National Treasury Cabinet Secretary Henry Rotich paid Sh11.1 billion as the insurance premium for a Sh57 billion-loan to build two dams in Elgeyo Marakwet.
The funds, which are at the heart of an active criminal investigation, were paid to an Italian Government-owned insurer, Service Assicurativi Del Comercio Estero (SACE).
The Directorate of Criminal Investigations has picked out the payment as a subject of interrogation but has yet to confirm whether the insurance cost was exaggerated given Mr Rotich’s explanation.
Typically, such insurance arrangements are supposed to guarantee that the loan would be settled in case the borrower is unable to repay – including in cases of retrenchment or death of individuals.
But considering that the borrower, in this case, is a government and the loan is guaranteed by the State and people of Kenya, the risk of default is minimal.
“…this is a fee paid to SACE (Italian Government agency) as an insurance policy covering 100 per cent of the principal and interest against any potential financial risks to cushion the lenders. This was needed to make the facility concessional with below-market interest rates and longer tenure,” Rotich said.
A breakdown of the insurance premiums paid to SACE showed the price for the Arror Multipurpose Dam Project was Sh6.1 billion while another Sh5 billion was paid against Kimwarer Multipurpose Dam.
Rotich said his ministry was not involved after the process of project identification, prioritisation and procurement were completed by the line ministry and the implementing agency, Kerio Valley Development Authority.
“Our responsibility was to review and negotiate the terms and conditions of the financing offer for Arror and Kimwarer multipurpose projects. After rounds of negotiations, the facility proposal met our borrowing policy threshold,” he said.
Rotich also acknowledged that he released Sh7.8 billion to KVDA for onward transmission to CMC di Ravenna, the contractor, as an advance payment to help kick-start the project.
Advance payments of Sh4.3 billion were paid on December 22, 2017, for Arror (15 per cent of the Sh28.5 billion contract amount) and Sh3.5 billion on November 6, 2018 for Kimwarer, whose contract was worth Sh23.1 billion.
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