How bank returned agency’s Sh1.4b paid to Chinese firm

 

Details have emerged how combined efforts by state agencies convinced a local bank to pay back a Sh1.4 billion advance payment guarantee to a Chinese company contracted to drill geothermal wells.

A flurry of letters between State Law office, Ministry of Energy, Central Bank of Kenya and Geothermal Development Company (GDC) obtained by Sunday Standard shows how Stanbic Bank agreed to return the amount.

The bank had initially recalled the guarantee it had advanced to Hong Kong Offshore Oil Services Limited (HOOSL) citing inappropriate conduct, misrepresentation and fraud in how it had been procured.

Two days ago, GDC announced a rare feat in Kenya; recovery of Sh1.4 billion already considered lost to a company that promised heaven but vanished into thin air.

“We will proceed with our own drilling operations. Already, there is one rig at the site and we have completed drilling of two wells.The recovery of the funds will boost our operations in the region,” GDC CEO Johnson Nchoe said while hailing the move.

A letter by Solicitor General Kennedy Ogeto to Central Bank Governor Patrick Njoroge last month appears forwarded evidence to show that Stanbic Bank violated the law governing its licensing regulations by arbitrarily canceling a guarantee without reference to its beneficiary.

The evidence included all correspondence between GDC and Stanbic relating to the matter, copy of contract between GDC and HOOSL, evidence of advance payment, evidence of cancellation of advance payment and other relevant documents.

“This office sought the intervention of CBK as regulator of commercial banks to invoke Section 33 of the Banking Act or any other provision of the law it may deem necessary and take appropriate enforcement action against Stanbic Bank,” Ogeto wrote.

On September 4, Dr Njoroge had written to the State Law Office saying he was unable to confirm how the contract was to be executed.

Given that the bank had raised issues of fraud around the matter, the CBK Governor had recommended in that letter that “an amicable resolution be pursued between the parties.”

Proceedings

But Energy Cabinet Secretary Charles Keter would hear none of this. A few days later, on September 11, he wrote to Attorney General Paul Kihara piling pressure on CBK.

“We wish to register our concern on the lack of response from the regulator and reiterate that before we institute recovery proceedings against Stanbic Bank, CBK should weigh into the matter as an industry regulator,” he wrote to Kihara.

He also requested him to get a response from CBK. Mr Keter announced to the AG that GDC would terminate the contract altogether on criminal culpability grounds.

Seized of this, the AG office wrote to the CBK on October 19 with a five page letter copied to Keter and his Treasury counterpart Ukur Yatani, reiterating the history of the dispute and insisting on CBK intervention. “The CS, Energy, requests that before recovery proceedings are instituted against Stanbic Bank, the Central Bank should weigh into this matter as industry regulator, particularly on the issue as to whether Stanbic Bank could cancel the Advance Payment Guarantee on instructions of the contractor, without reference to GDC who were beneficiaries,” he wrote.

Earlier this year, the bank through its Senior Manager, Marketing and Communications Willis Angira told the Sunday Standard that it was committed to honour its obligations entered “whilst operating within agreed terms.”

“There are ongoing discussions between the parties involved aimed at resolving the same. The Bank is committed to supporting the parties in this resolution.”

In February 21, Stanbic Bank CEO Charles Mudiwa wrote to Eng Nchoe acknowledging the request to pay. “As we have previously stated, we are considering your previous demands made to the bank. In the meantime, we kindly request you to with-hold any further action to allow for exhaustion of ongoing discussions.”

Earlier that month, GDC had received a nod from the AG to appoint an advocate to sue the bank. This is one of few instances where the taxpayer has not lost money and the project can now take off.