How GDC paid Sh1.4bn to China firm with no address

A GDC rig in Menengai, Nakuru. [File, Standard]
A State corporation does not know the official physical location of a Chinese company it advanced Sh1.4 billion as part payment for a Sh5.8 billion contract awarded in 2014.

A fresh trove of documentation obtained by Sunday Standard details the circumstances in which the Geothermal Development Company (GDC) lost the staggering amounts to Hong Kong Offshore Oil Services (HOOSL).

Their letterheads were devoid of contacts -- only one telephone line and a fax number -- and officials insisted on emailing official letters. At one time, a HOOSL official wrote to GDC CEO Johnson Ole Nchoe asking him to download an internet chat platform for official communication.

“Please provide us with official registered physical address in China as earlier requested in our email dated April 13, 2018,” Stephen Kangogo, GDC’s representative in the contract who also serves as deputy manager drilling operations, wrote on June 4, 2018.

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This was exactly four years since GDC wrote to the Chinesefirm notifying it of award of tender to drill 15-20 geothermal wells in Baringo-Silale.

Frustration and threats

In the trove of communication, different GDC officials addressed their HOOSL counterparts with different physical addresses, at different times.

For instance, while Kangongo and Nchoe used the physical address of China Resources Building, 13th floor off No. 26 Harbor Road Room 1303 in Wanchi, Hong Kong, GDC’s Legal Affairs General Manager Beatrice Kosgei used Room 1318-20 Hollywood Plaza 610, Nathan Road Mongkok, Kowloon HK China

In the company’s website, the company’s physical address is given as No 58 Changliu Road, Pudong Shanghai PR China.

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In the communications, HOOSL’s company secretary  in Pan Africa House on Kimathi Street in Kampala, Uganda would be copied.

In the October 11, 2018 HOOSL vouching for internet chat, Huazhong dressed down Kangogo over what he termed as delays in GDC to approve alternate rig specifications send to them over a period of two months.

“HOOSL is suggesting that the MD download a software of WeChat to discuss the next step in the group of HOOSL and factory, we applied a number for him to log in. HOOSL is looking forward Mr Johnson attending the group and discussing the details,” he wrote.

The frustration and threats imminent in the letter was culmination of the Chinese company’s sustained pressure turning over project delay blame to GDC. This was after braving a year long generous indulgence by GDC to provide an advance payment guarantee.

No sooner had the company been paid and notice given to mobilise than they changed tack.

They accused GDC of not providing them with rig site infrastructure information, occasioning a four-year delay in which the rigs they had mobilised corroded and their manufacturer confiscated their Sh1.7 billion deposit for manufacturing them.

“Regretfully, even though HOOSL constantly inquired about the project process on meetings and letters to confirm the time of spudding in, GDC still couldn’t confirm and have barely notified water system process as agreed on a monthly basis,” Huanzong wrote in a March 26, 2018 letter.

He complained of receiving “several emails” from different GDC people asking for custom charges, others asking to be subcontracted for the project and others sending mobilisation letters which confused them.

“Considering the company’s risk, HOOSL has to consider the GDC’s performance as the project has been shelved.”

To GDC’s shock, HOOSL said they would be claiming Sh1.7 billion as compensation for the loss suffered over the four year period, a delay they had never talked about before.

Viability

They also demanded re-negotiation of the commercial contract saying the existing one was no longer viable.

They protested GDC’s move to supply it with auxiliary drilling materials, saying they will “not use any material procured by other parties” on account of ensuring the quality of the wells they were to drill.

GDC denounced the claims as baseless, with Nchoe saying HOOSL was fully appraised and that the water supply system had been long synchronised for the arrival of the rigs. Further, Nchoe denied GDC had any contractual dealings with the rigs manufacturers.

“HOOSL dealings with the manufacturer is exclusive of GDC. We require HOOSL to mobilise and not the rig manufacturer who we have no contract with. HOOSL has the obligation to deliver the rigs as per the contract,” Nchoe wrote on May 28, 2018.

With the situation getting thicker with every letter, Nchoe also categorically rejected the substitution of the rigs.

A day later, Huazhong was back at it with another letter attaching pictures of the substitute rigs and which he said were identical to the rigs that had passed due dilligence. He also had something up his sleeve. He suggested that GDCgoes to China for second due diligence but if not possible, issue it with a letter of exemption. GDC declined.

In late August, HOOSL wrote to affirm that the substitute rigs did not actually belong to them as had been implied but were rented for a period of three years. They also gave GDC a September 5 deadline to accept the rigs or they be moved to other projects.

Wasted time

They also had another piece of news for GDC relating to the man the firm had been corresponding with: “From September 1, 2018, Mr Gary Zhang will resign from HOOSL, new General Manager Jason Feng will take office.”

September 5 came and GDC remained defiant, with Kangogo firing another letter to HOOSL which in turn responded on September 11 trashing his interpretation of the mobilisation clauses of the contract and daring him to bring it on.

“Please note Clause 1.1 is solely the definition of mobilisation and the scope, and Clause 17.8 is the definition of notice of both parties, it is irrelevant to HOOSL’s obligation to write to accept or reject the mobilisation notices,” he said.

HOOSL accused GDC of acting unilaterally, threatened they should take responsibility of the two failures to mobilise and accused them of wasting time: “The meeting held on September 7 was to start at 9am, but GDC delayed the meeting to 10:30am like always. HOOSL is trying to get used to GDC going back on their words and waste of time.” There was no end in sight.

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