How KPC could stir a diplomatic fallout with Lebanon

Inside a nondescript compound near the General Service Unit headquarters is an odd combination of establishments.

Regional offices of Zakhem International Construction – the firm that was awarded the contract to build the multi-billion shilling oil pipeline – and the Lebanese Consulate sit side by side.

Only the word “Zakhem” and the company logo are written on the wall as you approach the gate.

It is not by coincidence that the two sit together as the immensely wealthy Zakhem family also represents Lebanon as diplomats to Nairobi.

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Abdallah Zakhem, the founder of Zakhem Construction International, has been the Honorary Consul of Lebanon for the past four decades.

Over the period, his firm has also won several contracts in Kenya and across the world.

As a diplomat, the 80-year-old could enjoy immunity from investigations, but not the rest of the family whose business interests elsewhere have been previously questioned.

Information on the company’s website suggests that Mr Zakhem runs the global operations of his firm from the head office in London.

Design alterations

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Detectives are now probing controversial price variations for the project that was initially priced at Sh48 billion before the firm sought an additional Sh18 billion to cover delays and design alterations.

Through negotiations, the variations have since been reduced but still managed to raise concerns about possible fraud in computing the additions on the contract price.

Kenya Pipeline Company (KPC) managers fast-tracked settlement of the variations without the approval of the board yet the matter was still under special audit.

Over Sh1.4 billion in variation costs has already been paid out, against Sh1.7 billion that has been approved by the company’s tender committee.

Zakhem International, which has previously been contracted to build the petroleum storage tanks in Mombasa and the pumping station in Morendat, Naivasha, had billed KPC Sh3.8 billion after the downward review of variations.

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At the heart of the investigations is whether there was collusion between the contractor and KPC to inflate the project cost.

Sources involved in the negotiations have confirmed the active investigations, but could not reveal who at Zakhem Construction had been questioned.

Existing standoff

A tug-of-war on price variations might help explain an existing standoff between the contractor and KPC, with either party trading accusations on project delays that have extended the initial timeline by over three years.

The firm says the pipeline has been completed and is undergoing testing to check its structural integrity.

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Previously, KPC top brass had sworn never to pay the variations claiming that it was not party to the delays on which the additional costs were premised.

In their argument then, the delays arose primarily from a dispute between Zakhem International and another contractor that was to supervise the project construction.

Suspected fraud

In total, Zakhem International submitted eight variation orders with a cost of $38,109,717.12 (Sh3.8 billion) which are now under the microscope of investigators trying to unravel the suspected fraud.

Zakhem’s troubles seem to only pile, with this round of investigations coming just days after it suffered another major blow after its bank accounts were frozen by a court.

The dispute leading to the freezing orders still relate to the controversial pipeline project with a lender accusing KPC of aiding Zakhem to default on a loan extended to fund the construction.

One of the company’s officials, Mr Ibrahim Zakhem, referred The Standard to another person, also known as Ibrahim. He, however, could not be reached as the telephone numbers provided were not working.

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