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{
    "id": 1378627,
    "url": "https://info.mzalendo.com/api/v0.1/hansard/entries/1378627/?format=api",
    "text_counter": 283,
    "type": "speech",
    "speaker_name": "Suba South, ODM",
    "speaker_title": "Hon. Caroli Omondi",
    "speaker": null,
    "content": "I want to begin by talking about this issue of interest being charged on pending payments due from Government contracts. If you understand the way Government contracts are negotiated and priced, you will realise that the Government actually pays double interest on its contracts. This is because when people bid for Government tenders, they already price the prospect of delayed payment, which is regarded as one of the commercial risks in the contract. The fact that there will be delayed payment is already priced in the contract. When the delay occurs, there is a further re-calculation and additional funds to be paid for the delayed payments. So, we actually end up paying double. This is a matter that needs to be addressed. There has been attempts to address it but not very effectively. In the Public Procurement and Asset Disposal Act as well as the Public Finance Management (PFM) Act, there is a requirement that you cannot contract if you do not have a source of funds that is clearly marked and ring-fenced. Yet, we still end up not paying simply because we do not follow our budgets. The solution to this problem is effective implementation of that particular requirement in the PFM Act as well as the Public Procurement and Asset Disposal Act by holding responsible the officers who sign the contracts or those who are supposed to make the payment but do not do so. Most importantly, we need to find out how to ring-fence debts that are due and payable on Government contracts from arbitrary budget cuts. We need to hear from the Committee what their recommendations are on that particular area. The Committee should also come up with some very innovative ways of managing Government debt. In the private sector, we have something called ‘factoring’ where debts are sold at discounted rates instead of keeping them in their books. The Committee should investigate how some element of factoring can be introduced to Government debts, which would then be sold out to those who are willing to pay them at a discounted rate that is supported by issuance of long-term Government papers in terms of Treasury Bills to support whoever has been able to take up those debts. Secondly, I would like to point out that there is the misconception that the Office of the Attorney-General is responsible for commercial terms on Government contracts. I did spend the first nine years of my life there. The responsibility for commercial terms in Government contracts lie with the National Treasury. So, the institution that we need to deal with to get reasonable commercial terms is the National Treasury. How should we do that? If you look at our Constitution, under Chapter 12, we have some framework for public finance. However, we do not have a legislative framework for Government commercial terms. It is time that the Committee took up this matter and helped us to develop the reels of what constitute reasonable commercial terms. They can come up with some legislative amendments to the PFM Act so that when they are entering into a contract, the National Treasury will be bound by some parameters in achieving a reasonable commercial term. The Attorney General does not have that responsibility. Thirdly, there has also been a lot of complaints on what we call commitment charges. I think there is also lack of understanding in this area. Commitment charge is a norm in commercial contracts and Kenya cannot run away from it, and even us as individuals when we go to the banks. What is the basis? Once you go to a lending institution and they commit to lend you money, they reserve it. In other words, they take it out of their daily use and cannot lend it to somebody else. There is a cost to that. You are required to pay some commitment if you have not made a draw-down. That commitment charge is supposed to be an incentive for you to fulfil the condition precedent for effectiveness of your loan agreement. The challenge is not with the commitment charge but the borrower. They are supposed to timeously implement the conditions of effectiveness, implement the project in a timeous manner and make draw- downs so that they do not pay commitment charge. I think the solution is dealing with the National Treasury and the line ministries that are implementing donor-funded projects. It is the same thing with power purchase agreements The electronic version of the Official Hansard Report is for information purposesonly. A certified version of this Report can be obtained from the Hansard Editor"
}