Gathungu: Sh10b at risk as KCAA lacks documents for its key assets

The Kenya Civil Aviation Authority (KCAA) does not have documents supporting its ownership of assets valued at Sh10.6 billion spread across the country.

Auditor General Nancy Gathungu revealed this in her recent 2022/23 Financial Year report. KCAA regulates the country’s aviation sector.

In their explanation, KCAA said they were pursuing the pieces of land in dispute in court and with the help of the National Land Commission and the Ethics and Anti-Corruption Commission.

From her review, Gathungu said three parcels of land measuring 50 acres, 0.77 hectares and another of unknown size have been registered in the name of third parties.

KCAA said that following the recommendation of the National Assembly’s Public Investments Committee, they are pursuing 17 parcels of land in court and have been able to recover six.

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Among the pieces of land that KCAA does not have ownership documents are the East African School of Aviation, valued at Sh3 billion, the Central Transmitting Station (Sh3.3 billion), and the Jomo Kenyatta International Airport (JKIA) Receiver Station (Sh1.8 billion).

Airports in Kenya are owned, operated and maintained by the Kenya Airports Authority (KAA).

In the report, Gathungu says KAA lost 0.47 acres, which was illegally excised and registered to a third party. For instance, JKIA is battling private developers in court over two parcels of land illegally taken from it.

The Wilson Airport sits on land valued at Sh33 million by KAA, but its size is yet to be determined, and there is currently a case in court  challenging its registration to the authority.

The Malindi airport has a piece of land measuring 0.8925 hectares that was irregularly allocated to a church while a further 0.0549 was allocated to a petroleum company.

According to Gathungu, in her review, KAA is currently battling to own 85 parcels of land at eight airstrips/airports. She says that the Kenya Pipeline Company (KPC) is yet to have KAA transfer a Sh5 billion Embakasi land.

On the other hand, KPC has yet to seek the renewal of the lease of land near the Mombasa Airport, which expired on July 1, 2019. 

KAA revenue

Gathungu discloses that KAA made Sh16 billion from aeronautical and non-aeronautical revenue in the report.

She, however noted that KAA did not collect any revenue from the Nanyuki and Nyaribo airstrips despite the two being active on domestic flights.

“There was no satisfactory explanation why KAA did not collect any revenue from the airstrips,” says Gathungu.

The report further adds that private businesses operated the Nanyuki airstrip, but there were no official lease or rent payments records.

Gathungu estimates that KAA lost Sh15 million in revenue from Nyaribo and Nanyuki airstrips.

She adds that even though the authority made Sh982 million in rental revenue this was grossly understated.

For instance, land at the JKIA leased to a private company is estimated to be 8,343 square feet but a spot check by Gathungu showed that the occupied area was larger.

She noted in her report that a piece of land measuring 64,583 square feet (1.48 acres) had been offered to a company for Sh20 per square foot, but the company rejected the offer.

KAA then revised it and offered the same land for Sh6 per square foot, and this offer was taken up and signed by the company.

The land was leased for 45 years, effective from August 1, 2007, but Gathungu pointed out that the agreement does not have rate escalation to cover inflation and other economic dynamics.

The report shows that lease rates for land within the Wilson Airport stand at Sh6, which is lower than the government’s valuation, which recommends a charge of between Sh20 to Sh122 per square foot.

According to Gathungu, KAA does not have access to rights to information on cargo handled by agents and the amounts remitted to the Kenya Revenue Authority.

“This implies that the Authority does not have any control of the revenue and the amounts remitted by KRA cannot be verified by KAA.”

She added that the current cargo chargeable rate of Sh250 per air bill is low and not based on the gross weight of the cargo handled but the units of parcels. “The proposed but not approved minimum concession rate of Kshs.0.50 per kg would have resulted to a revenue increase of Sh8,381,874 based on the 377,860,339 freight weight in kilograms handled during year under review.”

Gathungu adds that seven firms were given airport access passes to operate within the airport, but there were no contracts or agreements between KAA, and the firms were given to her office for audit.

This made it hard to ascertain the legality of their operations, and the lack of contracts pointed to the possibility of revenue loss or undeclared and unremitted income.

Parking revenue

According to Gathungu, KAA made Sh447 million in parking fees from all airports in the country.

When her team visited the airports for verification, they found that the Kisumu, Malindi and Eldoret airports collect revenue manually.

The three airports issued physical receipts and at times did not issue receipts at all.

Gathungu says that JKIA made the highest revenue of Sh297 million which is done by the Kenya Airports Parking Services (KAPS) which is installed and maintained by the Automated Car Parking Management System.

KAPS pays 82 per cent of the collected revenue to KAA, subject to a minimum annual guarantee of Sh250 million.

Gathungu points out that KAA solely relied on the KAPS report for billing purposes, which may result in losses since no data verification and reconciliation has been done.

From the electronic sale of parking receipts by KAPS, Gathungu noted an unexplained variance of Sh101 million between January and May 2023.

She added that the authority lacks full access to parking data.

The report says that the parking system does not capture the number plates of vehicles and instead prints symbols, exposing KAA to revenue loss since one ticket can be used by several vehicles.

“It was noted that at the point of exit from the airport, some users were paying in cash to the KAPS operators and the collections were not recorded in the system. Other users would present the tickets and be allowed to exit.”

Lapses in the system showed that some cars can exit the airport without paying parking fees.

According to Gathungu, there is no documented definite way for the contracted companies to declare monthly collection to ensure full disclosure of revenue collection to KAA.

The authority lacks sufficient and accurate data to compute and correct monthly revenue to bill monthly arrears as stipulated since KAA relies on data provided by KAPS.

The Auditor General noted that KAPS was yet to remit Sh171 revenue.

She adds that the accuracy and completeness of Sh2.5 billion could not be confirmed.

KAA entered into several legal services contracts amounting to Sh12 million, which could not be confirmed for lack of contracts.

The Auditor General says that KAA management had not demonstrated any efforts to recover the debts it is owed.

For instance, Kenya Airways and its subsidiary owes KAA Sh6.3 billion, which Gathungu says has not been attracting any interest in protecting the authority.

Others who owe KAA are African Cargo Handling Limited (Sh1.4 billion), and KRA (Sh3 billion).

Gathungu says that KAA is unable to recover the trade receivables balance amounting to Sh15 billion, which is from one-time customers who were allowed to take off, but there were no structures in place to follow up.

According to the report, inventories valued at Sh121 million could not be confirmed.

The total value of property, plant and equipment owned by KAA stands at Sh1 trillion as of June 2023.

Gathungu says that KAA acquired land for the expansion of Malindi Airstrip and paid ShSh538 million but it does not have ownership documents.

“Further, records showing details of beneficiaries of the acquired land such as the names, national identification numbers, size/acreage of land acquired, valuation and the corresponding payments were not provided to support land compensation.”

She was not given documents for land acquired for the expansion of the Kisumu Airport, bought at Sh190 million, Records show that the authority has two title deeds for the airport with different acreage.

KAA did not provide documents supporting the surrender of 3.29 acres in Embakasi Village, Nairobi to the National Police Service.