Hotel scandal shakes Kenyan politics

Analysts say the Grand Regency Hotel, which is seen as a symbol of old corruption, sold for US$60m less than its worth.

A group of Kenyan opposition members of parliament march near the Grand Regency Hotel during a protest over its sale in Nairobi, July 1, 2008. Kenya's prime minister summoned cabinet colleagues on Tuesday to look at the secretive sale of the luxury hotel at what critics say was a knockdown price while protesters demanded the finance minister be fired over the deal.     REUTERS/Antony Njuguna (KENYA) *** Local Caption ***  AFR051_KENYA-HOTEL-_0701_11.JPG
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NAIROBI // The sale of a state-owned luxury hotel has caused a political scandal that resembles the high-level corruption that plagued Kenya during the 1980s and 1990s. The deal has also sparked calls for the resignation of Kenya's finance minister and has driven a wedge into the country's fledgling coalition government, which was formed to end months of political violence this year.

The government sold the Grand Regency Hotel, a five-star property in downtown Nairobi, to a group of Libyan investors for US$45 million (Dh165m), according to Amos Kimunya, the finance minister. Analysts said the hotel was worth US$115m, suggesting that the property was grossly undervalued. Last week, a government report recommended that Mr Kimunya step down to allow for an investigation into the transaction.

The report followed a parliamentary vote of no confidence in the finance minister. Mwai Kibaki, the president, who has the power to dismiss a cabinet member, has stood by Mr Kimunya, a key ally and a member of the president's Party of National Unity. The minister insisted he did nothing wrong and said the sale of the hotel was conducted in the interest of Kenyans. "My hands are totally clean on this transaction," he told members of parliament.

Mr Kimunya has said he will not resign. "I would rather die than resign," Mr Kimunya was quoted as having told a rally in his rural constituency on Sunday. "If I have to step aside so that they conduct investigations ? I will not be alone. I want the attorney general to step aside, I want [the lands minister James] Orengo to step aside. I want the prime minister to step aside." Njuguna Ndung'u, the central bank governor, defended the bank's role.

In a statement, he said the central bank had instructed three private firms - Value Zone, Lloyd Masika and Ark Consultants - to value the hotel. Based on their valuations, the bank reached a value of $45m, reiterating the figure that Mr Kimunya had previously given. "All three valuers are prepared to defend their valuations in public," Mr Ndung'u said. Anti-corruption analysts said the deal was a step backwards for Kenya as the country tried to remake its image after years of graft under Daniel arap Moi, the former president. Under the old regime, government officials often sold state assets at cut-rate prices while receiving large kickbacks.

Since coming to power in 2003, Mr Kibaki has reduced corruption and attracted foreign investment, turning Kenya's economy into one of the strongest in Africa. "This is a political earthquake," said Mwalimu Mati, an analyst for a Kenyan corruption watchdog. "The Grand Regency scandal is the tip of the iceberg in Kenyan corruption." The Grand Regency is seen as a symbol of Kenya's corruption-era politics. The government recovered the hotel this year from Kamlesh Pattni, a Kenyan businessman at the centre of the Goldenberg scandal of the 1990s, in which the government compensated him with millions of dollars in a fake gold export scheme.

Last week, members of parliament took to the streets to protest against the deal and to call for the finance minister's resignation. Police also used tear gas to disperse a group of students outside parliament chanting, "Kimunya must go". The scandal has threatened to unravel Kenya's fragile coalition government. The Daily Nation, a leading Kenyan newspaper that has devoted pages of coverage to the scandal as it has unfolded, said in an editorial that the deal was the first test for the government of national unity.

"The whole saga brings to the fore a challenge for the grand coalition that must be resolved lest the whole edifice comes prematurely tumbling down," the newspaper said. Political and tribal violence erupted after December's presidential vote, which both Mr Kibaki and his challenger, Raila Odinga, claimed to have won. Mr Kibaki was sworn in for a second term amid accusations of vote rigging by the Orange Democratic Movement, the opposition party.

International mediators brought the two sides together and a power-sharing deal ended the violence, which left 1,500 dead and 300,000 displaced. Mr Odinga became prime minister as part of the deal and the two main parties, which are almost equally represented in parliament, split the cabinet positions. Mr Odinga has seized the opportunity to boost his status as the government's chief enforcer and last week appointed a five-person committee to investigate the Grand Regency sale. Members of parliament have taken sides mostly along party lines, further straining the coalition government.

"Nobody is indispensable on matters of corruption. Not even president Kibaki or myself," Mr Odinga said. The Grand Regency's new owner is the Libyan Arab African Investment Company. The $45m price tag is less than Mr Pattni paid for the hotel in 1994. The hotel has been one of the leading establishments in the city, mainly accommodating conferences and business travellers. But it has not been refurbished in more than a decade and its new owners will need to invest a substantial amount to maintain the its five-star rating, industry analysts said.

Its occupancy rate is about 50 per cent, in line with the market's average.