comprised of 235.4 million ordinary shares priced at Sh11.25 per share.

It was a surprise that KQ, despite the losses, would attract many buyers meaning that it had a lot of potential.

For instance, the domestic tranche was oversubscribed by 82 per cent while the foreign tranche was oversubscribed by 128 per cent.

But the subsequent deal with KLM, a marriage of convenience, was to turn abusive and has been blamed as part of the woes facing KQ.

In 2016, I had a chat with former KQ chief executive Mbuvi Ngunze who told me that the KLM marriage “like any other marriage has its share of troubles”.

Just before the KLM deal was signed, the then minister for Transport and Communication, Wilson Ndolo Ayah had written to Attorney-General Amos Wako wondering why Kenya was entering into such an arrangement.

In his letter dated March 15, 1996, the minister wondered why KLM directors in the Kenya Airways board were given veto powers over certain key resolutions of the board.

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This, he lamented, was against a Cabinet decision that had ruled out the granting of such powers and the minister was wondering why the draft Memorandum of Understanding and Articles of Association and the Shareholders Agreement had failed to reflect the Cabinet decision.

Had somebody listened, according to KQ insiders, Kenya Airways would not have flown into today’s turbulence.

When the government sought for a strategic partner, it dropped South African Airways because it demanded veto powers on some of the board decisions.

The Cabinet had approved the KLM partnership because it did not ask for veto powers.

This was sneaked later on and when Mr Ayah saw the draft, he wrote to then Finance Minister Musalia Mudavadi and to Fares Kuindwa, then Permanent Secretary, Office of the President and Secretary to the Cabinet, asking them to resolve the matter before the final public floatation of the government’s 51 percent shareholding at Kenya Airways.

He said: “I propose as a matter of urgency that legal officers from your office, and possibly together with KLM lawyers, meet and amend both the shareholders agreement and the Draft Memorandum and Articles of Association of Kenya Airways so that the Kenya government position as approved by the Cabinet is accurately reflected in these two very important documents.”

What Mr Ayah did not know was that by that time an agreement had already been signed between Treasury Permanent Secretary Benjamin Kipkulei and KLM giving them the veto powers.

This still exists in Article 115 of Articles of Association of Kenya Airways Limited and it says in part: “If and for so long as the cooperation agreement shall remain in force, any resolutions relating to any of the following matters shall be deemed not to have been passed if any KLM director (or his alternate) is against the proposed resolution.”

And with that, the government could not sell its shares to any airline entity without authority of KLM and it had no right to hire a managing director and finance director, again, without the approval of KLM.

At best, most of the major decisions were left to KLM directors who could veto the disposal of any aircraft or the size and composition of the company’s fleet.

Also, Kenya Airways management was not authorised to make any major strategic decisions without the prior approval of KLM appointed officials.

Kenya Airways — although it should commercially compete with other airlines — could only watch as KLM entered its traditional African routes.

It was not also allowed to enter into routes that KLM served. That way, Kenya lost control of its flag carrier to KLM — and you can take that to the bank.

Initially, the government sold 26 percent of its stake to the Dutch national carrier and although other shareholders were unhappy with the performance of the stock, they openly argued that some of the clauses that the government had signed were akin to giving away KQ to KLM for a song.

From the start, the government also failed to reserve cargo rights to KQ leaving it to compete with other airlines for the lucrative cargo business.

This was a mistake because countries that reserve rights of cargo for their national airlines make superb profits. Ask Ethiopian Airlines.

At the moment, cargo accounts for just about 10 percent of KQ’s revenue.

But our Ethiopian neighbour’s cargo portfolio allows it to reach more than 30 destinations in Africa, the Middle East, Asia and Europe using six B777 and two B757 freighters thanks to a government policy that shields the airline from incessant competition.

More so, there has been frosty relationship between KQ staff and KLM and this usually leads to exodus of engineers and pilots.

At one point, KLM closed down KQ booking offices abroad and recalled the Kenyan managers who were manning profitable offices such as Zurich, Frankfurt, Tokyo, Hong Kong, Los Angeles and New York City.

Insiders say there is a huge unexplained imbalance on ticket sales. This is because Kenya Airways relies on KLM as its general sales agent (GSA) in Europe while KLM has not reciprocated by appointing KQ as its GSA in Africa.

Because of this imbalance, which is the result of the joint venture, it means that KLM gets more customers booked to its airline than it books on KQ. And that is why KQ, at times, flies with half-full planes.

It also means that KQ tickets cost more because it does not sell directly to customers but relies on third party distributors and also on the much-more expensive Global Distribution System (GDS) which charges hefty fee for each ticket sold.

Ask any frequent flyer and they will tell you that it is expensive to travel KQ and nobody explains why.

But having said that, KQ has come a long way from the days Moi used to commandeer its planes.

However, it has to deal with internal problems before it could get the assets of Kenya Airports Authority and make business that brings in cash.



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General

Sordid tale of the bank ‘that would bribe God’

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Bank of Credit and Commerce International. August 1991. [File, Standard]

“This bank would bribe God.” These words of a former employee of the disgraced Bank of Credit and Commerce International (BCCI) sum up one of the most rotten global financial institutions.
BCCI pitched itself as a top bank for the Third World, but its spectacular collapse would reveal a web of transnational corruption and a playground for dictators, drug lords and terrorists.
It was one of the largest banks cutting across 69 countries and its aftermath would cause despair to innocent depositors, including Kenyans.
BCCI, which had $20 billion (Sh2.1 trillion in today’s exchange rate) assets globally, was revealed to have lost more than its entire capital.
The bank was founded in 1972 by the crafty Pakistani banker Agha Hasan Abedi.
He was loved in his homeland for his charitable acts but would go on to break every rule known to God and man.
In 1991, the Bank of England (BoE) froze its assets, citing large-scale fraud running for several years. This would see the bank cease operations in multiple countries. The Luxembourg-based BCCI was 77 per cent owned by the Gulf Emirate of Abu Dhabi.  
BoE investigations had unearthed laundering of drugs money, terrorism financing and the bank boasted of having high-profile customers such as Panama’s former strongman Manual Noriega as customers.
The Standard, quoting “highly placed” sources reported that Abu Dhabi ruler Sheikh Zayed Sultan would act as guarantor to protect the savings of Kenyan depositors.
The bank had five branches countrywide and panic had gripped depositors on the state of their money.
Central Bank of Kenya (CBK) would then move to appoint a manager to oversee the operations of the BCCI operations in Kenya.
It sent statements assuring depositors that their money was safe.
The Standard reported that the Sheikh would be approaching the Kenyan and other regional subsidiaries of the bank to urge them to maintain operations and assure them of his personal support.
It was said that contact between CBK and Abu Dhabi was “likely.”
This came as the British Ambassador to the UAE Graham Burton implored the gulf state to help compensate Britons, and the Indian government also took similar steps.
The collapse of BCCI was, however, not expect to badly hit the Kenyan banking system. This was during the sleazy 1990s when Kenya’s banking system was badly tested. It was the era of high graft and “political banks,” where the institutions fraudulently lent to firms belonging or connected to politicians, who were sometimes also shareholders.
And even though the impact was expected to be minimal, it was projected that a significant number of depositors would transfer funds from Asian and Arab banks to other local institutions.
“Confidence in Arab banking has taken a serious knock,” the “highly placed” source told The Standard.
BCCI didn’t go down without a fight. It accused the British government of a conspiracy to bring down the Pakistani-run bank.  The Sheikh was said to be furious and would later engage in a protracted legal battle with the British.
“It looks to us like a Western plot to eliminate a successful Muslim-run Third World Bank. We know that it often acted unethically. But that is no excuse for putting it out of business, especially as the Sultan of Abu Dhabi had agreed to a restructuring plan,” said a spokesperson for British Asians.
A CBK statement signed by then-Deputy Governor Wanjohi Murithi said it was keenly monitoring affairs of the mother bank and would go to lengths to protect Kenyan depositors.
“In this respect, the CBK has sought and obtained the assurance of the branch’s management that the interests of depositors are not put at risk by the difficulties facing the parent company and that the bank will meet any withdrawal instructions by depositors in the normal course of business,” said Mr Murithi.
CBK added that it had maintained surveillance of the local branch and was satisfied with its solvency and liquidity.
This was meant to stop Kenyans from making panic withdrawals.
For instance, armed policemen would be deployed at the bank’s Nairobi branch on Koinange Street after the bank had announced it would shut its Kenyan operations.
In Britain, thousands of businesses owned by British Asians were on the verge of financial ruin following the closure of BCCI.
Their firms held almost half of the 120,000 bank accounts registered with BCCI in Britain. 
The African Development Bank was also not spared from this mess, with the bulk of its funds deposited and BCCI and stood to lose every coin.
Criminal culture
In Britain, local authorities from Scotland to the Channel Islands are said to have lost over £100 million (Sh15.2 billion in today’s exchange rate).
The biggest puzzle remained how BCCI was allowed by BoE and other monetary regulation authorities globally to reach such levels of fraudulence.
This was despite the bank being under tight watch owing to the conviction of some of its executives on narcotics laundering charges in the US.
Coast politician, the late Shariff Nassir, would claim that five primary schools in Mombasa lost nearly Sh1 million and appealed to then Education Minister George Saitoti to help recover the savings. Then BoE Governor Robin Leigh-Pemberton condemned it as so deeply immersed in fraud that rescue or recovery – at least in Britain – was out of the question.
“The culture of the bank is criminal,” he said. The bank was revealed to have targeted the Third World and had created several “institutional devices” to promote its operations in developing countries.
These included the Third World Foundation for Social and Economic Studies, a British-registered charity.
“It allowed it to cultivate high-level contacts among international statesmen,” reported The Observer, a British newspaper.
BCCI also arranged an annual Third World lecture and a Third World prize endowment fund of about $10 million (Sh1 billion in today’s exchange rate).
Winners of the annual prize had included Nelson Mandela (1985), sir Bob Geldof (1986) and Archbishop Desmond Tutu (1989).
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Tracking and monitoring motor vehicles is not new to Kenyans. Competition to install affordable tracking devices is fierce but essential for fleet managers who receive reports online and track vehicles from the comfort of their desk.

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Agricultural Development Corporation Chief Accountant Gerald Karuga on the Spot Over Fraud –

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Gerald Karuga, the acting chief accountant at the Agricultural Development Corporation (ADC), is on the spot over fraud in land dealings.

ADC was established in 1965 through an Act of Parliament Cap 346 to facilitate the land transfer programme from European settlers to locals after Kenya gained independence.

Karuga is under fire for allegedly aiding a former powerful permanent secretary in the KANU era Benjamin Kipkulei to deprive ADC beneficiaries of their land in Naivasha.

Kahawa Tungu understands that the aggrieved parties continue to protest the injustice and are now asking the Ethics and Anti-corruption Commission (EACC) and the Directorate of Criminal Investigations (DCI) to probe Karuga.

A source who spoke to Weekly Citizen publication revealed that Managing Director Mohammed Dulle is also involved in the mess at ADC.

Read: Ministry of Agriculture Apologizes After Sending Out Tweets Portraying the President in bad light

Dulle is accused of sidelining a section of staffers in the parastatal.

The sources at ADC intimated that Karuga has been placed strategically at ADC to safeguard interests of many people who acquired the corporations’ land as “donations” from former President Daniel Arap Moi.

Despite working at ADC for many years Karuga has never been transferred, a trend that has raised eyebrows.

“Karuga has worked here for more than 30 years and unlike other senior officers in other parastatals who are transferred after promotion or moved to different ministries, for him, he has stuck here for all these years and we highly suspect that he is aiding people who were dished out with big chunks of land belonging to the corporation in different parts of the country,” said the source.

In the case of Karuga safeguarding Kipkulei’s interests, workers at the parastatals and the victims who claim to have lost their land in Naivasha revealed that during the Moi regime some senior officials used dubious means to register people as beneficiaries of land without their knowledge and later on colluded with rogue land officials at the Ministry of Lands to acquire title deeds in their names instead of those of the benefactors.

Read Also: Galana Kulalu Irrigation Scheme To Undergo Viability Test Before Being Privatised

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“We have information that Karuga has benefitted much from Kipkulei through helping him and this can be proved by the fact that since the matter of the Naivasha land began, he has been seen changing and buying high-end vehicles that many people of his rank in government can’t afford to buy or maintain,” the source added.

“He is even building a big apartment for rent in Ruiru town.”

The wealthy officer is valued at over Sh1.5 billion in prime properties and real estate.

Last month, more than 100 squatters caused scenes in Naivasha after raiding a private firm owned by Kipkulei.

The squatters, who claimed to have lived on the land for more than 40 years, were protesting take over of the land by a private developer who had allegedly bought the land from the former PS.

They pulled down a three-kilometre fence that the private developed had erected.

The squatters claimed that the former PS had not informed them that he had sold the land and that the developer was spraying harmful chemicals on the grass affecting their livestock and homes built on a section of the land.

Read Also: DP Ruto Wants NCPB And Other Agricultural Bodies Merged For Efficiency

Naivasha Deputy County Commissioner Kisilu Mutua later issued a statement warning the squatters against encroaching on Kipkuleir’s land.

“They are illegally invading private land. We shall not allow the rule of the jungle to take root,” warned Mutua.

Meanwhile, a parliamentary committee recently demanded to know identities of 10 faceless people who grabbed 30,350 acres of land belonging to the parastatal, exposing the rot at the corporation.

ADC Chairman Nick Salat, who doubles up as the KANU party Secretary-General, denied knowledge of the individuals and has asked DCI to probe the matter.

Email your news TIPS to [email protected] or WhatsApp +254708677607. You can also find us on Telegram through www.t.me/kahawatungu

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William Ruto eyes Raila Odinga Nyanza backyard

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Deputy President William Ruto will next month take his ‘hustler nation’ campaigns to his main rival, ODM leader Raila Odinga’s Nyanza backyard, in an escalation of the 2022 General Election competition.

Acrimonious fall-out

Development agenda

Won’t bear fruit

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