State stuck with broke Italian firm after Sh18 billion payout

Itare Dam site in Kuresoi South in Nakuru county on September 17, 2019. [Kipsang Joseph, Standard].
Tough conditions in the agreement between the government and the bankrupt Italian company has made it difficult for the Ministry of Water to pull out of the controversial Sh19 billion Itare dam deal.

Should the government pull out, the troubled firm, CMC Di Ravenna, which was also contracted to build the Arror and Kimwarer dams, will walk away with Sh12 billion more without breaking a sweat.

Already, the government has paid Sh 18 billion of the total amount, with only an estimated 26 per cent of the work done.

And should the government continue to engage the firm in construction of Itare dam, the taxpayer will fork out between Sh20 billion and Sh25 billion more.

Financial implications

These are some of the tough conditions contained in the contract that the Sunday Standard has exclusively obtained. The Water Cabinet Secretary Simon Chelugui and the State Law Office have to make a decision on the way forward after the collapse of the construction works at the three dams.

Only three options are available: Termination of the construction, continue working with the bankrupt CMC Di Ravenna or assign the remaining work to another party.

But all the options have huge financial implications to the tax payer and advantages to the troubled company.

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Should the government assign the remaining construction works to a third party, then they will be forced to negotiate with CMC Di Ravenna which enjoys an upper hand in such negotiations.

The agreement states that Kenya can assign whole or part of the work to a third party but with prior agreement with CMC Di Ravenna. 

“Assignment of the remaining works by the employer to another contractor would require an addendum to the works contract (commercial contract) prior agreement of CMC and no objection from the lenders and SACE,” the clause states.

Should the government through the Ministry of Water decide to terminate the contract, they will have handed CMC Di Ravenna a new lease of life financially.

An advisory by the State Law Office warns that should this option be explored, the government must be ready to pay all monies owed to CMC Di Ravenna without any delay.

“Termination of the contract by the employer pursuant to clause 15.2(a) will allow the employer to request for payment of the securities on first demand. The process of pulling the securities might be lengthy with delayed impact on available financial means to cover the remaining works. “

“....This means that all parts of the loans immediately become payable on demand,” the advisory to the government states.

And this means that the remaining Sh12 billion which the government is yet to pay the contractor will be paid to the firm without completing the job.

The last option open to the government is to continue working with the bankrupt CMC Di Ravenna.

Currently the construction work at the Itare dam is estimated to be at 26 per cent after receiving Sh18 billion of the total amount. This means that the government has to financially bail out the company.

The Directorate of Criminal Investigations is investigating construction of the controversial dam. Last week, DCI chief George Kinoti announced that a high ranking government officials would be summoned to the DCI headquarters to record statements.

Dr Chelugui has since recorded a statement with DCI serious crime unit investigators over the stalled project.

Sources familiar with the investigations said two CSs and the entire Rift Valley Water Services Board.

The CSs, whom the police want to shed light on the matter served in the Water Ministry between 2013 to date.

According to the sources, Chelugui told the police that he found the Itare dam contracts had already been signed when he took over the Ministry from Devolution and Planning Cabinet Secretary Eugene Wamalwa.

The Water CS who spoke during the launch of the Resource Centre on ground water resources education training and research strategic plan 2018-2022 in Nairobi, said he was not in office during the procurement of the dam project. 

“Itare dam project started in 2014 and that’s when it was signed, sealed and delivered. I, however, took over office in 2018 and found payments had been done and work was going on,” he said.

Chelugui told the investigators that after taking over leadership at the ministry, he was informed of wrangles touching on the construction of the dam and that some of the matters were headed to court.

Since then he has made several attempts to salvage construction of the dams.

“He said he had been consulting the Environment Ministry on the issue of water passage which is yet to be cleared,” a source told Sunday Standard.

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Italian companyCMC Di RavennaArror Kimwarer dam scandals