Kenya owes another Sh2.5 B to Italian firm

Water Cabinet Secretary Simon Chelugui when internal Cabinet Secretary Fred Matiangi summoned the Cabinet Secretaries to office at Harambee House,Nairobi. [Elvis Ogina.Standard]

Treasury must pay Italian contractor Sh2.5 billion before it can resume work at Itare Dam in Nakuru County.

Addressing a press conference yesterday, Water and Sanitation Cabinet Secretary Simon Chelugui said this was the cheapest option, and would involve asking the Italian firm, CMC di Ravenna, to subcontract the remaining works at the dam.

He said terminating the contract would be costlier, admitting that it was heavily tilted in favour of the Italian firm.

“Even if we were to terminate the contract now we will still need to pay the contractor Sh2.5 billion,” said the CS, insisting that the contractor has already done more work than what has so far been paid for.

Kicking the firm out would leave the taxpayer to settle the remaining project cost, amid contradictions on exactly how much work has been done on the Sh28.9 billion contract.

Already, Sh11.5 billion has been paid to the contractor in advance installments and part-payments for work done.

Site engineers

Site engineers have indicated that the completed work is less than 10 per cent. But the Directorate of Criminal Investigations (DCI) says that inspection on the ground indicates that only between five and seven per cent of the work is done.

The Water ministry insists that the project is 43 per cent done, while the Rift Valley Water Services Board (RVWSB) put it at 30 per cent.

It is the 43 per cent completion claim by the Water ministry, worth Sh13.6 billion, which would guarantee CMC di Ravenna an additional Sh2.5 billion even without returning to the project suspended in December last year.

The Water ministry has defended the higher project completion claims, suggesting that all other estimations did not take into consideration the preparatory phases that include acquisition of machinery.

Computing the amount of work done is often a rigorous math which is computed by the employers’ site engineers – some of whom disagreed with the 30 per cent claimed by RVWSB, and the ministry’s 43 per cent.

In August last year, a whistle blower accused the government of fast-tracking payments to the contractor, disregarding concerns that the cash might be diverted elsewhere.

Terminating the contract would still attract more costs given that the contractor is likely to petition for loss of anticipated profits, given that the project timelines have not run out.

Terminating contract

“They may succeed in getting judgement against us for terminating the project,” said Chelugui.

Antagonising the contractor might completely stall the project given that CMC di Ravenna holds the key to unlocking the remaining funds, worth nearly Sh20 billion, because the financing aspect is part of the contract.

Italian bank Intesa San Paolo, the leader in the consortium of lenders, only came on board on condition that CMC di Ravenna would execute the project which is intended to serve about a million people.

The contract encompasses engineering, procurement, construction and financing aspects, making the lender part of the winning bid.

Chelugui said the contractor’s step to file for insolvency protection left Kenya with limited options, including begging the firm to subcontract the remainder of the works.

It was, however, not automatic that the project lender will agree with the new arrangement and pay the sub-contractors that can push the project costs beyond initial projections and budgets.

In the worst case scenario, Kenyans could be left with the white elephant in the form of an incomplete dam, which no other lender would be willing to finance.

Criminal investigations into CMC di Ravenna’s Sh63 billion dam projects in Elgeyo Marakwet only exacerbates woes for Itare Dam and the Kenyan taxpayer.