By George Obulutsa and Katharine Houreld
NAIROBI (Reuters) - Kenya's Finance Minister Henry Rotich pleaded not guilty on Tuesday to corruption charges over the award of two dam tenders, in an unprecedented legal move against a sitting minister in a country notorious for graft.
Rotich was due to be freed on bail after his lawyers argued he was not a flight risk. He was accused alongside other senior officials of conspiring to defraud the public, among other charges, having spent the night in a police cell.
Chief Magistrate Douglas Ogoti granted him bail on a cash surety of 15 million shillings ($145,000) and ordered Rotich to visit his office only under supervision, calling it a crime scene.
Dressed in a gray pinstripe suit and yellow tie, Rotich denied the charges before a packed Nairobi court. Not all the 28 accused were in court, but all 20 who were also pleaded not guilty.
The case stems from an investigation into the misuse of funds in two dam projects planned in western Kenya, overseen by Italian construction company CMC Di Ravenna.
Kenya also charged a director of the company in absentia with conspiracy to defraud the country. Kenya will seek Paolo Porcelli's extradition from Italy, director of public prosecutions Noordin Haji said on Tuesday.
The company had not complied with a request to give statements to Kenyan authorities, he told Reuters.
CMC di Ravenna denied wrongdoing on Monday and said it had not been informed of any such request. Officials of the company were not available for comment on Tuesday.
The two dams were budgeted at 46 billion shillings ($446 million) but the treasury borrowed 63 billion instead, Haji said on Monday, needlessly ratcheting up Kenya's ballooning public debt, which stands at around 55% of GDP.
ETHNIC DIVISIONS
The shilling has lost 0.5 percent against the dollar since Rotich was charged. It traded at 103.65 on Tuesday, reflecting market unease about leadership at the finance ministry.
Rotich has not been fired on formally resigned, and no replacement has been announced. "(This) has created a power vacuum in Treasury, albeit temporarily," a senior currency trader told Reuters.
Hasnain Malik, managing director of frontier markets equity strategy at London-based firm Tellimer, said Rotich's arrest laid bare splits within the ruling Jubilee coalition.
The coalition was "openly divided" between Kikuyu supporters of President Uhuru Kenyatta and Kalenjin supporters of Vice President William Ruto, he said. Rotich is a Kalenjin.
That split could curtail economic growth, with a cap on interest rates having already substantially shrunk credit to the private sector, he said.
"Kenyan growth is more reliant on effective public project spending... (so) a divided government is a problem," he said. "Investors should worry that this arrest is a reflection of those divisions."
Ruto has made clear he expects the coalition's nomination for the presidency in the 2022 elections, when Kenyatta will have to step down due to term limits.
Haji said there had been no direct interference in his work.
But "people (were) making a lot of noise that we were targeting a certain community. You know that area has been very volatile when it comes to clashes. So we were concerned."
Some 1,200 people were killed in violence following a disputed national election in 2007. Kalenjin lands were a major flashpoint.
($1 = 103.7000 Kenyan shillings)
(Additional reporting by Duncan Miriri, John Ndiso and Humphrey Malalo in Nairobi and Tom Arnold in London; Editing by Gareth Jones and John Stonestreet)
