Kenya: Treasury in secret talks to pay 108 billion shillings to Kimwarer dam contractors
Treasury bureaucrats locked in secret negotiations to reimburse contractors hired to build the 108 billion shillings Arror, Kimwarer and Itare dams in a bid to qualify for insurance compensation for canceled projects, the Nation has established. .
Negotiations were launched after Italian state insurer SACE Gruppo CDP told the Kenyan government it had to pay contractors hired to build the multibillion shillings dams before they could receive compensation for default on megaprojects.
The heavily watched talks could see taxpayers investing more billions in doomed projects, as the Italian company which was paid 14 billion shillings to insure loans borrowed to fund their small print construction waves facing the government .
The Treasury is already five months behind on the first installment of 19.6 billion shillings for loans taken out for the construction of the Arror and Kimwarer dams.
“Therefore, as a preliminary and necessary step to implement any potential solution, it is necessary to have any overdue amount under the SACE facilities repaid in advance, in order to restore the resulting claims / losses that have arisen in as part of SACE insurance policies, ”SACE said in Kenya. in a letter of May 10, 2021 seen by Nation.
The three controversial mega dams have already carved a huge hole in the pockets of taxpayers, but the unbalanced contracts signed by government officials are expected to add salt to the injuries, as all possibilities on the way forward point to the release of billions more.
To activate the insurance policies taken against default, Kenya must pay. To get out of the contracts, Kenya has to pay.
Yet the entire 108 billion shillings was not covered against default, meaning that even if the insurance policies were activated today, Kenya will still pay for the unprotected amounts.
Much like most mega-contracts signed by secret Kenyan government bureaucrats, only a handful of Treasury officials know exactly how much was insured against default.
The Kimwarer project was scrapped in 2019 for being technically and commercially unfeasible, and some of the project-related loans were later scrapped.
All three projects were blocked in 2019 after entrepreneur, Italian CMC Di Ravenna, collapsed under the weight of debt.
The SACE bombshell comes as Kenya battles a 12.6 billion shillings claim by CMC Di Ravenna for the alleged illegal termination of the Arror and Kimwarer construction contracts.
The government is adamant that the Itare and Arror dams will be completed, with the latter now expected to cost nearly half of the 25 billion shillings it was originally expected to consume.
While abandoning the Kimwarer dam project, President Uhuru Kenyatta said in September 2019 that the Arror dam was viable but was priced too high.
SACE was the financial backbone of the financing of the three dams.
The Italian company helped Kenya get 108 billion shillings in loans from commercial banks, which were to be repaid over 14 years from this year.
The Treasury paid SACE 14 billion shillings to secure the loans, meaning the Italian company would step in to service the debt in case Nairobi failed to repay.
Correspondence between Kenya and SACE seen by the Nation indicates that Nairobi asked the Italian company to reimburse the insurance premiums for the loans that were canceled following the shutdown of the Kimwarer project.
But SACE now wants Kenya to pay the overdue installments and overdue premiums before it can step in and pay off the debts that were covered by the insurance policies.
Even though Kenya pays the insurance premiums and the first installments of 19.6 billion shillings into the SACE good books, taxpayers will still have to shell out billions of shillings for loans that were not covered by the SACE. OK.
For loans that have been canceled due to the termination of the Kimwarer project, Kenya will obtain reimbursement of insurance premiums from SACE.
The insurance deal with SACE has sparked its fair share of controversy.
Financial and business experts have revealed in the past that such projects are insured at a cost of up to 1.5 percent of the project value.
SACE charged Kenya 17.5% of the cost of the project, meaning that taxpayers paid 15 times the market rate for such insurance policies.
As the Treasury negotiates with SACE, the government is also rejecting an arbitration claim by CMC Di Ravenna at the International Court of Arbitration, seeking compensation for the termination of their contracts in the Arror and Kimwarer dam projects.
CMC Di Ravenna filed a complaint against the Kerio Valley Development Authority (KVDA), arguing that it was denied access to construction sites and was kept in the dark about contracts after the Criminal Investigations Directorate began to investigate the two projects, and suffered damage to his reputation. loss due to graft links under collapsed projects.
Interestingly, the Italian company claims that the Arror and Kimwarer projects were aid-funded projects and therefore should not have been slapped with nearly 400 million shillings in taxes.
CMC Di Ravenna has made the request in his quest for tax refunds, an allegation that raises more questions about the paperwork for the dams project as Kenyans have been exposed to repaying expensive loans that will take more than a decade. to be completed if the loan contracts are honored until the last claim.
“Unfortunately, the works suffered disastrous disruption due to the launch of administrative and criminal investigations into the projects, which appeared to have no other purpose than to create political unrest in Kenya. It is not up to the applicants ( CMC Di Ravenna) to say who caused the other. What is certain is that the chaotic situation that ensued created a self-perpetuating circle of public disinformation and political pressure to stop projects. , and insurmountable legal and practical obstacles to the activities of the applicants, ”says CMC Di Ravenna in his documents.
The company maintains that payments agreed under its contracts were also delayed after investigations into the projects began, and it wants compensation.
But Kenya has challenged the claim and wants compensation from CMC Di Ravenna, whom it has accused of colluding with government bureaucrats to defraud taxpayers of billions of shillings.
Solicitor General Kennedy Ogeto claims CMC Di Ravenna violated several laws and now wants the broke Italian company ordered to pay damages for the alleged collusion to defraud taxpayers.
Mr Ogeto argues that CMC Di Ravenna entered into a construction contract before any due diligence was conducted on the project which would have revealed that KVDA did not own the land on which the dams were to be built .
He adds that the company has not obtained approvals from the Kenya National Environmental Management Authority and Forest Service as required by law, and that it has not conducted public outreach. before signing construction contracts.
The Solicitor General argues that CMC Di Ravenna also failed to provide third-party oversight of the projects and to secure legally required performance bonds for the Kimwarer Dam.
The lack of a performance bond, says Ogeto, is enough to void the contract for the Kimwarer Dam.
Sh4 billion paid
Over 4 billion shillings paid in advance for the Arror dam has been diverted and shared between individuals who had no role in the construction process, and Kenya wants the money to be repaid at the same time. to the award of damages.
In short, the Arror contract and the Kimwarer contract could not be performed upon payment of the installments as both parties were well aware. Were used as vehicles for the movement of millions of dollars, including to third parties who did not. ‘had no legitimate interest in the execution and execution of said contracts and / or no significant work has been undertaken in relation to any of the contracts, ”Mr. Ogeto maintains.
Kenya wants money paid to CMC Di Ravenna to be investigated and funds not used for construction returned.
Kenya also wants the arbitration panel to decide how much CMC Di Ravenna should be ordered to pay in damages for breach of contract and alleged siphon off public funds.